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Welcome focus on Disinvestment

The decision of the NDA-II government to close down 17 PSUs as also to reduce the shareholding of the government in several PSUs to less than 51 per cent is of special significance. Narendra Modi has repeatedly been stressing that the business of government is not to run business.

Welcome focus on Disinvestment

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. 

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