The govt should quit all businesses except utilities, public monopolies: View
We need to wind down the PSU framework because it represents a social injustice we do not acknowledge.
We were the railway children, living in a colony with rows upon rows of identical houses. Playing in the streets of the railway colony with children from various states and communities, bound together by our similar social class. The colony had everything we needed—school, hospital, playgrounds, club house, trees, gardens and the security net of a gated community. Growing up like this, it’s tough not to love the PSU establishment.
However, it is time to shut the doors on the notion that the government can run a business efficiently. The idea of a public sector employer does not encompass just the joys of community living, social benefits and job security. It includes the overall inefficiency in operations, wastage of precious resources, poor return on capital employed, and the nurturing of an entitlement culture in which performance is poorly linked, if at all, to reward. The trade-off is too costly for a poor, capitalstarved nation like India.
We need to wind down the PSU framework because it represents a social injustice we do not care to acknowledge. The idea of a new India is not merely about large-scale global enterprises in the private sector. Any discussion about PSUs leads to an animated debate about crony capitalism, exploitative private sector players, and the expensive social and economic fall outs of inefficiently run private organisations. This alone is not the story. The story of the new, post-1991 India is the remarkable manner in which millions have lifted themselves out of poverty. That is the singularly spectacular outcome of an open economy. An economy in which anyone with an idea can perfect an economic enterprise through hard work and imagination. The India where millions have found the freedom to earn, invest, spend and make profits that have lifted their households out of poverty. PSUs do not fit in this new paradigm.
The idea of efficiency in using resources is understood by many more in the new India. They look at unviable PSUs with disdain. They know what it takes to deliver good products and services. As consumers, PSUs are not their default choice. They know that a model without sound economic framework will fail, and that failure is fine as it clears the way for something new. Today, closing down an unviable PSU is likely to be welcomed by the electorate.
The resistance will come from the rent seekers. The employees who believe that continuing with the PSU is the righteous thing to do. While many have taken the practical route of seeking a VRS or finding a job elsewhere, there are still many who see their jobs as a right. There are many others who still line up for even a menial job with a PSU.
To have a system in which products and services are produced and offered at sub-standard quality; to perpetuate an employment model that rewards seniority and service over merit; to disincentivise initiative and leadership and make it tough for innovation to thrive through crippling bureaucratic procedure; to create cubbyholes in which vested interests reap their secret harvests as perks, facilities, preferred vendor ships, board seats, favours, and corrupt practices; and to pay escalating pensions to erstwhile employees using the money of taxpayers who have no social security net are all unjust, unviable and unpopular.
There are enough statistics to show which PSUs are ripe for closure. There are tough decisions to make about PSUs which still hold value for a buyer. We know how private sector banks paid good money for the branch networks of small regional and local banks. Before the value erodes, it is important to merge and sell the stakes in PSUs.
The word ‘disinvestment’ is so uniquely Indian. The government views the selling of its stakes in PSUs as a mere budgetary and fund-raising exercise. Sell some shares and raise some money if the taxes fall short. This government must take the bold step of privatising. Of selling stakes so that someone else runs the business. Of strategic orientation that recognises the value of the enterprise, not merely the shares, to a buyer. Of accepting that a new owner can turn it around for larger benefit. The money for the budget will come from the sale anyway.
In the public sector, there is high premium on taking the ‘right’ decision. It is possible for a reviewer to look into past decisions and, with the benefit of hindsight, hold the decision-maker to account. The procedural rigidity in PSUs comes from the responsibility and accountability that is needed while dealing with public money and resources. However, it is now well known that this framework creates two problems. One, as long as one plays by the rules, there are no penalties. Two, seriously harmful and unscrupulous decisions can be made as long as they fit into the rule book.
In a market economy, where the premise is that the future is unknown, decisions are made with the available information in the best possible manner. The presence of similar players on both sides of the table ensures that the price is discovered. PSU stake sale must happen in such an environment through competitive bidding.
We also have the propensity to mix up objectives. There is a demand to sell PSU shares cheap to retail investors. There are lobbies that ask for stake sales to benefit global players. There are institutional buyers masquerading as long-term interests, when all they want is to make a quick buck from short-term trading. The government must make this strategic decision to optimise the benefits to the country at large. It is ironical that our schools and hospitals have become money-spinning businesses that the private sector exploits, while we believe that the government must still run banks, airlines and telephone companies. Beyond managing utilities and public monopolies, the government must quit all businesses.
We need a comprehensive plan for the government to get out of business and focus on governance. Popular support will pour in if its decision is driven by the public good.
(The writer is Chairperson, Centre for Investment Education and Learning)