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Finally, privatisation?

Does the dream of three decades finally have a chance of coming true?

Finally, privatisation?

Would you rather have the ownership of a business which makes losses and constantly needs fresh investments to stay afloat? Or one which other people own but you have a right to one-fifth of the revenue and a third of the profits?

As every business person realises (but not many talking heads do), that's the choice the government has when deciding about whether to privatise something. How so? Well, taking the commonest GST rate of 18 per cent, the government is a partner in every business in the country and that too a partner who is entitled to take away one-fifth of your revenue upfront, no questions asked. Then, if the business makes a profit, it's entitled to a further 30 per cent of that profit. Along the way, it's also entitled to somewhere between 10 to 35 per cent (roughly) of everything the business pays as salaries. And a lot else.

Think of an obvious example like Air India. Look back at the constant bleeding of money that Air India represents for the government. Compare that to Indigo or SpiceJet. In the latter, all that you have to do is to sit back and collect a fat share of every transaction and not worry about anything else. Why would you not want to convert a lose-lose deal like owning Air India to a win-win deal like just letting other people run airlines and just collect tax?

And yet, it has taken the Indian state decades to realise this urgently enough and act upon it. In fact, it has taken so long that a major chunk of my working life has gone by waiting for it! Three decades ago, in the first flush of liberalisation, the Narasimha Rao government had just announced that it would disinvest from public-sector companies and sell their shares to the public. I was fresh out of college and eager to become an investment analyst. I found everything I could about these companies, analysed them, wrote up reports and walked into the office of The Economic Times where the editor was kind enough to publish them as a series. Literally, my first piece of professional research was about the impending privatisation of the Indian public sector. At that point, had I known that this would stay in that 'impending' condition for over three decades, I might have got discouraged and found some other profession.

I read somewhere that the Union Budget 2021 was the first one in which the word 'privatisation' actually occurs. I don't know if that's true but after so many years, it's finally time to stop dancing around privatisation with euphemisms and obfuscations and say it out loud: government businesses must be sold and if they cannot be sold, then they must be shut down. The kind of value and opportunity that is lying locked and wasted in these businesses is large, and if it isn't, then the sooner that is realised the better.

For savers and investors, from the individual to large institutions, this will be an opportunity of a lifetime as businesses that have the space to be tremendous success will get an opportunity to do so. As these businesses are privatised, I hope that the government creates financial vehicles that allow individuals to participate in their success, the way it has tried to do with some special purpose ETFs in recent years. Ordinary Indians have paid through their noses in the form of tax to build the hidden value in these businesses, hopefully they will get an opportunity to realise some of that value too.

Of course, it's early days yet. As the farm laws show, deeply entrenched vested interests will go to tremendous lengths to sabotage any meaningful reform in this country but at this point, at least one can have some reasonable hope that the government will not cave in and accept the status quo.