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“Whatever is nationalized has three evils: one, that it is subject to bureaucratic red-tape and Inefficiency; second, that it is subject to political influence, graft and corruption; and third, that inevitably almost all State enterprises make a loss.”
These were the words spoken by Swatantra Party leader Minoo Masani in the parliament when he warned the Indira Gandhi government and the country on the dangers of bank nationalization; and it is about time to look back at the greatest mistake India ever made in its political economy and start a course correction.
PSUs in India have long enjoyed a status in public minds as a source of job avenue among the masses. And to protect these white elephants, phrases like “national assets,” “family silver” have been attached to it which can be described as economic nationalism. But a closer look will show us the great drain these state assets have caused to the taxpayers. Just looking at the CAG report of the central public sector enterprises (CPSEs) will reveal the drain on public resources.
It shows us the declining returns for the Indian government and the extent of mismanagement in the company. CPSEs have incurred a staggering loss of $1.54 lakh crores in the last 5 years and as many as 78 companies were loss making. To borrow what the former disinvestment minister Arun Shourie once said, “these are not the crown jewels of India’s economy but bleeding ulcers.” While we can blame this legacy to the socialist path of economic growth India chose after Independence where the government decided to spend billions of dollars into state-owned enterprises to supply everything from hotel rooms to wristwatches and salt production; to continue running these loss-making enterprises in the second decade of the 21st century makes no economic sense. But as Anshuman Tiwari notes in his article, “The notion of keeping government in business is not economic or employment-oriented, but purely political. With decentralization and emergence of independent regulators, political leaders are fast losing their privileges. In this era of shrinking authorities, government companies alone provide opportunities for rent seeking.”
There was only one genuine attempt made to conduct large-scale privatization which took place under the leadership of Atal Bihari Vajpayee. He entrusted the responsibility to Arun Shourie and provided him with the political cover to conduct major reforms. A quick glance at the numbers presents us the how much better the companies have done, and the wealth generated; Hindustan Zinc posted a turnover of Rs. 1,418 crores during 2001-02 and has recently posted Rs. 33,272 crores. Similarly, Vajpayee government privatized Maruti Udyog and sold it to Japanese automaker Suzuki Motors, the company posted a turnover of around Rs. 6000 crores during 200-01 and has now posted Rs. 90,074 crores in fiscal year 2022. Despite the obvious success of the many privatized companies, no government post the Vajpayee era has ever been serious about conducting any large-scale asset sales. It is also quite clear that the political appetite for taking tough reformist decisions is lacking in the current political dispensation and the support for keeping the PSUs transcend across party lines. The other obvious benefit of privatization is the potential for unlocking desperately needed capital for the military. As the long-term threat of China grows, the country needs to increase the amount spent on the defense and carry out large scale modernization of armed forces. A lot of capital can also be used elsewhere, especially in public infrastructure like roads, power transmission lines, sewage systems, irrigation systems, railways, and urban infrastructure. India also needs to increase its spending in education and public health, so rather than draining taxpayers’ money in PSUs, it would be beneficial to the country if governments spend where they are supposed to. Hence, the next time Indians complain about the state of public schools, hospitals, urban infrastructure and the soviet era equipment in the Indian military and question why the government does not find enough funds, we know where we should start looking at.
These pieces are being published as they have been received – they have not been edited/fact-checked by ThePrint.