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Home >Opinion >Views >Our privatization policy is coherent but not very


The Nehruvian idea of a government at the ‘commanding heights’ of our economy was turned into a relic of India’s capital-starved past by liberalization three decades ago, but the state still runs over 300 enterprises. That too, under a regime that has missed few opportunities to decry our public-sector bloat. Prime Minister Narendra Modi has long said that a government has no business being in business. On occasion, he has nuanced that view. In a 2016 interview with The Wall Street Journal, for example, he said, “In any developing country in the world, both the public sector and the private sector have a very important role to play. You can’t suddenly get rid of the public sector, nor should you." In Parliament on Wednesday, he renewed his call for the state’s retreat in favour of a bigger role for the private sector, this time with rhetoric based on the limits of bureaucratic competence. “Can babus do everything?" he asked, capturing the absurdity of having bureaucrats manage everything from fertilizer units to aviation services. As admissions go, it was a class apart. Not just because our public sector enterprises (PSEs) are such poor performers, many of them deadweights, but the folksy candour of his words could clinch the case for privatization in popular perception. The proof of this agenda’s latest push, however, would lie in the pushing.

The budget for 2021-22 has done its bit. Finance minister Nirmala Sitharaman’s speech sought to lend coherence to what had been a shapeless programme of PSE stakes being offloaded in fits and starts. As she declared on 1 February, the Centre plans to retain a “bare minimum" presence in four groups of sectors deemed “strategic" to our national interest. Atomic energy, space and defence are clubbed in the first; transport and telecom are in the second; power, petroleum, coal and other minerals find place in the third; and banking, insurance and financial services are in the fourth. Central PSEs in other sectors are now to be privatized, merged with other entities, turned into subsidiaries, or shuttered. Notably, no state-owned company has been told to either shape up or ship out. While most central PSEs have thus clearly been put on notice, specific details of the criteria adopted by the Centre for PSE retention remain rather fuzzy.

The first group of strategic sectors is self- explanatory from the vantage point of India’s security. Their mutual synergy is obvious, and so too the need for tight control, given their risks of misuse. The second and third can be considered “critical infrastructure", which the Centre has said it will not withdraw from. These meet elemental needs of production and their failure could impact our economic well-being. At a stretch, the fourth can be classified likewise, though their deployment as tools of state policy and market intervention could be the actual strategic purpose. What is common to most of these sectors is their dependence on assorted public resources (such as telecom airwaves) and resultant entry barriers. This lowers the level of market competition, reducing their incentive for efficiency, and also makes space for collusion among operators. Arguably, this is another reason for sustained public-sector presence. But then again, a PSE would be able to keep monopolistic prices in check only if bureaucratic ineptitude and regulatory capture do not get in the way. Being ‘strategic’ doesn’t guarantee a better fulfilment of our public objectives. In sum, while it’s good that the lofty statism of yore is in decline, our public-sector policy could still do with an in-depth debate.

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