The Hindu Business Line : Disinvestment and FDI — Lessons from China for India's Left

IT IS ironical that while the largest communist nation, China, is using privatisation and foreign direct investment (FDI) to steer its economy, the Left parties in India claim these as counter-productive, benefiting only the rich.

They want state enterprises to play a bigger role and the government to give a human face to reforms.

But has China ignored the `human face' element in its reforms? The country's disinvestment process began after the erstwhile General Secretary, Jiang Zemin, embarked on "strategic adjustment of the economy" at the 15th Congress Party meeting in 1997.

Since then privatisation was put on fast track; interestingly, the NDA, too, began to give a thrust to privatisation around the same time.

Since 1999, China has emerged a key player in the world economy. It now not only determines global metal prices but has also become the engine for global export trade.

Nearly half of China's export growth comes from FDI affiliates. Its per capita income has soared and is now double India's.

The country has managed to sustain its GDP growth, which is among the highest in the world. Thus, the Chinese communists have not got their economic strategy wrong.

China saw privatisation as a process for adjustment of the economy. To give a boost to privatisation, the industrial economy was segregated.

Industries of high national priority, which includes defence and public services, came under the Government's fold.

In sectors where competitiveness needed improvement — telecommunications, automobiles, and so on — joint development by Government and private parties was envisaged. And as for the rest of the sectors, they were thrown open to private participation.

China adopted a two-phase privatisation programmes.

First, at one stroke, small- and medium-scale state-owned firms were privatised. And in tackling the large state-owned firms, a two-pronged approach was pursued — part-privatisation followed by full privatisation.

In the small- and medium-scale firms, ownership was initially transferred to employees on an egalitarian basis. But it was soon realised that a lack of managerial capability prevented these units from being commercially viable.

Ownership was then transferred to professionals. Though China, too, faced problems of unemployment, it pursued its privatisation programme with vigour.

In this context, it would be of interest to see how the Communist-ruled States in India have fared? West Bengal, for instance, has been under CPI(M) rule for nearly three decades, a period enough for any government to give a new face to development.

Has the State been able to revolutionise the agricultural sector through land reforms, which it claims to have done with a `human' face?

A comparative analysis of the socio-economic parameters reveals that the poverty ratio in West Bengal is among the highest even compared to the predominantly agricultural States in the country. Though West Bengal is the third largest producer of foodgrains, in terms of per capita production it is ranked eighth.

And despite the State's focus on agriculture, the contribution of the farm sector to the State domestic product is only 22 per cent, lower than the national average of 24-25 per cent.

When comparisons are made with the more industrialised States, West Bengal's per capita income is the lowest. In terms of industrial output and value addition, the State is ranked 12th. And a mere 3 per cent of the total FDI approved since 1991 has gone to the State.

With the Left's influence in policy-making at the Centre likely to greater this time around, the policy on FDI and disinvestments could get diluted.

But one must not forget that FDI has contributed to the growth of the consumer durables and communication industries, and disinvestment has given the stock market a boost.

(The author is a senior researcher with a New Delhi-based Japanese multinational.)

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