Finally, we have real reform

NV Krishnakumar | Updated on January 15, 2018 Published on November 14, 2016

Release them: From heavy-duty bondage

Now, the Government must let go of state-owned enterprises in order to focus on development and infrastructure

“Government has no business to be in business” was the mantra of prime ministerial candidate Narendra Modi during the run-up to the 2014 Lok Sabha election. Two-and-a-half years after being anointed Prime Minister, this campaign promise finally got a big boost when Cabinet approved the NITI Aayog’s proposal for strategic sale in public sector undertakings (PSU).

For too long, taxpayers have footed the bill for the follies of past. After waffling for a while, the Centre has finally embarked on what can be deemed as real reform.

Public sector behemoths can be traced back to the first Prime Minster of independent India, Jawaharlal Nehru. They were created when India was a command and control economy to achieve specific policy goals. Government-owned enterprises were monopolies designed to serve the people for a common good and devoid of competitive threats.

Piquant predicament

It is no more the case today. Twenty-five years of liberalisation and globalisation have ensured that private sector companies compete with public enterprises in almost every sector. In telecom, media and oil and gas, the existence of influential industry operators and public sector behemoths has made policymaking extremely difficult for the Government. It is unable to balance its role as a framer of rules and regulations and as a majority shareholder. And the consequences have been an economic environment that is beset with arbitrary decision-making, widespread allegations of corruption, cronyism, poor regulations and taxpayer bailouts.

The 2G telecom mess not only affected private players but has left entities such as BSNL and MTNL teetering with losses. Doordarshan and All India Radio are now loss-making corporations confined to an also-ran status with most of the television and radio air waves having been occupied by stock exchange listed private operators who are reaping profits in the media space. According to the Sam Pitroda Committee, Prasar Bharati has notched up losses to the tune of ₹13,500 crore.

A similar narrative is repeated in several other sectors such as metals, mining, banking and aviation, to name a few. Bankers claim that much of the NPA mess was because of political pressure. Farm loan waivers disproportionately affect public sector banks, leading to a constant need to recapitalize; in other words, it’s a bailout. Preserving the monopoly of Coal India has caused grave damage to our energy sector while forcing India Inc to rely on imports. The aviation sector is a mess as bureaucrats try to erect barriers of entry to protect Air India while making ad hoc rules and regulations to attract private players. With a dysfunctional industry, the Government was forced to bail out Air India with a ₹30,000-crore package.

Also, thanks to government involvement, PSUs are beleaguered with corporate governance issues. Many of the listed PSUs do not comply with regulations that require them to appoint women and independent directors on their boards. The managements of these PSUs are helpless when the Government applies pressure to fork out big dividends to cover large budget deficits. During the rupee’s freefall a couple of years ago, the finance minister hinted at raising the country’s dollar reserves by forcing PSUs with strong balance sheets to issue dollar-denominated bonds. Minority shareholders are often sacrificed to give way to the overbearing interests of the Government.

Best let go

There are sectors that can enlighten the political class to follow suit. Apart from the IT sector, India has a well-functioning free market in the automobiles and pharmaceuticals space. The absence of government entities has served Indian and foreign enterprises well in both sectors. Companies are competing to be innovative, efficient and profitable while serving Indian and global customers.

Thus the Government must divest its stake and exit from controlling interests of all state-owned enterprises to save precious taxpayer resources and, more importantly, rid itself of balancing policy needs with ownership requirements. Maruti Suzuki, ICICI Bank and Axis Bank were former government organisations but are now thriving private sector behemoths. That template must be used to establish a master plan to convert all public sector organisations into private entities with no controlling interest.

Such a fundamental transformation can have enormous benefits for the Indian economy. First and foremost, it will release an abundance of government funds for investing in social development and infrastructure. Second, the Government can stick to its core functions of public policy — creating regulatory frameworks, improvising laws, and establishing funding priorities with decisive follow-up action. Third, India can have a thriving private sector with strong regulators, devoid of bureaucratic interference, which can contribute to improving national productivity and higher economic growth. Finally, the image of corporate India will be transformed overnight — from being an economy dominated mostly by family-owned and government enterprises to one of professionally run meritocratic corporations.

The writer is a Bengaluru-based money manager

Published on November 14, 2016
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