Dr Ahluwalia, rightly, stressed the need for strict bankruptcy laws that penalise inefficient managements. It is precisely this aspect of inefficient management that gets glossed over in any discussion on privatisation.

Privatisation has to be seen against the overall unemployment scenario in the country. Creation of opportunities for gainful employment for additional numbers entering the labour market as well as clearance of unemployment backlog are major challenges.

Average annual growth rate of overall employment (in both organised and unorganised sectors) declined continuously from 2.75 per cent during 1972-78 to 1.77 per cent in 1983-88, but improved to 2.37 per cent in 1987-94.

In the organised sector, growth rate of employment came down from 1.4 per cent in 1991 to 0.46 per cent in 1998. Public sector employment growth of 1.52 per cent in 1991 contracted to 0.1 per cent in 1998. Private sector employment growth improved from 1.24 per cent in 1991 to 5.62 per cent in 1996, but fell to 1.72 per cent in 1998. With privatisation and the rise of knowledge-based sectors, labour redundancies will grow in the future.

Government's aim to create 10 million additional employment opportunities every year in a situation of rapidly declining old economy sectors looks ambitious.

Privatisation in India has got bogged down in politicisation. The original objective of raising revenues from the sale of public sector enterprises is far from being realised. The target of Rs 10, 000 crore from the disinvestment remains distant. Privatisation has yet to get off to a start. Since the inception of the Disinvestment Commission, only 74 per cent equity of Modern Foods has been sold to Hindustan Lever. The talk of selling stake in Maruti Udyog or other PSEs has got into the crossfire of inter-ministerial squabbles.

Only in 1991-92, the year disinvestment realisation of Rs 3,038 crore overshot the target Rs 2,500 crore. Barring 1994-95, achievement has fallen way behind the target in subsequent years till 1999-2000. The disinvestment department has yet to speed up privatisation process. A large number of public sector lame ducks clearly shows that the government does not possess enough managerial or administrative resources to run them efficiently.

So privatise them. Barring a few companies that can match global standards, most companies in India are characterised by what Sumantra Ghoshal, Gita Piramal and Chris Bartlett call "satisfactory underperformance", a situation of rising sales and profits that paper over the cracks until they burst into corporate crisis. The real question is: Is the Indian private sector well equipped to take on privatisation and run the privatised PSEs efficiently?

But tackling labour redundancy is a real challenge in a democratic set-up. As World Bank senior private sector development specialist Sunita Kikeri observes, "when state-owned enterprises preparing for privatisation have very high levels of redundant workers and when social safety nets and redundancy provisions in labour laws are inadequate or lacking, the political and social implications of lay-offs mean that the government should be involved in the design and finding of special programmes to deal with unemployment and social unrest."

The safety net consideration makes privatisation difficult. No firms or industries would like to take on entire labour from the PSEs. The assumption that the private sector is better equipped to judge the level and the kind of skills needed and that it can minimise costs, has proved risky. If private bidders have to take on redundant labour, the proceeds through privatisation become lower as the sale price is discounted accordingly. The entire rationale for privatisation then becomes suspect.

If the private sector takes to large scale downsizing, the ensuing social unrest can become serious and politically troublesome. Therefore, governments in many countries take to restructuring prior to privatisation to tone down labour opposition. Argentina and Brazil solved labour redundancies in railway companies through prior restructuring without unrest.

Governments take recourse to four main ways to tackle redundancies. Where labour legislation and unionisation (as in India) is quite strong, a well-structured severance and retirement benefits package can help in encouraging voluntary departures and minimise the risk of adverse selection.

The government also can devise a strategy where workers can be retrained and retained in labour market. But this strategy has proved less successful in developing countries such as India, Bangladesh and Brazil because of timing delays, weak institutional capacity and low education levels. Employee share schemes, whereby many governments reserve shares for employees in private firms, ranging from 3 per cent to 20 per cent, have proved financially beneficial for employees through capital appreciation and sense of participation in management. Workers have responded favourably whenever they have been informed properly about privatisation costs and benefits involved and various schemes and incentives in their favour.

Argentina and South Africa have successfully involved worker participation by educating them on benefits of privatisation. India ought to follow their examples.

SR Kasbekar