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BPCL Privatisation – Good or Bad?

Privatisation of Bharat Petroleum Corporation Limited

 

INTRODUCTION

On 17th May 2020, Nirmala Sitharaman announced that government is going to privatise all the PSUs in the non-strategic sector and some of PSUs in the strategic sector to reduce wasteful administrative costs. The government is selling 23 PSUs and one of them is BPCL.

BPCL Privatisation

Bharat Petroleum Corporation Limited is India’s large oil and gas company incorporated in 1952. Headquarter of BPCL is in Mumbai. It has businesses in retail, LPG, Aviation, Gas, refinery and I&C sectors. It is one of the top profit-making PSUs.


QUOTES

“Privatization is a bitter pill but it is a pill that will cure” – Frederick Chiluba

“That’s the standard technique of privatization: defend, make sure things don’t work, people get angry, you hand it over to private capital” – Noam Chomsky


STATISTICS – What Numbers have to Say?

  • The government sold public assets totalling ₹3,47,439 crore from the financial year 1991-92 to 2017-18.
  • The gross sales turnover of BPCL was more than three trillion Indian rupees, at the end of the financial year 2020.
  • BPCL is India’s second-largest oil company with 12000-13000 employees.
  • According to Global Fortune 500 List, 2019. BPCL is 275th
  • The government posses 52.98% stakes in BPCL.

DESCRIPTION – Let’s take a Deep Dive

What are PSUs?

PSU(Public Sector Undertaking) is a company owned either by the Union Government or by the State Government. Majority of the shares are held by the government. PSUs were developed under the Industrial Policy Resolution of 1956 to meet the vision of Jawaharlal Nehru. Most of the PSUs were initially private companies which were afterwards acquired by the government. During Indira Gandhi’s government, 14 private banks were nationalised in 1969 and then in 1980, additional 6 banks were nationalised. Objectives behind the formation of PSUs were to accelerate economic growth and to create job opportunities.

But after the 1991 economic crisis, the government started to privatise poor-performing PSUs. Nowadays most of the PSUs have become a white elephant, making it difficult for the government to continue with them. The carelessness of management, too much political interference and threatening by employee union are basic reasons behind the loss in PSUs.

 

 

What is Privatisation?

Privatisation can be described as a process of transferring business or assets from the government to the private sector. The reason behind privatisation is to bring more efficiency in the company, to maximize profit and to generate revenue.

 

 

Pros of privatisation

  • In private companies, employees work with full efficiency as there job and salary depends on their performance. So private companies are more efficient than public companies.
  • Political interference is more in public companies, it creates obstacles in the company’s growth. In private companies, political interference is less.
  • With privatisation competition in the market also increases. So to sustain in market private companies provide best services at cheap prices to customers.
  • Customer care facility will improve.
  • By selling companies under public sector government can generate huge revenue.

 

 

Cons of privatisation

  • Privatisation may lead to a private monopoly which will exploit customers by increasing prices of the product.
  • The primary objective in some sectors like health, education should be providing the best services to the customers rather than making a profit. So it can be a bad idea to privatise such sectors as the main focus of a private company is to maximise profit.
  • Consumer benefit will be at danger due to profit-oriented mentality.
  • Social outrage will be there due to no reservation policy of private companies.

 

 

BPCL ( Bharat Petroleum Corporation Limited)

Initially, this company existed as ‘Burmah shell’. On 24 January 1976, under the act on nationalisation of oil companies, Burmah Shell was acquired by the government and named as Bharat Refineries Limited. Then in 1977, it was renamed to Bharat Petroleum Corporation Limited. In 2017, BPCL received Maharatna status for its consistent performance. Currently, it has 4 refineries named as Mumbai, Kochi, Bina, Numligarh refinery.

On 21 November 2019, the government permitted privatisation of BPCL. But it was not the first time, the government attempted to privatise the company in 2003 but failed to do so.

 

Now the main question is Why the government is selling profit giving company?

  • ‘The government should not sell profitable PSU, as profit gained by these companies can be used for public welfare’, it is correct but once PSU is in loss then selling it becomes difficult. Some times government gives money to other companies for buying such loss-making PSUs.
  • As the government of India is facing a huge fiscal deficit so to minimize it and to raise the necessary capital, ideally privatisation is the best solution.

CONCLUSION

Privatisation of loss-making PSU is beneficial but no one is interested in buying them. So ultimately privatisation of profit-making PSU is easy. Money gained by selling them can be used for public welfare. Also, privatisation will help PSUs to be efficient, as private management aims to gain maximum profit and to give the best service to the customers. It will also create competition in private companies which will lead to the adoption of new technologies by new management.

Overall, privatisation is a good decision but the government should keep transparency in the entire process of selling PSUs. Also, the government should impose some rules for the prevention of exploitation of customers by private companies.


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Author – Vaishnavi Guntoorkar


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