View: Selling PSEs improves efficiency, frees government to do business it's meant to do
Partially motivated by efficiency considerations, but largely driven by fiscal squeeze, the government has made some progress in cutting its stake in PSEs since the launch of reforms in 1991.
There is broad agreement among economists that governments should only enter activities that serve a public purpose.
For instance, government manufacturing steel or running hotels serves no public purpose. Instead, this public money could be freed up for investments in infrastructure or education, with private firms filling the gap in the manufacture of steel and running of hotels. Indeed, not having the luxury of the government underwriting their losses and having to compete in the marketplace, private enterprises have agreater incentive to improve efficiency and cut costs.
Defence, education, health, infrastructure and poverty-reduction programmes fulfil this condition. With some exceptions, manufacturing and services do not.
For instance, government manufacturing steel or running hotels serves no public purpose. Instead, this public money could be freed up for investments in infrastructure or education, with private firms filling the gap in the manufacture of steel and running of hotels. Indeed, not having the luxury of the government underwriting their losses and having to compete in the marketplace, private enterprises have agreater incentive to improve efficiency and cut costs.