Saturday, November 1, 2003

A The Problem of the New Mantra

A The Problem of the New Mantra
By Narendra Luther

I was born a slave, grew up as a free man, and am not sure in what status I will die. Joan of Arc heard voices. I hear slogans. Their burthen is that the mischief is afoot and I shall become a slave once again. The cacophony of the shouting brigades makes life interesting even though I don’t have any share in shaping it.

I came to manhood when Jawaharlal Nehru, the high priest of socialism, was guiding the destiny of India. He was a child of Fabian Socialism. Considering the level of industrial development at that stage, and the lack of entrepreneurship, it seemed right then to set up public undertakings. However, he modified the rigid statism of the Soviets to what he called ‘mixed economy’. In that system, the private sector was allowed to co-exist with the public sector. So, the official policy onslaught in India stopped with the capture of the ‘the commanding heights of the economy’. The tendency, however, was to extend the official tentacles and forays were made into businesses of all types.

The Indian Scene

in 2002, there were 240 public undertakings under the union government entailing an investment of over 324632 crores. They employed 19.94 lakh persons. There is a parallel public sector in the States. It has about 1000 units entailing an investment of about 120,000 crores. It has about 20 lakh employees. The overall investment in public sector thus represents about 20 percent of the GDP of India, and employment about 13 percent of the employment in the organized sector. 109 undertakings under the Union Government were making losses in 2002. The coal and power undertakings, which accounted for 40 percent of the total investment, were making heavy losses. In the States the profit making units were an exception.

The Collapse of Soviet Socialism

When the iron curtain began to be lifted, it was found that the promised land of the Communist Manifesto was as far away as it had always been. This realization was publicly acknowledged by a daring Soviet leader, Mikhail Gorbachev. He was the General Secretary of the Communist Party of the Soviet Union from 1985 to 1991, during the last three years of which he was also the President of the country. He propounded the twin concepts of glasnost (more open form of government) and perestroika (restructuring). They spelt the doom of a economic and political system based on regimentation – and of the man himself. They also led inevitably to globalization and privatization of industries.

With the fall of the ‘model ‘ and its satellites, the entire philosophy of socialism with its corollary of state control came in for re-examination in many countries including India.

‘NEP’ in India

The new economic policy in India based on liberalization and globalization was inaugurated in 1991 by Dr. Manmohan Singh, the Finance Minister under PV Narasimha Rao. It had been long argued that the public sector has served its time. It was flabby, over-manned, and low in productivity. The quality of it goods was inferior and prices high. Used to operating in a regime of controls and administered prices, it was unable to face the new world of competition.

The World Bank was attaching conditionalities of free and liberal economies to its aid programmes. It canvassed for the abolition of distinction between production for domestic markets and exports, or in the purchase of goods.

In 1996, the Government of India set up a Disinvestment Commission by an executive order to advise on the methodology and specifics of disinvestment. It was reconstituted in 2001 with reduced authority.

This policy was not only continued but further refined by the NDA government. A separate Ministry of Disinvestment was created. During 1991-92 to 2002-03, equity was sold in 48 companies.

The same policy was adopted in the States also. The Planning Commission has been offering incentives for restructuring of the State public sector through a policy of Memos of Understanding. So far, it has entered such MOU’s with 12 States. In Andhra Pradesh, which led other States in this matter, the policy of reform and restructuring covered both public and the cooperative sectors. Since 1993-94, it has closed, privatized or merged 12 units and downsized or restructured nine units. By such measures, the State Government would be saving Rs. 256 crores annually after netting off VRS, and debt resolution. In addition, it will also save Rs. 608 crores annually in terms of guarantees. The exercise is being pursued vigorously. Similar programmes are going on in other States also.

Opposition & Hurdles

Naturally, opposition to such a policy was expected from the affected parties. And it was not late or short in coming. The employees of the public sector alleged that disinvestments resulted in ‘privatization of profits and nationalization of losses’. The Left parties supported nationwide agitations of employees against the policy of disinvestment. They argued that there was nothing wrong with the concept of socialism. The managements sabotaged it. It could be run efficiently if only there was a will to do so. The Government was under pressure of the World Bank and IMF to ‘sell out’ to the multinationals. It was bartering away its sovereignty and going in for a phase of neocolonialism.

Ashok Rao, President of the Federation of the National Confederation of Associations of Officers of Public Sector Undertakings articulated the concerns of the employees. He argued, for example, that though the book value of the investment on public undertakings was Rs. 1,13,234 crores (1991 figures), its replacement value is over 100 times that figure.

There is opposition to the policy from within the ranks of the main party of the ruling alliance – BJP. Even some ministers are opposed to it. The Swdeshi Jagran Manch opposed it as the return of the East India Company.

Undeterred by the criticism, the government is going ahead with its policy. It hit a roadblock when it decision to divest in the two oil companies – Hindustan Petroleum and Bharat Petroleum – created by parliamentary enactment was challenged in he Supreme Court. The court gave its verdict that a creature of parliamentary enactment cannot be extinguished through executive orders. The Government lacks the majority in the Rajya Sabha to have the necessary amendment passed. So, the train has been derailed for the time being.

The Outlook

Bertrand Russell said the while fools are cocksure, wise men are always tentative. Wishing to be counted in the second category, I feel it foolhardy to pronounce on the merits of the controversy. In social policy there is nothing like God’s word. Democratic politics is predicated on the premise that theories about social welfare will vary like fashions. They come and go. The heresy of yesterday is the orthodoxy of today – and the cycle may still turn.

So, I remain an amused bystander. The drama is exciting enough as probably the last free show of my life.


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