By Amitabha Bhattacharya
The evolution of our industrial policy covering the heady days of public sector enterprises and the high noon of privatisation witnessed many watershed moments. Unfortunately, much of the discourse, including the academic ones, have been partisan, coloured by ideological preferences. Consequently, debates have largely been informed by a clash of binaries—socialist vs capitalist, efficacy of public sector enterprises vis-à-vis that of private ones. Rhetoric have often submerged dispassionate analysis of facts.
The book under review is important since it seeks to steer clear of such inane demagoguery. The author who taught economics and commerce at Delhi University “outlines the successes, missed opportunities and key policy shifts simply and without the hyperbole that often accompanies any discussion of state-run institutions.” She has analysed, chronologically and prime minister-wise, the significant milestones of this journey, from Nehru’s time through Vajpayee’s tenure to the present day, identifying the key policy elements formulated during those phases. Based on lessons learnt, she suggests the way forward. Equally important, but perhaps less discussed in the public domain, is her assessment of the impact of privatisation on the financial performance of the divested companies based on research studies.
As the author shows, the inherent inefficiencies of the public sector, such as low productivity and high-cost structure “started surfacing towards the closing years of the Nehru era”. One can understand the demands of that time and Nehru’s ideological preference for socialism and antipathy towards the capitalist class.
Therefore, despite credible opposition by some, Nehru had his way, and together with PC Mahalanobis, laid the foundation of our public sector policy. He wanted the whole economy of the country to be controlled by the public sector, and had gone to the length of declaring in 1956, “it (the private sector) will play an important role, though gradually and ultimately it will fade away…” Indira Gandhi “had inherited her father’s dislike of industrialists”, and went on a nationalisation spree that suited her politically.
The result of such policies staring at our face, the main departure from this narrative came during Rajiv Gandhi’s time when he asked in 1987, “Can we afford socialism where the public sector, instead of generating wealth for the people, is robbing and sucking up the wealth of the people?” A senior minister remarked, “The causes of our dismal performance lie with the adoption of the wrong concept of socialism which equates over-employed, top-heavy, inefficient and unaccountable public sector with socialism.”
The seventh plan document highlighted the failure of the public sector to generate resources for the growth which was one of the reasons “why the government was required to undertake a large borrowing programme”. The problems of over-reliance on the public sector with huge budgetary support and the need for greater private sector participation were being increasingly recognised. Rajiv Gandhi’s role in seeking to reverse the course, based on national and international experience, has not received the appreciation it deserved, writes the author.
Privatisation was given a real push during Vajpayee’s regime, bringing the bold and daring initiative under supervision of one of the most respected ministers of modern India.
But the process was tumultuous when the executive was assailed in Parliament by opposing forces and major decisions were all challenged in courts of law. The author quotes Machiavelli very aptly, “There is nothing more difficult to take in hand… or more uncertain… than to take the lead in the introduction of a new order of things… The innovation has for enemies all those who have done well under the old conditions and lukewarm defenders in those who may do well under the new…”
Political compulsions of coalition government and other reasons prevented successor governments, though helmed by a renowned economic reformer, from pursuing this agenda. Gradually, it started losing political steam, and in the past ten years, the only major and significant privatisation has been that of Air India. The author analyses the inherent problems that beset the working of pubic sector as an ‘Instrumentality of the State’. In today’s competitive and inter-connected world, to remain in business requires adequate freedom to act and flexibility to take quick decisions.
Public sector enterprises have different and diffused goals to pursue, to follow government’s affirmative actions, and be under the constant oversight “of the 3Cs—CAG, CVC and CBI, as well as the fourth ‘C’—the courts”, not to talk of the administrative ministries that control and, often, micro-manage them. These problems inhibit the working of the government bureaucracy as well, preventing it from taking bold and bonafide decisions.
An important chapter of the book is devoted to assessing the impact of privatisation on the financial performance of divested companies. Those who have greater faith on studies other than those reported in the Economic Survey of India (2019-20) or such documents, can refer to the studies by Nandini Gupta, and by Ajay Chibber and Swati Gupta.
It is established that “privatisation is not associated with a decline in employment” and that “positive impact is magnified manifold when privatisation involves the transfer of management… on average, the gains from majority privatisations surpass those from partially privatised firms by 23 per cent in terms of sales, 21 per cent in terms of profits and 28 per cent in terms of employment…” The results also suggest, “that selling both partial and majority equity stakes is associated with significant improvements in the profitability and efficiency of government-owned firm.” Chibber and Swati Gupta find through their research, “…disinvestment has a very strong positive effect on firm efficiency.
Disinvestment improves not only labour productivity and efficiency but also improves overall efficiency.”
Political expediency decides things. There has been no serious study, like the ones mentioned above, about the economic costs of judicial interventions in such business matters, or of political apathy and bureaucratic indecision in pushing the growth-inducing agenda of the government. The book’s worth would have perhaps been further enhanced if critical decisions, by any organ of the state, that have impeded the nation’s development had been dispassionately analysed. Nevertheless, the book is an important addition to the literature on this crucial and contentious subject—informative, contextual, analytical and objective.
Amitabha Bhattacharya is a former IAS officer who has also worked in the private sector and with the UNDP
Book details:
Title: The Public Sector and Privatization in India
Author: Sheela Dubey
Publisher: Speaking Tiger Books
Number of pages: 272
Price: Rs 699
