When late Dattopant Thengadiji, the founder of Bharatiya Mazdoor Sangh was asked the question, what would be your preference for India between private sector and public sector? He answered by quoting the famous words of the Communist leader Deng Xiao Ping, the former Chinese premier. Deng famously said:”It doesn’t matter whether a cat is black or white so long as it catches mice.” Whatever is appropriate to different sectors of the economy is to be adopted. Thengadi ji did not subscribe to the communist view of nationalising all the private sector nor the capitalist position to privatise all PSUs. Both Private sector as well as public sector have their own important role to play in National development. The problem arises when one sector is thoughtlessly converted to another on a fine morning by compulsion.
The policy advisors in Government is confused about the role division between private and public sectors. We need to define the role of public and private sectors. We need private sector, but it is not to be created by converting all PSUs. We needs public sector as well, but should not think of nationalising all the private sector into PSUs. The objection is unbridled privatisation or nationalisation of the existing sectors without taking care of the stakeholders. Both can be done by bringing policy initiatives into national debate, consultation with stakeholders considering the impact on various facets of economy. Our policymakers do not show confidence to do the same, for which the nation has to bear the cost. Economics has become a matter of faith and doctrines drive the policy initiatives.
The current craze for unbridled privatisation as a panacea is based on wrong assumptions on PSUs. Privatisation, is an important constituent of the triple faces of modern capitalism i.e. liberalisation, privatisation and globalisation, in short called as LPG. Prophets of privatisation advise the government that the solution for all economic issues is privatization. For railway reforms, the dictum was “corporatize and privatise”. Even for bureaucratic reforms, the remedy prescribed was “privatise”. Thus nine private sector individuals were appointed as joint secretaries. We need not wonder if supermarket managers are appointed as secretaries in important ministries! Even the modern prophet of capitalism, Paul Krugman had to question this in his Harvard University article titled “A Country is not a Company.” The question is, is privatisation capable of addressing India’s economic issues?
Lessons of Global Financial Crisis
Alan Greenspan who was the Chair of Federal Reserve of US for pretty a long period became popular for his slogan “Market is divine”. He answered to everyone that market is capable of taking care of any issue it faces. But when the global financial crisis destroyed US economy in 2008, he was summoned for a hearing in Capitol Hill by the chairman of the House of Representatives. They asked what is happening in America. To their queries the only answer he could give was: “I made a mistake.” He did not answer to the question about what price America has to pay for his mistakes.The causes that led to Global financial crisis that spread from Wall-Street to all streets is always a lesson to everyone on the inherent flaws in the capitalist system, including privatisation. Obama administration that took charge immediately after the crisis started initiating nationalisation, stopping banking reforms and mergers, controlling markets and share markets, and doing everything opposite to what capitalism was saying. But the unfortunate fact is that, the causes that led to the crisis and the proponents of such failed ideas are being imported to India in the name of reforms. We not only imported foreign ideas, but imported prophets of failed capitalism as well to India to advise the Government on economic reforms. Privatisation needs to be x-rayed in the context of the interest of national economy, industry and the employees in the sector which are the different important facets of economy.
PSUs are Service Oriented
In 1944, the Bombay plan proposed by eight leading Indian industrialists envisaged an economic management with substantially interventionist state and a huge public sector. Sectors which are to serve the needs of the people, strategic sectors and industries that require heavy investment were set apart to public sector. Thus India had a large service-oriented PSU sector that really served the people. People need uninterrupted availability of products at affordable price. PSUs have an inherent price control motive. Profit motivated private players will tend to restrict supply to increase demand and price. Whether PSUs would make profit was immaterial and that they serves the national interest was important. Thus the role of the public sector and private sectors were very clear. Many committees also repeatedly called for keeping such sectors under Government hand. Chakravarty Committee and Khusro Committee on role PSU banks etc. has clearly mandated that the objective as service to the people. Hence Banks were asked to compulsorily spend 40% towards rural development in the name of “priority sector.” But privatisation of banking system has brought down it to 10%. Even US and other capitalist countries have kept important sectors like oil and fuel under Government as strategic sectors.
CPSEs- a Profit-making Sector
If you want to kill a good dog, brand it a mad dog, then it will be easy. The pro-privatisation lobby campaigns against all PSUs accusing as inefficient. When all other revenue creating mechanism of theGovernment fail in the hands of our “fiscal experts”, they start accusing PSUs as loss-making and thus a liability to the public exchequer.
Today, on the whole the public sector is profitable. We have Maharatnas in CPSEs, but seldom have we found them in the private sector. The fallacy of the wide propaganda we often hear about PSUs as a national liability is exposed in the Public Enterprises Survey 2018-19 which says out of the 249 CPSEs operational, 179 is profitable and only 70 is loss-making. The top 10 loss-making PSUs are responsible for 94.04 per cent of the total losses and the remaining 60 companies make less than 6% of the total loss. Public Enterprises Survey-2018-19 tabled in Parliament says: “Total gross revenue from operation of all CPSEs during 2018-19 stood at Rs 25,43,370 crore, compared with Rs 21,54,774 crore in the previous year, showing a growth of 18.03 per cent.”Statistics reveal that the jobs created by Government’s PSUs is more than that by the private sector companies. Hence the Government is killing the duck that lays golden egg.
A leading stock market expert in MumbaiRamesh Damani is critical of the performance of private sector citing Dewan Housing and Manpasands. He praises PSUs and mentions “Bharat Electronics as a 200 bagger and Container Corporation as a favourite for investors”. On the other hand it is interesting to note that many of the heroes of Forbes magazine are huge debtors. India’s big telecom competitors like Jio, Airtel and Idea have debts of over lakhs of crores. Whereas the public sector BSNL debt is the lowest in the telecom industry, Rs.15000 crores. Public Sector Banks bleed because of the NPAs created by the private sector. Vijay Mallyas have emerged not from PSUs. Coal sector is highly profitable. Coal India has more than doubled its profits during 2018-19 after contributing huge tax revenue and dividends in spite of efforts to place it in death row.
The real story of Loss making
Among the ten top Loss-making Companies in India there are only two PSUs Air India and BSNL ranking sixth and seventh. All others are private companies. Private Airline industry is failing. Comparatively smaller Jet Airways has more loss than the titan Air India. Airtel, Reliance and Vodafone Idea come immediately next to the BSNL whose large infrastructure and number of employees is of no comparison for the three. It is interesting to note that the State Trading Corporation of India, MSTC and Chennai Petroleum Corporation were profit-making CPSEs in the previous year, but now in the top ten loss-making. That shows something suddenly was wrong somewhere, which is to be studied.
Further, whenever private industries fail, public sector comes forward to take up the burden on their shoulders. When Amrapali builders could not deliver flats to its customers, Supreme Court directed the flat to be completed by a Public sector NBCC. When Reliance failed to run Delhi metro at the rate of Rs.150, DMRC took it and ran profitably by Rs.60 when there was heavy rush. Profitable air routes and workshops of Air India were sold by UPA which later fell into losses. The captive Coal blocks in the hands of private sector also saw a production decrease and had to depend on Coal India, a PSU for coal supply. The share of production of captive coal industry decreased significantly from 8% in 2010 to 5% in 2018. By 2014, nearly 218 captive coal blocks were allocated, but only 42 could start production. So the game of allocation, deallocation and reallocation is going on at the national cost. In the meanwhile Supreme Court also cancelled coal allocation on its illegality.In 2011 when notorious Vijay Mallya’s Kingfisher airlines met with loss, the then Prime Minister Dr Manmohan Singh immediately extended Government’s help to him. Thus our economic reforms are characterised by the strange phenomenon- nationalisation of losses and privatisation of profits.
The Strong Privatisation Lobby
There were several lopsided Policies to finish PSUs that include Privatisation, Disinvestment, Divestment, Strategic Sale of CPSUs, Corporatisation, FDI, Merger of Banks and Insurance companies etc. Corporatisation is a step towards privatisation and privatisation a step towards foreignisation of our Industry. Proposals of corporatisation of Railways, Defence Production Units, Postal Life Insurance etc. is in this direction.
Previously during the initial days, the PSU sellers dreamt of selling loss-making PSUs. But very late they realised that no sensible party will be ready to purchase loss-making PSUs. Later the trend turned to hot sale of profit-making PSUs. Now the precious jewels of India, the Maharatnas are for sale. Maharatna BPCL, Coal India Ltd. are the victims. None came to buy air India while it was running in loss. Then the Government somehow managed it to make profits and again put to sale expecting a hot sale. These are the strange ideas emerging from our policy advisors.
Privatisation of coal benefits purchasing traders, create wasteful mining destroying the sources. But trade unions are fighting against opening up for commercial mining.
Crisis of Revenue Generation
Government is in dire need of funds. The easiest way found your “experts” is to sell PSUs which are the national wealth created by our ancestors. Capital spending is not sound economics. India’s fiscal deficit and revenue generation needs a relook. Government’s expenditure on various facets necessitates massive revenue generations. HenceGovernment has to rethink seriously about various other means of revenue generation. Control huge spending towards loss-making private industries, spending on unnecessary corporate concessions, encourage real wealth creators.
Niti Ayog is given the responsibility of policy formulations on managing our economy. The main job of Niti Ayog is termed as “Strategic Sale” which plainly means the sale of national wealth or assets. But their policy advisors are dearth of any novel ideas. Instead of probing novel ideas the only idea left for our economic experts is to look at sale of PSUs as a desperate source of revenue.
Throw Away Price
Sale of PSUs at throwaway price is a celebration for people like the real estate mafia. The infamous example is the sale of Centaur Airport Hotel, a PSU in Mumbai Juhu beach. It was sold for a paltry amount of 83 crores which was resold for 115 crores within four months. CAG’s report also confirmed the loss to revenue exchequer. Air India has 2500 slots worth 75 million dollars in different international airports which were procured by decade long bilateral talks. In 30 countries it has landing rights. It is now open for sale. Maharatna BPCL carrying 8 lakh crore worth properties in different countries was put to sale at a throwaway price of Rs 55000 crores for 53% of the total share value.
At the time when the PSUs were established, it was located at an abandoned area. Later due to its activity, thousands of workers and family settling around, it slowly develops a township and the current land value will be immense. Land mafia is trying best because of the real estate value of the large area of land the PSUs holds.
Height of Mismanagement
PSUs are fortunate to have a large army of dedicated employees who are ready to give their lives for their industry. But PSUs are grossly mismanaged in India. Those who have no experience in running a business or running a Company or idea about the sector are occupying apex positions. It is very common that bureaucrats are transferred to head the PSUs as punishment by the political bosses. In Kerala, the posting of senior-most DGP Sri Jacob Thomas who fought legal and other battle against State government as MD of Kerala Steel & Metal Industries Corporation is a recent example.
Let us examine how mismanagement and lack of vision affects our PSUs. Hindustan Photo films Manufacturing Ltd,a PSU producing Photo films is consistently in the top 10 list of loss-making CPSEs.It did not understand that photo films has become a dinosaur that faced extinction when the entire world turned to digital photography. The company did not diversify to other areas and hence in crisis today. Diversification is a common method adopted in modern business management. Hence many PSUs needs diversification instead of killing it in the craze for private capital. Trade unions say that Coal India, a Maharatna has the capacity to meet the shortage of coal, produce more quantity and negative the imports if properly managed. Privatization as a solution for the Government’s inefficiency is bad. That will be like jumping from the frying pan to fire.
The volume of mismanagement and lack of vision is displayed in the causes presented in LokSabha by the Government: “Some common problems faced by loss-making CPSEs include obsolete plants and machinery, heavy interest burden, corruption, resource crunch, low capacity utilization, low productivity, surplus manpower, high input cost, non-remunerative prices etc.”
Public sector telecom industry and BSNL were profitable till 2009. How did it then fall into the top ten loss making companies in the country? Why other private telecom companies were given lakhs of crores of rupees by Banks with meagre security? Why BSNL discriminated as banks were not approached for loan for modernisation in spite of large property it holds as security? The route towards compelled privatisation is slow killing.BSNL has the largest network, properties, establishments and infrastructure. Still the advisors asked Government to shower lakhs of crores of Bank loan to private telecom companies, and to refuse to pay to BSNL which has the lowest Bank debt. Modernisation of BSNL and MTNL and their service to people were forcibly stopped so that consumers will be dissatisfied. Denying network upgradation and 4 G spectrum to BSNL is already controversial. Thus there is no quality development or upgradation in PSUs. There is a concerted effort to finish PSUs to clear the way for privatisation.
Nowadays the new trend in PSUs is that CEOs are posted with the only mission to facilitate privatisation and slow killing of the institution. Many CEOs have started openly saying that their mission is to privatise the enterprise and not to take it to excellence. Those who have succeeded in the endeavour are being transferred to enterprises waiting in the queue for privatisation.
“Professionalise”- The Golden Mantra for PSUs
In February 2014 the then PM candidate Narendra Modi while addressing a gathering of chartered accounts and finance professionals gave the golden mantra for all issues related to PSUs–“Professionalise”. He explained his Gujarat experience:“It is said PSUs (public sector undertakings) are born to die— either get closed or get sold. We thought differently and professionalised our institutions.” This mantra is relevant even today.
A major solution to prevent mismanagement by failed bureaucrats being deployed to PSUs, is to create a separate all India business management cadre akin to IAS cadre for PSUs to address mismanagement.
Creation of Below Quality Jobs
The impact of privatisation on employees is horrible. The public sector creates more employment. Public sector employees are permanent, skilled, have decent pay as well as good working conditions and have a high status in society. Once privatisation starts, the entire sector becomes a hub of casual, contract, as well as low paid and below quality jobs. The employees who opted VRS and left BSNL and MTNL were nearly one lakh, one of the highest in history. All of them are decently paid employees. It means one lakh decent jobs are finished and it will be later replaced by less number of low quality, low paid, casual jobs forced to work in inhuman conditions. India is losing quality jobs and increasing below quality jobs. Workers will lose legal protection, decent wages, safety or health regulations, fair working conditions, social security etc. In every sector, India is turning into a hub of cheap labour!
Business with Human Face
India comparatively has succeeded in its fight against Covid 19 because of Government hospitals are not fully privatised. But in western countries hospitals are privatised who in general shut down their doors to Corona patients. So the death rates are so high there. In India also that is happening in private hospitals. In times of natural calamities, India has experienced BSNL serving the people even in remote areas whereas other private players gets disconnected and disappeared. Powerful public sector enterprises are protection to people. It plays a major role in price control since private players in the industry will not be able to arbitrarily fix prices. Only when we think business is more important than humans, can we finish PSUs and leave everything to private players.
Coal mines remind us of the paradox of poverty existing along with rich resources. Eastern India is rich in natural resources. That region has immense wealth underneath the soil. Unfortunately, the paradox is that above the soil lives the people of India’s poverty belt. When private players bargain to possess the immeasurable wealth, our policymakers are busy trading with them rather than pulling the poverty-ridden population above the poverty line. This is inhuman. Indian governance need to have a human face where human lives are valued more than trade. The trade unions will have to continue to struggle till the last person is liberated from the economic perils.
The perils of Privatisation
In the long run, the mad rush for privatisation will kill our economy. Already our manufacturing sector in the hands of the private sector is going down day by day. Privatisation is detrimental to the nation, people, industrial progress and labour. Hence unbridled privatisation not only kills PSUs but will kill our economy as well. Ma Nishada! (desist, oh hunter)