The Sooner We Get Rid of Public Sector, The Better It is for Indian Economy

“Wherever government has a presence you will find industry associated with it, directly or downstream, either dead or dying,” quipped BPL Telecom Chairman Rajeev Chandrashekar. Quite true but a reflection of the state of Public Sector in the economy. The Public sector has plummeted from being at the “commanding heights of economy being a “nobody’s sector”. It is no wonder that PEs (Public Enterprises are derisively referred to as NPEs—Non Performing Entities.

Jawaharlal Nehru, father of Economic Planning adopted the I Economy model, which would enable us to set up a socialist pattern society. Under this system strong Public Sector was created which expected to play a leading role in economic development of the country an infrastructural base, generate employment, remove regional and produce goods and services at subsidized rates.

However, the tragedy was that Nehru’s ministers were more politicians than rests making a virtue out of necessity. Thus, Indian economy was 1 accordingly since independence and Public Sector was created not under any economic theory or developmental necessity but with political objective. Hence “our brand of socialism” only resulted in transfer of wealth  from honest rich to dishonest rich and not from rich to poor as tm envisaged.

If only Nehru had an insight into the depressing level that our public utilities would sink to, he would not have proclaimed that Public sector is not for profit, but an avenue for employment to our teeming unemployed.

The performance of PSUs is not at par either with the investment or our expectations. What could be more shameful than the fact that even decades of development, Indian government has failed to provide Roti, Kapda aur Makaan to its citizens.

Today it appears that India as a whole is in the grip of international sahukars. Our internal public debt increased from Rs. 50,000 crores in 1980-81 to Rs.3, 00,000 crores in 1990-91 and our external debt increased from Rs. 60,000 crores to Rs. 2, 20,000 crores during the same period.

Similarly, the number of loss-making enterprise had increased from 83 in 1981-82 to 104 in 1991-92. Thus increasing the amount of loss of these enterprises from Rs. 848 crores to Rs. 3674 crores for the same period, also the gross margin before depreciation, interest and taxes of PSUs as a percentage of capital employed declined from 11.6% in 1991-92 to 11.4% in 1992-93.

(Despite an increase to 15.8% in 1995-96, it again registered a fall to 15.1% in 1996-97) Following the implementation of the recommendations of the high-powered committee setup to examine the structure of pay and allowances etc. of PSU employees, it is bound to go down still further.

Except for the petroleum sector, other PSUs are a drain on the exchequer absorbing resources, which are withdrawn from sectors where these are desperately needed to achieve other developmental goals. Apart from the fact, the present fiscal situation does not permit any more accumulation of unstable losses; there is also the fact that many loss-making PSUs do not serve the goal for which they were set up.

The caking undertakings are an obstacle to a healthy economy. How long shall we go on like this? Is it in public interest? Is it enterprising?

The reasons for low returns are not far to seek. Some of the important as can be enumerated thus:

(1) Catering to social objectives raises costs.

(2) Ratio of inventories to output, capital output and capital labour ratio tend to be higher in Public Sector.

(3) Real wages and the share of wages in net value added is high Public Sector.

(4) The cheap price policy followed by PSUs reduces the revenue.

(5) Institutional constraints.

(6) Lack of professional approach to organisation and manage of PEs.

(7) Excessive political interference and bureaucratisation.

(8) In addition to the aforesaid reasons, the Economic Survey (1991-92) identified some others factors for the dismal and unsatisfactory performance of PEs, such as:

(9) Huge cost and time overruns in project implementation including land acquisition and procurement of equipment.

(10) Inappropriate locational investment decisions including those on technology choice and product mix.

(11) Balancing of the capacities not ensured down the whole chain production and poor marketing arrangements.

(12) Uneconomical pricing/tariff rate signifying large cross subsidies.

(13) Inadequate allocation of resources, delay in filling up of top lei posts, tight regulations and procedure for investment and restriction- functional autonomy of enterprises.

(14) Nomination to PE Boards based on factors such as loyal- ruling party and proximity to ministers.

(15) Heavy dependence on foreign finance.

Many a time it has been witnessed that plethora of object (like model employer, promoter of regional development, undertaker of R&D and price stabiliser), mingled with coordination between ministries of government; restrictions on resource raising and hostile attitude of overprotected trade unions crippled the managers too professionally and efficiently. All these are assisted by the excessive interference from politicians and bureaucrats making a sad plight of PEs.

One must not forget to mention the achievements of public Enterprises. We owe red-tapism, buck-passing, nepotism license-pea raj, babudom, draconian laws (FERA, MRTP), high tax structure, high import tariff, etc. to PEs.

Change is the law of nature,” goes the saying. The institutions, which cannot change according to the changing times and needs will meet there natural death. The Public Sector, which was considered as an engine growth in the 50s, is now hindering economic growth.

Thus, the monopoly element that was long enshrined in Industrial Policy Resolution (IPR), in favour of PEs vanished after the new IPR has come into operation.

If we take any two industries and compare how two companies one PSU and the other private sector player, have performed in their respective fields, the inevitable conclusion is that PSUs do not have elements that could contribute to its success in the competitive world more and more bright men and women are moving out of the Public rich over a period of time makes organisation less and less We have only memories left of EC TVs.

Indian Airways has re real competitor in Jet Airways, but even so its market share in see sectors has been sharply eroded. Compare the Public Sector banks, which play hide-and-seek with the customers to the ever smiling faces, which welcome you at the private banks service points.

Even though monopoly until 2003, the opening up Internet Service Providers (ISPs) market led to an immediate crash in the Internet charges, benefiting the consumer. It is not without reason that MTNL is interpreted as “Mera telephone nahi Lagta”. The list could go on and on. Ultimately we have to concede that “The Customer Is the King” and raison detre for any enterprises. On this account PSUs have failed miserably.

Competition is an extraordinary efficient mechanism. It ensures that goods and services preferred by the customer are delivered at the least economic cost. It responds constantly to changes in customer’s preference, it does not require politicians/Civil Servants to make it work.

According to Peter Young of the Adam Smith Institute, “privatisation must be understood as a creative process-a process designed to shift areas of economic activity from politicised, non-commercial state sector to the consumer responsive profit making private sector.” Privatisation marks a change from dogmatism to pragmatism.

Several arguments can be advanced in favour of privatisation. The first and foremost is the maximum utilisation of installed capacity. Private entrepreneurs always try to utilise maximum production efficiency of machines. Consequently, the production will increase not only quantitatively but also qualitatively.

Secondly, the work style of public personnel is nothing but languid. The rise of mafia cult in the trade unionism has only contributed to the growth of anti-work culture. This is in sharp contrast to the strong work culture prevailing in the private sector.

Thirdly, there is a lack of motivation in the employees of the PSUs, where as the employees of private sector can look forward to bonus or other benefits based on the performance of the enterprise.

Fourthly, misutilisation of hr is a common problem in PSUs. But employees of the private sector would never dare to, as stern action would be taken against them.

Fifthly, due to the involvement of private interests, efficiency would be increased which would ultimately enhance productivity.

Sixthly, the functioning style of management of private sector is quite different from the management of public sector. The managers and other functionaries of the private sector even in tough and difficult situation try to bring efficiency in the working of the enterprise and produce results. But the PE management never bothers about these issues in circumstances, what to talk of difficult situations.

Seventhly, the ultimate objective of private sector is to reduce the cost of production and productivity. Such an approach is hardly discernible in state.

Eighthly, in the private sector, the persons occupying top pos professionally more qualified and experienced as compared to sector management. Ninthly, over the years PSUs have proved to be a white elephant for our economy.

Lastly, the entrepreneur not the bureaucrat is the ‘hero of the society’. This is well borne out resounding success of private organisations like Satyam, Relian Reddy’s Laboratories, Ranbaxy, Wipro. Thus, the government inst being in business, should concentrate on creating an environment in business prospers and entrepreneurial instincts are aroused. In this investors get maximum output and reward from the efforts.

The thrust for privatisation has also come from several official committees (like Abid Hussain Committee).

Privatisation, which has become a global wave, is becoming the option for many departments to make up for the inability of government to finance even the core sectors of infrastructure.

If India is to enter the 21st century with confidence and be respected in the comity of nations, then our economy has to be strong and vibrant. For this vision to be fulfilled we have to shed the deadwood and bid farewell to public sector.

Thus, with the rapid technological innovation, global flow of capital, intense competition, changing lifestyles of consumer, globalisation of business, the emergence of translational and more economy, we can anticipate a magical transformation of Indian economy in the new Millennium sans PSUs.