What state-ownership has achieved in India, apart from inefficiency, sub-optimal performance and ineffectuality, is the protection of: petty political and ministerial interests, sub-standard bureaucratic managements with jobs for life (regardless of performance) that are placed in impossible situations by their political masters without any real control, and the power of PSU unions that have resisted all change and obstructed rather than enhanced job-creation in the long-term through extreme myopia in the short-term.
The history of post-independence India makes it clear that the state?s involvement in PSUs?through the misguided Nehruvian policy of capturing the ?commanding heights? followed by the even more misguided policy of entrenching a state-dominated financial system?has led to an egregious waste of resources. It resulted in the proverbial Indian socialist rate of growth of 0% per capita before reforms began in earnest. Sadly it has also contributed to the progressive erosion of the Indian state?s capacity to govern properly. A secondary function of government, legitimised by questionable Fabian economics of the mid-20th century, which most of our present generation of leaders were weaned on, has corrupted and vitiated the primary one.
To his credit, Rajiv Gandhi saw that the choices made by his ancestors had led India to a dead end. In India, of course, it is never acknowledged that anyone in power could possibly make the wrong decision or choice. The textbooks always attempt to rationalise such choices as the best ones in their circumstances and time. We need to break that absurd habit. Rajiv began changing that state of affairs in 1985. That was when he beguiled some of India?s best and brightest to re-migrate from Washington, DC to New Delhi. Surely it is in the interests of those who want to protect any Nehru-Gandhi legacy to continue on the path Rajiv paved to reform, rather than glorify the unjustifiable by lauding his forbears? woeful lack of economic wisdom.
The argument for getting the state out of business and returning its focus to strengthening governance (which has fallen by the wayside in India) is not an ideological one. If India were Singapore such arguments might not hold. One would be hard pressed to argue that Singapore Airlines or DBS should be privatised. They are run better than most of their private counterparts worldwide. But like it or not Singapore is a corporate state. That small island country is run as if it aspires to be the most efficient transnational conglomerate on earth. Standards of governance in Singapore are on a different planet. The likelihood of India emulating those standards in conscionable future, given the nature of its politics and the proclivities of its bureaucracy, is remote. So ideology is not the issue. Pragmatism is. India needs to deploy its resources as efficiently as possible. Right now it is not doing so. And to progress and grow at 9-10% it must.
The rearguard in UPA-2 realises that the reforms everyone talks about (we all have a different idea of what they should be) lead in one direction. They will reduce and change the role of an overbearing, intrusive and inefficient state in India?s economy and society. By doing so they will unleash more of India?s natural, congenital (at least in some states and ethnicities) entrepreneurial surplus. They will achieve greater clarity of purpose, provide more freedom for individuals to realise their capabilities and ambitions. In the public sector they will enable and empower the pursuit of clear objectives through resolute, decisive sustained action. The public and the poor will benefit more by the extended activities of a private sector encouraged to profit from the bottom of CK Prahalad?s pyramid; far more than being patronised, condescended to and often robbed by a state whose minions at the interface of poverty are brutally predatory and criminal.
Let?s face it. The Indian state has had 63 years to deal decisively with poverty. The garibi hatao slogan was in vogue in the 1970s. So was The Emergency. Yet what the state has actually done is aggravate, exacerbate and perpetuate poverty. It has certainly not alleviated it. Far too many politicians responsible for running the state in India have engorged and enriched themselves at the expense of the poor. Almost everyone in Indian politics has assets grossly disproportionate to known and declared sources of income despite laws to the contrary. In many instances their submissions to the Election Commission on their net worth are pure fiction posing as unbelievable fact. The exceptions could be counted on one?s fingers and toes. Their championing state intervention in the name of the poor is rank hypocrisy to ensure that their own private coffers never stop overflowing. For that reason if no other the legitimacy of state ownership of anything other than good governance needs to be looked at askance by all Indians.
Inevitably, the type of reforms that India needs will transform the role of the state from its current default setting of ?command-and-control? over every aspect of Indian life. Such reforms must transform and cure the multiple personality disorder that the psyche of the confused and overstretched Indian state so obviously suffers from.
It is not that the state and its apparatus are inherently malign or incompetent. Often, it is to the contrary. Some of the most capable people on earth are in the IAS. Many (but not all) managers of PSUs and PSU banks could hold their own in managing any equivalent enterprise anywhere. But those are exceptions drowned in an ocean of mediocrity enforced by public rules on recruitment and quotas. Unfortunately the system for which they work converts their inputs into some rather ridiculous outcomes.(To be concluded)
The author, an economist and a corporate finance expert, chaired a committee on financial reforms