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EDITORIAL ANALYSIS :Public assets sale and the concern of ‘fiduciary duty’

 Source: The Hindu

  • Prelims: Indian Economy,Disinvestment, electoral bonds
  • Mains GS Paper II and III: Fiscal policy, Monetary policy, disinvestment policy, electoral bonds etc.


  • The sale of the loss-making national carrier Air India to the Tata Group is a move that evoked a mixed response.
    • While some hailed it on the assumption that it would no longer spell a further loss to the exchequer
    • Its opponents felt that a national asset was being sold at a throwaway price without transparency by the Union government.
  • The seller, the Government of India, would retain a liability of ₹46,262 crore that was transferred to a special purpose vehicle, the Air India Asset Holding Ltd (AIAHL) — thereby passing on the liability to individual tax-payer citizens.






  • Disinvestment means sale or liquidation of assets by the government, usually Central and state public sector enterprises, projects, or other fixed assets.
  • The government undertakes disinvestment to reduce the fiscal burden on the exchequer, or to raise money for meeting specific needs, such as to bridge the revenue shortfall from other regular sources.
  • The Department of Investment and Public Asset Management (DIPAM) under the Ministry of Finance is the nodal department for the strategic stake sale in the Public Sector Undertakings (PSUs).
  • Strategic disinvestment: It is the transfer of the ownership and control of a public sector entity to some other entity (mostly to a private sector entity).
    • Unlike the simple disinvestment, strategic sale implies a kind of privatization.
  • Disinvestment Commission: The disinvestment commission defines strategic sale as the sale of a substantial portion of the Government shareholding of a central public sector enterprises (CPSE) of upto 50%, or such higher percentage as the competent authority may determine, along with transfer of management control.
  • Basic economic principle: Strategic disinvestment in India has been guided by the basic economic principle that the government should not be in the business to engage itself in manufacturing/producing goods and services in sectors where competitive markets have come of age.
    • The economic potential of such entities may be better discovered in the hands of the strategic investors due to various factors, e.g. infusion of capital, technology up-gradation and efficient management practices etc.


Need for Disinvestment Proceeds:

  • Pressure on the government to raise resources: There is a pressure on the government to raise resources to support the economic recovery and meet expectations of higher outlays for healthcare.
  • Increase in public spending: The increase in public spending in the upcoming Budget will have to be financed to a large extent by garnering disinvestment proceeds and monetising assets.
  • Eliminate government’s involvement in non-strategic areas: To eliminate the need for the government’s involvement in non-strategic areas.


Asset sale differences-Private vs Public:

  • Independent checks vs formal approvals: In a private asset sale, there are independent checks and balances, such as regulatory approvals, and the consent of the secured creditors (mostly banks) who will give their consent to park the liability only when they are satisfied that the promoters or the shareholders of the private enterprise would be able to satisfy the liabilities either from the proceeds of the sale or otherwise.
    • In a typical asset sale by the Government, these approvals are a mere formality.
  • Restriction for due diligence for PSBs: When the debt is assumed by the sovereign government, no banks that are directly or indirectly controlled by the government can conduct due diligence independently on the nature of the sale and report fairly on whether the proceeds of sale are sufficient to satisfy the debt because the government has given an undertaking to repay the debt or the government may even force banks into a settlement with lesser repayment or even a write-off.
    • Thus, it is citizens who will end up repaying the debts of Air India.
  • Doctrine of public trust: It is prudent to extend the doctrine of ‘public trust’ to the management of public sector enterprises by the government. There is fiduciary duty cast upon the government to act fairly and in a transparent manner while dealing in public assets.
    • Unlike a private asset sale, a government selling public assets and assuming the liabilities without proper planning will impose an enormous debt burden on citizens.


Electoral bonds:

  • These bonds are issued in multiples of Rs. 1,000, Rs. 10,000, Rs. 1 lakh, Rs. 10 lakh and Rs. 1 crore without any maximum limit.
  • State Bank of India is authorized to issue and encash these bonds, which are valid for fifteen days from the date of issuance.
  • These bonds are only redeemable in the designated account of a registered political party.
  • The bonds are available for purchase by any citizen of India for a period of ten days each in the months of January, April, July and October as may be specified by the Central Government.
  • A person being an individual can buy bonds, either singly or jointly with other individuals.
  • The donor’s name is not mentioned on the bond.
  • Donors who contribute less than Rs. 20,000 to political parties through purchase of electoral bonds need not provide their identity details such as PAN, etc.
  • The central idea behind the electoral bonds scheme was to bring about transparency in electoral funding in India.
  • The government had described the scheme as an “electoral reform” in a country moving towards a “cashless-digital economy”.


Benefits of electoral bonds:




Issues with electoral bonds:



Electoral bonds and Disinvestment:

  • Mistrust of such asset sales: The anonymous electoral bonds scheme which taps corporate funding to help any political party and where the details are known only to the ruling party, which could fuel mistrust of such asset sales.
  • Right to Information filing by the Association for Democratic Reforms: It showed that with the State Bank of India as the sole authorized dealer of electoral bonds, out of ₹3,429 crore of the total value of electoral bonds generated by the bank (FY19-20), the ruling party at the Center alone devoured a whopping ₹2,606 crore, or 76% of the total bonds issued so far.
    • This is also the period which saw instances of some major privatization of public sector enterprises.
  • Chinese firm to construct an underground rail: The recent award of a contract worth ₹1,126 crore to a Chinese firm (Shanghai Tunnel Engineering Co. Ltd.) to construct an underground rail stretch in Delhi and a contract worth ₹170 crore to another Chinese firm, Taizhong Hong Kong International Ltd., for the supply of wheels to Vande Bharat trains.


Fiduciary Duty:

●    A fiduciary duty is the legal responsibility to act solely in the best interest of another party. ‘Fiduciary’ means trust, and a person with a fiduciary duty has a legal obligation to maintain that trust.

●    It includes duties of undivided loyalty, due diligence and reasonable care, full disclosure of any conflicts of interest, and confidentiality.


●    Civil servants have a fiduciary duty with the people of India to adhere to the constitutional values.

●    The trustees of a mutual fund have a fiduciary duty to protect and further the interests of investors.


Way Forward

  • Crisis of legitimacy: The privatization of loss-making public sector enterprises may prevent the state from incurring further losses. However, unless the sale proceeds are substantial, genuine and transparent, a crisis of legitimacy may arise.
  • Recognising the role of States: It is vital to recognise the role of States in establishing a public asset such as Air India, They have actively participated in the growth of the airline in the form of land and other infrastructure to its offices.
    • States were not consulted in the whole process which is a breach of the spirit of ‘cooperative federalism’.
  • India is a Union of States: According to Article 1 of the Constitution, India is a Union of States, i.eThe idea of India as a Union lies with the States, which are the owners of land and responsible for the maintenance of other infrastructure.
    • Hence, any unilateral sale of assets by the Union without consulting States would only deepen the mistrust between the Union and the States.
  • Compromises on the social obligation: In a mixed economy, private participation is encouraged in areas where the government finds it difficult to perform, without making compromises on the social obligation of the state which is as important as a commercial viability.
    • The role Air India played in the repatriation of Indians stranded abroad during the COVID-19 pandemic, its evacuation flights during wars and connecting remote areas to the mainland are some examples of social intervention that have to be kept in mind



Examine the development of airports in India through joint ventures under Public – private Partnership (PPP) model. What are the challenges faced by the authorities in this regard?(UPSC 2017)

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