However, there were the constraints of real politik to manage a succession of coalition governments formed by parties which had little in common to focus on disinvestment.
We saw the Communist Party of India (CPI) forming part of the government during 1996-98. Again, the UPA-I government during 2004-08 was sustained by support by the Communist Party Marxist. In between, the NDA government led by Vajpayee had to tackle disparate regional parties like the DMK, the Trinamool Congress, the Rashtriya Janata Dal (Lalu Prasad) and the Shiv Sena. These coalitions came in the way of accelerating the pace of economic reforms, particularly disinvestment.
The return of the NDA with an absolute majority in the Lok Sabha in 2014 promised an end to the stagnancy in reforms. The decimation of the Congress and, more significantly, that of the Communists and the promise of attempting a higher pace of economic growth through reforms provided for a change in economic policy. Still, there was the constraint of the lack of a majority of the NDA-II in the Rajya Sabha.
Welcome thrust on disinvestment...
In this background, the recent initiatives of the Modi government can liberate India from decades-old mind-sets and help economic growth. Some of the recent measures, like the Jan Dhan Yojana to make use of the Aadhaar platform to deliver subsidies directly into the bank accounts of the beneficiaries, Digital India and the Make in India are efforts to speed up industrial growth and are welcome. I am even more impressed with the decision of the NITI Aayog to close down 17 terminally sick, loss-making public sector undertakings as also to reduce the government holding on profit-making PSUs, including banks.
Jawaharlal Nehru opted for a planned economy and democratic socialism that allotted commanding heights for the public sector. Successive plans were drafted on this premise, with the state deciding the priorities for production and dictating capacities through licences and permits and even location to ensure balanced regional development. Indira Gandhi faced formidable opposition from the old guards of the Congress to continue with this. Along with the young Turks and proclaimed leftists like D P Dhar and Mohan Kumaramangalam who joined the Congress, she embarked on a massive programme of nationalisation. She started with banks and followed it up by quickly taking over general insurance, oil production and marketing companies. While this helped expand the relevant sectors, the government also burdened itself with nationalising hundreds of loss-making, terminally sick units in the textiles, engineering sectors solely with the objective of protecting employment.
The government lacked the financial, technical and managerial resources to run efficiently the then existing PSUs. Still, the government nationalised 108 sick textile units, the sprawling coal sector and dozens of engineering units that have been sick beyond recovery. Several of these were situated in communist-ruled West Bengal. Burdened with old machinery, outdated technology and employees with poor education, skills and productivity these were reporting humongous losses. Jessop & Co, Garden Reach Workshops, Richardson Cruddas, Bird & Co, Indian Iron & Steel, Andrew Yule & Co have been recording losses for years. The government taking these over did not help turn them around. I cite two instances of such mindless action:
How they saved Birlas and Sen & Pandit!
The Birlas’ Hind Cycles, set up in the 1930s, and Sen & Pandit in Kolkata, started in the 1950s, were rendered sick by the highly cost-efficient and superior marketing thrust of later entrants, Atlas Cycle Industries, Sonepat, Hero Cycles and Avon Cycles, Ludhiana and Road Master Industries, Rajpura. These new entrants, with superior management practices like just-in-time deliveries, efficient assembly line operations and much higher levels of productivity, swamped the markets across the country and rendered Hind Cycles and Sen & Pandit sick.
The government nationalised these two sick units into two separate PSUs – Cycle Corporation of India and Bicycle Corporation of India. For several years, the duo were kept alive with no production, no efforts at infusing capital nor introducing systems to impart better skills and managerial capabilities to increase productivity. For years, their losses were several times their revenues. The absurdity of the whole exercise was in liberating the Birlas and the Sens from the burden of proper closure of the units with due compensation paid to the employees!
This has been the experience of hundreds of such nationalised sick units, with the practice most glaring in West Bengal. Such sick units, with employees contributing little, were a common sight across the country. The several units of HMT, manufacturing bearings, watches and machine tools in different states, Hindustan Paper Corporation Ltd (Assam), Hindustan Photo Films (Tamil Nadu), Bharat Pumps & Compressors Ltd (UP), Instrumentation Ltd (Rajasthan), Tungabhadra Steel Products Ltd (Karnataka) have all been kept alive for decades.
Opposition from leftists, trade unions, regional parties...
The federal government failed miserably in convincing regional parties of the humongous wastage of tax payers’ money in protecting the employment of a few with no possibility for revival of the units taken over. Whose money is it anyway?
In separate pieces forming part of this cover story, we chart the course of two PSUs in Tamil Nadu that continue to incur losses but have been kept alive by sheer political pressure. The Centre should hand these over to the state to continue to run if they are so confident of turning the units around.
There were expectations of a major shift in the government’s approach to the public sector in line with the new liberalisation policy initiated by Dr. Singh and Rao. At that time, a large number of public sector undertakings were hemorrhaging. A close look at their operations, decisive action to arrest the losses, infuse needed funding and turn several of these around were expected. For the first time, a policy of disinvestment was announced, envisaging the closure or outright sale of terminally sick units and off-loading a portion of the shares of healthy, profit-making PSUs to raise resources.
There was also the government’s profligacy to spend on increasing quantum of resources using public debt with gay abandom resulting in increasing final deficits. It began in the early 1980s. This continued unabated over the next 15 years. From the mid-1990s, total revenue receipts were less than debt servicing costs. The situation reversed and improved only after 2004-05 when annual economic growth accelerated to 9 per cent plus. This continued till 2008-09. The professed dictum of Manmohan Singh that “one cannot spend one’s way to prosperity,” was again thrown to the winds. Pranab Mukherjee as Finance Minister tried to stimulate the economy by going for a massive step-up in public spending in 2009-10. Growth slowed down and there was a return to high fiscal deficits.
The disinvestment programme, initiated in 1991, was a welcome measure to tackle the problem of fiscal deficits and rationalise the working of PSUs. For quite some time, the government professed to employ the resources raised through disinvestment to close down the terminally sick units and use the funds realised to improve the working of others. However, these expectations could not be realised: for 23 years from 1991, the Central government lacked governance by a single party with a majority in the Lok Sabha. This meant a shriller voice and dominant control of reforms by the left and regional parties with no rational economic agenda.
Arun Shourie under NDAI did attempt this
A major casualty of reforms related to disinvestment. The meagre amounts raised through disinvestment through the 1990s were largely through the sale of small portions of minority shareholdings in Central public sector enterprises. The NDA-I government took bold to step-up the efforts through the strategic sales of CMC, HTL, VSNL, IBP, BPL, hotel properties of ITDC and FCI, slump sale of a few hotels in 2001 and raised around Rs 5658 crore. It continued with these efforts over the next three years, with the strategic sale of Hindustan Zinc, IPCL, JCL, Maruti Udyog, IDP, CMC, GAIL, and ONGC. Through the three years, over Rs 20,000 crore were realised.
The UPA-I could not continue with this due to their dependence on the CPM, which was opposed to such disinvestment. In the UPA-II regime, P Chidambaram resorted to the ingenuous method of selling a portion of shares of profitable public enterprises like MUL, NTPC, NMDC, Coal India, EIL, Power Finance Corporation, NALCO ... to public sector financial institutions, public sector banks and Indian mutual funds. This way, around Rs 85,000 crore were raised. This defeated the purpose of raising resources from outside the government and to help PSUs with better management. The UPA government was also not equal to closing down sick PSUs.
It is in this background that The Vice Chairman Arvind Panagariya and CEO of NITI Aayog, Amitabh Kant, have also been vocal on this subject. But how far they will succeed in changing decades’ old mind-sets of regional parties remains to be seen.