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 sad reflection of the state of Public Sector in the economy. The Public Sector has plummeted from being at the “commanding heights of economy” to 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 Mixed Economy model, which would enable us to set up a socialist pattern of society. Under this system strong Public Sector was created which was expected to play a leading role in economic development of the country, build up an infrastructural base, generate employment, remove regional imbalance and produce goods and services at subsidized rates. However, the tragedy was that Nehru’s ministers were more politicians than economists making a virtue out of necessity. Thus, Indian economy was politicized 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 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 after five 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% in1991-92to 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 loss-making 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 causes can be enumerated thus:
- Catering to social objectives raises costs.
- Ratio of inventories to output, capital output and capital labour ratio tend to be higher in Public Sector.
- Real wages and the share of wages in net value added is higher in Public Sector.
- The cheap price policy followed by PSUs reduces the revenue.
- Institutional constraints.
- Lack of professional approach to organization and management of PEs.
- Excessive political interference and
- 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:
- Huge cost and time overruns in project implementation including land acquisition and procurement of equipment.
- Inappropriate local investment decisions including those on technology choice and product mix.
- Balancing of the capacities not ensured down the whole chain of production and poor marketing arrangements.
- Uneconomical pricing/tariff rate signifying large cross subsidies.
- Inadequate allocation of resources, delay in filling up of top level posts, tight regulations and procedure for investment and restrictions on functional autonomy of enterprises.
- Nomination to PE Boards based on factors such as loyalty tbf ruling party and proximity to ministers.
- Heavy dependence on foreign finance.
Many a time it has been witnessed that plethora of objectives (like model employer, promoter of regional development, undertaker of R&D and price stabilizer), mingled with incoordination between the ministries of government; restrictions on resource raising and hostile attitude of overprotected trade unions crippled the managers to ad professionally and efficiently. All these are assisted by the excessive interference from politicians and bureaucrats making a sad plight of the PEs.
One must not forget to mention the achievements of Public Enterprises. We owe red-tapism, buck-passing, nepotism, license-permit raj, babudom, draconian laws (FERA, MRTP), high tax structure, high import tariff, etc. to PEs.
Changes the law of nature,” goes the saying. The institutions which cannot change according to the changing times and needs will meet their 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 sector, which over a period of time makes organization less and less competitive. We have only memories left of EC TVs. Indian Airways has only one real competitor in Jet Airways, but even so its market share in many 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 VSNL has monopoly until2003, the opening up Internet Service Providers (ISPs) market led to an immediate crash in the Internet charges, benefiting the consumers. 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 enterprise. 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, “privatization must be understood as a creative process-a process designed to shift areas of economic activity from politicized, non-commercial state sector to the consumer responsive profit making private sector.” Privatization marks a change from dogmatism to pragmatism.
Several arguments can be advanced in favour of privatization. The first and foremost is the maximum utilization of installed capacity. Private entrepreneurs always try to utilize maximum production efficiency of the machines. Consequently, the production will increase not only quantitatively but also qualitatively. Secondly, the work style of public sector 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, whereas the employees of private sector can look forward to bonus or other benefits based on the performance of the enterprise. Fourthly, misutilization of funds 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 good results. But the PE management never bothers about these issues in normal circumstances, what to talk of difficult situations. Seventhly, the ultimate objective of private sector is to reduce the cost of production and boost productivity. Such an approach is hardly discernible in state sector. Eighthly, in the private sector, the persons occupying top posts are professionally more qualified and experienced as compared to public sector management. Ninthly, over the years PSLJs 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 by the resounding success of private organizations like Satyam, Reliance, Dr. Reddy’s Laboratories, Ranbaxy, Wipro. Thus, the government instead of being in business should concentrate on creating an environment in which business prospers and entrepreneurial instincts are aroused. In this way investors get maximum output and reward from the efforts.
The thrust for privatization has also come from several official committees (like Abid Hussain Committee).
Privatization, which has become a global wave is becoming the easy 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 fare well to public sector Thus, with the rapid technological innovation, global flow of capital, intense competition, changing lifestyles of consumer, globalization of business, the emergence of translational and more liberal economy, we can anticipate a magical transformation of Indian economy in the new Millennium sans PSUs. Amen!