There is a glaring irrationality in the new Congress-led government's stand on privatisation of public sector companies. Its Common Minimum Programme (CMP) says that profit-making public sector companies will not be privatised and that only the chronically loss-making companies will either be sold off or shut down (after, of course, their workers have been suitably rehabilitated). Now, should a policy on privatisation have anything to do with profits or losses? Or should it reflect a government's belief in how businesses should be owned and managed?

The basic issue is whether the government should at all be involved in owning and managing businesses. The argument trotted out by proponents of the anti-privatisation lobby-and this does not only include the Left but politicians of all hues-is that the public sector has "social objectives" that could be jeopardised by handing over their control to private players. Further, goes the argument, if these companies are turning profits and earning dividends for the government, why should they be privatised?

On the face of it, both arguments have merit. The public sector was born in an era of Nehruvian socialism when a direly capital-constrained economy needed an impetus for industrial development and few save the government could provide it. Public sector units (PSUs) in power, oil, heavy industries and engineering generated employment and created the wherewithal for rest of the economy to grow. But it didn't take too long for "social objectives" to be undermined by opportunistic political interests. The instances of ministries interfering in every aspect of the functioning of public sector companies are too numerous for even the most naive to believe that they are truly allowed to run autonomously.

Then there's the profit angle. True, there are quite a few profit-making PSUs but do they operate in truly free markets? Nearly all of the nine profit-making crown jewels (or navaratnas)-specially earmarked by the CMP to be retained in the public sector-happen to be monopolies or oligopolies that operate in convenient cartels and indeed that is one major reason they are profitable. They may not remain so. In a competitive market, as these navaratnas lose their monopoly status, their profitability will be hit. Consider MTNL, the state-owned telecoms company with operations in Delhi and Mumbai, and the impact private telcos have had on its bottom-line. Could a similar impact on oil or power PSUs be ruled out in the not too distant future?

Taking a leaf out of the principles of venture capitalism, it may make more sense for a government to cash out of PSUs when they are profitable rather than wait for competition to erode their edge and, hence, market value. For instance, it is quite possible that if the erstwhile government-controlled carmaker Maruti Udyog had been privatised five years back instead of in 2003, the government may have got a much better price because back in 1999-2000, Maruti had to face far less competition in the market than it does now.

Besides, privatisation, where management control in PSUs is sold at a higher premium than mere sale of their shares in the capital markets, can help bring in much-needed funds to finance the CMP's declared intentions of generating rural employment, boosting agricultural productivity, health and education, all areas where the government's real priorities lie. Like it or not, last year the previous government garnered a tidy Rs 15,000 crore from privatising or disinvesting profit-making PSUs. For a government that is faced with an overall fiscal deficit (national and state-level combined) of 10 per cent, such funds can come in handy.

It is implicit in statements originating from the new government that taxing services, introducing a voluntary disclosure scheme for black money, and curbing government expenditure are expected to provide the resources for its articulated welfare activities. Only, the first two are unlikely to result in immediate tangible returns and the politics of coalition necessitates more government, not less. The adventitious fall-out of this government's stand on disinvestment is certain to hurt the private sector and salarymen, the only segment in this country that pays taxes punctiliously. That's a return to the dark ages of the 1950s, 60s, 70s, and 80s, when it was a sin to be rich.