IS PRIVAITIZATION IS IMPORTANT IN INDIA?

 ·         For any economy, privatization is important, as it creates jobs and builds a healthy competition in the market.

·         Privatizations works for maximizing profit by improving customer services and goods and services standard.

·         Privatisation can suggest several things, including migrating something from the public sector into the private sector.

·         Privatisation always helps in keeping the consumer needs uppermost, it helps the governments pay their debts, it helps in increasing long-term jobs and promotes competitive efficiency and open market economy.

Why is India privatized?

In 1991 the primary objectives of privatization in India were, Raise the revenue in the market because the fiscal crunch was becoming a real problem. Improve the profitability and efficiency of public enterprises.

 

Providing strong momentum to the inflow of FDI

• Privatisation aims at providing a strong base to the inflow of FDI.
• Increased inflow of FDI improves the financial strength of the economy.

 

Improving the efficiency of public sector undertaking (PSU’s)

• The efficiency of PSU’s was improved by giving them the autonomy to make decisions.
• Some companies were given a special category of Navratna and Mini-Ratna.

 

Post-independence India had adopted a very conservative economy that was practically shut to the outside world. But as time went by, Indian leaders and economists recognized the need to merge with the global economy. So in 1991, India went through some very major economic reforms.

Let us focus on one such aspect of the reforms – privatization in India.

 

What were the two main objectives of privatization?

 In 1991 the primary objectives of privatization in India were,

·         Raise the revenue in the market because the fiscal crunch was becoming a real problem

·         Improve the profitability and efficiency of public enterprises.

 

In 1991 India made some major policy changes in their economic ideologies. There were stagnation and slow growth in the economy.

To tackle these problems , Finance Minister Dr. Manmohan Singh introduced some major economic reforms. Now, we call it the liberalization of the Indian Economy and the LPG reforms.

Privatization has a very broad meaning in economics. Everything that ranges from the introduction of private capital to selling government-owned assets to transitioning to a private economy.

As the definition of privatization is so very diverse let us take a look at the three main features of privatization.

1.     Ownership Measures: The ownership of all public enterprises ultimately shifts to private owners. The denationalization can be complete or partial.

2.    Organizational Measures: This is where we limit the control of the state in public companies. Some methods include holding company structuring, leasing. restructuring of the enterprises etc.

3.    Operational Measures: Public organizations and companies were running into huge losses. So the efficiency of these companies was to be increased.

 

Conceptualization of Privatization in India

1.      Delegation: Here via a contract or franchise or lease or grant etc. the government keeps the ownership and the responsibility of an enterprise.

But the private company will handle the daily activities and deliver the product or service. The state will remain an active participant in this process.

2.   Divestment: The government will sell a majority stake of the enterprise to one or more private companies. It may keep some ownership but will be a minority stakeholder in the enterprise.

3.   Displacement: The first step here will be deregulation. This will allow private players to enter the market. And slowly and gradually the private company will displace the public enterprise.

Here the private sector will compete with public companies and ultimately outperform them, causing the public enterprise to be displaced.

4.     Disinvestment: Directly selling a portion or whole of a public enterprise to private parties.

Advantages of Privatization

·         Private companies always have a better incentive than public companies. The managers and officials of a private company have skin in the game, i.e. their income is related to the performance of the company. In public companies, such an incentive is not present. So privatization usually leads to higher efficiency in the company.

·         In a public company, there is a lot of political interference. This may dissuade the company from taking economically beneficial decisions. However, a private company will not let political factors affect their performance.

·         In public companies, at times the government can only think about the upcoming elections. So all their goals may be short-term in the process of trying to gain favours of the voting public. But a private company does not have such restrictions. They have long-term goals and ambitions and steer the company in the right direction.

·         Privatization will also increase competition in the market. Consequently, this has proved to be very beneficial to consumers. Healthy competitiveness in an economy will push efficiency and performances.

Ways of Privatisation:

Government companies are transformed into private companies in 2 ways,

Transfer of Ownership

• Government companies can be converted into private companies in two ways :
• By withdrawal of the government from ownership and management of public sector companies.
• By outright sale of public sector companies.

Disinvestment 

• Privatisation of the public sector undertakings by selling off part of the equity of PSUs to the private sector is known as disinvestment.
• The purpose of the sale is mainly to improve financial discipline and facilitate modernization.

 

However, there are six methods of Privatisation:

• The public sale of shares
• Public auction
• Public tender
• Direct negotiations
• Transfer of control of State or municipally controlled enterprises
• Lease with a right to purchase

What is privatisation example?

Example: Before 2012, In the state of Washington, before 2012, the liquor sales were controlled and operated by the government. The state-regulated when and how the liquor was sold and collected the revenue. However, in 2012, the government privatized liquor sales. After privatisation, private businesses could sell liquor to the general public.

What are the pros of privatisation?

The pros of privatisation are
1. Improved performance and customer experience.
2. Political does not interfere.
3. Short term outlook.
4. Encourage shareholders to invest because of return.
5. Increased competition.
6. The government will increase revenue from the sale.

What are the characteristics of privatisation?

The two characteristics of privatisation are,
1. It limits government participation in economic activities and safeguards the private sector.
2. It establishes economic democracy and allows private sectors to operate in economic activities freely.

What is the main aim of Privatisation?

The main aim of Privatisation is:
1. Providing strong momentum to the inflow of FDI
2. Improving the efficiency of public sector undertaking (PSU’s)

 

Disadvantages of privatisation

·         Natural monopoly. A natural monopoly occurs when the most efficient number of firms in an industry is one. ...

·         Public interest. ...

·         Government loses out on potential dividends. ...

·         Problem of regulating private monopolies. ...

·         Fragmentation of industries. ...

·         Short-termism of firms.

 

farm bill 2020: INDIA(The farm acts: All you need to know)

 WHAT IS FARM BILL?

The Indian farm reforms of 2020 refer to three agricultural bills passed by the Parliament of India on 27 September 2020. The bills collectively seek to provide farmers with multiple marketing channels and provide a legal framework for farmers to enter into pre-arranged contracts among other things.

The three laws are

1.      The Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act,

2.      The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, and

3.      the Essential Commodities (Amendment) Act,

 

which came into effect following the approval of President Ram Nath Kovind.

 

Farmers' Produce Trade and Commerce (Promotion and Facilitation) Act, 2020

This act allows farmers to engage in trade of their agricultural produce outside the physical markets notified under various state Agricultural Produce Marketing Committee laws (APMC acts). Also known as the ‘APMC Bypass Bill’, it will override all the state-level APMC acts.

·         Promotes the scope of trade areas of farmers produce from select areas to "any place of production, collection, aggregation".

·         Promotes electronic trading and e-commerce of scheduled farmers' produce, Direct an online trading of produce, establish such a platform includes companies, partnership firms or societies.

·         Allow farmers the freedom to trade anywhere outside state notified APMC market and this includes allowing trade at farm gates, warehouses, cold storage and so on.

·         prohibits state governments from levying any market fee, cess or levy on farmers, traders, and electronic trading platforms for trade of farmers’ produce conducted in an ‘outside trade area’.

Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Act, 2020

The acts seeks to provide farmers with a framework to engage in contract farming, where farmers can enter into a direct agreement with a buyer (before sowing season) to sell the produce to them at pre-determined prices.

·         provides a legal framework for farmers to enter into pre-arranged contracts with buyers including mention of pricing.

·         Provides for setting up farming agreements between farmers and sponsors. Any third parties involved in the transaction will have tobe explicity mentioned in agreement. Agreements can cover supply, quality, standard, price as well as farm service. These includes supply of seeds, feed, fodder, agro-chemicals, machinery and technologies and other farming inputs.

·         defines a dispute resolution mechanism, purchase price of farming produce, including the methods of detrming price, maybe added in agreement. In the case the price is subjected to variation, the agreement must include a garentee price tobe paid as well as clear reference for any additional amount of famner may receive like bonous or premium.

·         In case of seed production, sponsors are required to pay at least two-thirds of the agreed amount at the time of delivery, and the remaining amount to be paid after due certification within 30 days of date of delivery. Regarding all other cases, the entire amount must be paid at the time of delivery and a receipt slip must be issued with the details of the sale.

·         Produce generated under farming agreements are exempt from any state acts aimed at regulating the sale and purchase of farming produce, therefore leaving no room for states to impose MSPs on such produce. Such agreements also exempt the sponsor from any stock-limit obligations applicable under the Essential Commodities Act, 1955. Stock-limits are a method of preventing hoarding of agricultural produce.

·         There is no mention of MSP  minimum support price that buyers need to offer to farmers.

Essential Commodities (Amendment) Act, 2020

An amendment to the Essential Commodities Act, 1955, this act seeks to restrict the powers of the government with respect to production, supply, and distribution of certain key commodities.

·         removes foodstuff such as cereals, pulses, potato, onions, edible oilseeds and oils, from the list of essential commodities, removing stockholding limits on such items except under "extraordinary circumstances

·         requires that imposition of any stock limit on agricultural produce be based on price rise.

·         Stock limits on farming produce to be based on price rise in the market.  They may be imposed only if there is: (i) a 100 percent increase in retail price of horticultural produce, and (ii) a 50 percent increase in the retail price of non-perishable agricultural food items. The increase is to be calculated over the price prevailing during the preceding twelve months, or the average retail price over the last five years, whichever is lower.

·         The act aims at removing fears of private investors of regulatory influence in their business operations.

·         Gives freedom to produce, hold, move, distribute, and supply produce, leading to harnessing private sector/foreign direct investment in agricultural infrastructure.

GOV. AND FARMERS HAVE THEIR OWN PERSPECTIVE. WHO IS RIGHT?

·         The government said that the bills would transform the agriculture sector. It would also raise the farmers' income, the Centre said. Further the government had also promised double farmers' income by 2022 and the Centre said that the Bills will make the farmer independent of government controlled markets and fetch them a better price for their produce.

 The Bills propose to create a system in which the farmers and traders can sell their purchase outside the Mandis. Further it also encourage intra-state trade and this proposes to reduce the cost of transportation. Further the Bill formulates a framework on the agreements that enable farmers to engage with agri-business companies, retailers, exporters for service and sale of produce while giving the farmer access to modern technology. It also provides benefits for the small and marginal farmers with less than five hectares of land. The Bill also will remove items such as cereals and pulses form the list of essential commodities and attract FDI.

The farmers have been apprehensive about this Bill. They say that they are apprehensive about getting Minimum Support Price for their produce. They are also concerned about the upper hand of the agri-businesses and big retailers in negotiations.

 They feel this would put them at a disadvantage.They also say that the companies may dictate the price and the benefits for small farmers may reduce the engagement of sponsors with them.

 

FARM BILL BENEFITS

·        v  country's expectations and needs for agriculture.

v  The farmer will be attracted to relatively good crops, and his income will naturally increase if the farmer grows expensive crops, and he will also support agricultural growth.

v  "These bills would also help to export agriculture." Tomar said that small farmers are about 86 per cent. "When these farmers manage to know in advance the fixed price of their produce by some legislation they can do profit farming."

v  The Minimum Support Price (MSP) will not be impacted by these bills and this will help make farmers more advanced. "The MSP was, the MSP is, and in the future the MSP will continue."

v  Through these changes, farmers will directly link with the major traders and exporters, adding benefit to farming. "Those bills would bring revolutionary improvements to farmers' lives."

v  Through the bill, the Minister of Agriculture aims to provide a national structure for agricultural agreements that will protect and enable farmers to engage with agri-business companies, processors, wholesalers, exporters or major retailers.

v  That bill would bring independence to the agricultural sector.

v  These bills have no effect on the State APMC Act. "APMC will be in the state, but beyond its periphery, there will be inter-state trade, and farmers will be able to sell their goods from their field, home, and elsewhere after the law comes into being."

WHY FARMERS ARE PROTESTING?

Though 'commission agents' of the 'mandis' and states could lose 'commissions' and 'mandi fees' respectively (the main reasons for the current protests), farmers will get better prices through competition and cost-cutting on transportation.

Farmers unions in Punjab and Haryana say the recent law at the centre will dismantle the MSP system Over time big corporate houses will dictate terms and farmers will end up getting less for their crops, they argue. Farmers fear that with the virtual disbanding of the mandi system, they will not get an assured price for their crops and the “arthiyas” -- commission agents who also pitch in with loans for them -- will be out of business

HOW MSP AFFECTS FARMERS

MSP is the minimum price paid by the government when it procures any crop from the farmers. It is announced by the state-run Commission for Agricultural Costs and Prices (CACP) for more than 22 commodities on an annual basis, after calculating the cost of cultivation. Food Corporation of India (FCI) -- which is the main state-run grain procurement agency -- largely buys only paddy and wheat at these prices. The FCI then sells these foodgrains at highly subsidised prices to the poor and is thereafter compensated by the government for its losses.

 WHAT FARMERS DEMAND

They demand is the withdrawal of the three laws which deregulate the sale of their crops. The farmer unions could also settle for a legal assurance that the MSP system will continue, ideally through an amendment to the laws.They are also pressing for the withdrawal of the proposed Electricity (Amendment) Bill 2020, fearing it will lead to an end to subsidised electricity. Farmers say rules against stubble burning should also not apply to them.

 What is happening in the states where there are no government Mandis.

In Bihar, APMC (Agriculture Produce Marketing Committee) are not working.There, the farmers are getting prices lower than that of the announced minimum price by the government. A table that shows the statistics

 

This statistic clearly show that private market prices are 20-25%  below. In 2019, while gov announced rs 1815 as the MSP for farmers but farmers get only 1350 in private market. In 2018, when MSP for corn was 1700 per quintal, the farmers had got only 800 – 1050 in private market.

It is clear how things work in places where state markets are not active players.

 Due to the incompetence of the government that the state markets and APMCs are performing actievely. Both state and central gov are equally eesponsible for this, currently 6% of the farmers can sell product according the MSP. About 94% of others are still at the receving end of exploitations by private buyers. The low no of government markets, the inaccessibility of markets due to distance, the slo technical and monetary process have partly caused this crisis of farmers.

 The gov is trying to privitize the farming sector by hiding the limitation caused by the states.

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