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Why privatising public assets is poor economics, impetus to greater wealth inequality -Prabhat Patnaik

-The Indian Express

The only difference between a fiscal deficit and selling public assets lies in the nature of the government paper that is handed to the private sector, but the macroeconomic consequences of a fiscal deficit on the economy are no different from those of selling public assets.

The government has adduced no reasons for the proposed privatisation of several public sector assets other than to generate resources for its spending. Let us see what such a fiscal strategy involves.

Nobody buys public sector assets by skimping on consumption. Nor does one buy such assets by skimping on investment: Current investment expenditure depends on decisions taken in the past and is more or less pre-determined. It is only investment decisions that are taken today for fructification tomorrow that may be scaled down by such a purchase; and if investment decisions taken today are scaled-down, then it is an authentic case of “crowding out” and such a strategy should be avoided anyway.

Selling public sector assets therefore does not “release” any resources from private use for government spending. The resources the government obtains by spending the sale proceeds of public assets are none other than the resources lying idle in the economy. Output that could have been produced by utilising idle capacity and unemployed labour, but is not produced because of lack of demand, now gets produced as demand gets generated by government spending financed by the sale of public assets. One can visualise the entire process as follows. The government borrows say Rs 100 from banks, uses it for spending, and then sells public assets worth Rs 100 to raise this money and return it to the banks, so that its net indebtedness does not go up.

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