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Minimum government in the arena of business

  • The direct participation of the State in business brings in inefficiencies, distorts markets and restrains growth.
  • Public enterprises should be restricted to a handful of sectors where private presence could have harmful effects but the list of such sectors should be minimal.

The concluding tranche of the government’s economic stimulus unveiled on Sunday was also a mixed bag, encompassing multiple moves, from work opportunities for migrants returning home to the easing of penal company-law related provisions. One measure that could reframe the role of the State in business is particularly noteworthy. Finance minister Nirmala Sitharaman said that private sector participation will now be allowed in all sectors, including those of strategic importance, where no more than four public sector enterprises (PSEs) will be permitted hereon. If there are already more PSEs in any such sector, then mergers would be initiated or some entities privatized. A PSE policy to lay down the rules will be announced soon.

This is a worthy objective. As has been famously said, the government has no business being in business, an arena best left to private players. The State’s role should be limited to policymaking and regulation. Its direct participation in business only distorts markets, creates inefficiencies, and limits market growth. This has been borne out by past experience.

India’s new policy stance, if pursued earnestly, could change this and deliver the efficiency of competition. The public sector should be restricted to only a handful of sectors where private presence could have harmful effects, or which have entry barriers and rely on public resources to the extent that monopoly power is easy to exert. The broad goal, though, should be to minimize the list of such sectors. The public interest is best served by allowing market forces to operate.

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