Strategic Disinvestment Policy (SDP) 2021 – UPSC GS3

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Evolution of Industrial Policy
  • Nehruvian socialism: In 1954, Parliament adopted resolution to establish ‘Socialistic Pattern of Society’ where a larger share of production activity is brought under the public sector.
  • Hard socialism of Indira Gandhi: Went on to nationalise all major banks, entire insurance sector, all coal mines, and some of the larger enterprises in oil refining, steel, copper and textile sectors.
  • New Industrial Policy, 1991: Ended public sector monopoly in all sectors except railways and atomic energy. Yet, the practice of adding more public sector enterprises continued.
    • Financial investment in public enterprises progressively actually went up from Rs 2.3 trillion in 1998 to Rs 9.9 trillion in 2014 and touching Rs 16.4 trillion in 2019.
Significance of the Strategic Disinvestment Policy (SDP) 2021: As discussed under the Budget 2021-22 –
  • Seek to reverse the history of socialism: By putting two nationalised banks and an insurance company on the privatisation list, for the first time, it strikes at the heart of Indira Gandhi-era nationalisations.
  • The new approach: Proposes to privatise all CPSEs in all sectors other than four. Even in these SDP 2021 promises to limit the presence of CPSEs to a ‘bare minimum’, leading to future privatisation:
    1. Atomic energy, space and defence.
    2. Transport and telecommunications.
    3. Power, petroleum, coal and minerals.
    4. Banking, insurance and financial services.
  • Sector-wise exit plan:
    • If SDP were implemented in earnest, the government would exit the agricultural sector entirely.
    • In industry, it would quit manufacturing steel, chemicals and pharmaceuticals, engineering goods, transportation vehicles and equipment, industrial and consumer goods and textiles.
    • In services, the exit list would include trading and marketing, consultancy services of various kinds, and hotels and tourism.
Way forward
  • Disallow allocations of taxpayer money to CPSEs: Units needing financial resources for restructuring or other purposes must be required to raise them in the market at commercial terms.
    • The policy should be to hive off excess land and auction it for housing or other productive use.
  • Appoint a separate ministry of privatisation: As implementation of SDP 2021 is a complex long-term project and the Department of Investment and Public Asset Management (DIPAM) is not up to the task.
    • It has not been able to privatise even listed CPSEs in which the government stake is less than 60%.
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