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Privatisation is the urgent need of the hour

Even as a demand recession is creeping up on Indian industry, there seems to be an emerging consensus among foreign investors that India's briefly successful economic liberalisation and deregulation programme is running out of steam. A half-hearted commitment to deregulation and a rapidly collapsing infrastructure are among the major factors which are turning off foreign investors (and indigenous businessmen) who were hitherto bullish about the Indian economy.

This newly emergent sentiment abroad was recently confirmed by Professor Jeffrey Sachs, the well-known economic development guru who is an adviser to some three score and more national governments around the world. Speaking to newsmen in Delhi recently, Sachs identified poor "policy variables" as the major bugbear of the Indian economy. According to Sachs, this is the critical factor which is preventing the Indian economy from attaining the vital 7.5 per cent per year rate of economic growth.

And no other act of omission is sending out as clear signals of the pusillanimity of the central and state governments about economic liberalisation and deregulation as its deliberate go-slow on the issue of privatisation of public sector enterprises.

Between 1982 and 1991, 875 of 1,155 government-owned companies were privatised in Mexico. During the past two years, over 16,000 state-owned enterprises were privatised in Russia and industry has been almost wholly privatised in the formerly communist eastern Europe. But in this country, in which the economic liberalisation and deregulation blueprint is now six years old, not even one PSE has been privatised.

True, a Disinvestment Commission has been constituted under the United Front government's Common Minimum Programme. But the commission's initial recommendation to the federal government to sharply reduce its equity in 15 public sector enterprises including Modern Foods, India Tourist Development Corp, Indian Telephone Industries, Madras Fertilisers, and Oil and Natural Gas Commission among others, have either been ignored or put on the back burner. Ignoring the pressing need to at least privatise the large number of consumer goods and services companies which should have been divested long ago, the federal government has devised an illusory autonomy package for its navratna (nine jewels) PSEs, including Steel Authority of India, Bharat Heavy Electrical Limited, ONGC, Indian Petrochemicals, and Indian Oil.

Industry Minister Murasoli Maran fondly believes that his autonomy package, which liberates the navratna PSEs from seeking investment clearance of up to Rs 2 billion from the Public Investment Board, allows the PSEs to raise loans in the foreign and domestic markets, induct private sector professionals into their boardrooms and to pay better salaries to mangers, will convert them into globally competitive "uncaged tigers.''

But a quick clarification issued the next day indicated that the navratnas will remain subject to the Comptroller, Central Bureau of Investigation, and parliamentary supervision and will be dependent upon their parent ministries for additional equity and loan guarantees. By any yardstick the autonomy package for the navratnas is a very poor substitute for privatisation.

The formulation of the pusillanimous autonomy package for PSEs and the conspicuous absence of a pressure group for privatisation in Parliament ought to raise the question why there is a political consensus on the need to maintain the presence of government in industry.

The conclusion is inescapable: the public sector is the politician's private sector -- a happy hunting ground which affords politicians cutting across party lines huge opportunities for patronage and graft. This is why, despite 109 of the central government-owned 241 PSEs being deeply in the red, and the annual return on investment of PSEs being a mere 3.3 per cent, privatisation is a bad word for the entire political class.

Meanwhile, even as the federal government pays lip service to autonomy and privatisation of PSEs, the zero ground level reality is that driven by patronage and graft opportunities, political interference in even relatively autonomous PSEs is intensifying rather than diminishing. For example, a no-holds barred war of succession broke out in the deep-in-red Air-India as bureaucrats made a spirited attempt to ensure that a management professional from within the company didn't succeed to the managing director's office in the airline (more on this next week).

Likewise, even in the highly successful Indo-Japanese car manufacturing company Maruti Udyog, where the government has a minority shareholding, the industry ministry is taking an unhealthy interest in ensuring that a bureaucrat succeeds outgoing chief executive R C Bhargava.

It is high time that the conspiracy of silence on the privatisation issue is broken by the pressure of public opinion. The plain truth is that privatisation of PSEs is the natural progression of the economic liberalisation and deregulation programme initiated in 1991. Failure to grasp the privatisation nettle is certain to prolong the misery of the high-potential Indian economy.