The public sector units
Crass ignorance marks debate

The tub-thumping over the future of public sector units is at a new phase. With the calling in of heavy artillery.

The consensus (outside the orbit of vested interests) is of course for a radical change. Without loss of time. But for different reasons.

Sadly, crass ignorance runs riot. No cool consideration of the pros and cons. First, why they should go. Industrial longevity is getting progressively reduced. In the new age of technological horse-race. Examples abound.

Institutions, which looked immortal till the other day, are disappearing. Obeying the law of nature (business). The pile of mergers and acquisitions seen across the world is proof enough. Even so the survival of no new avatar is guaranteed.

The same logic applies to the PSUs as well. They are obsolete in their existing form. Sans in-built mechanism for re-orientation. Ownership is not the issue. Viability is. So go they must. If the scope is nil for reshaping them.

It's no family silver either. What, however, is reprehensible is the way of seeing them as movable/immovable property. Or even as scrap. Ripe for sale when the budget is not in balance. 

Down the (liberalisation) years, the government(s) have failed to see them in the proper perspective. Their historical role as a factual necessity was ignored. No plan has ever been on the agenda to update, lot alone integrate them into the new scheme of things.

The debate on the issue, has been unedifying. Historical amnesia is pervasive. The PSUs are seen as the main accused for all that has gone wrong with the Indian economy. Would it have been a heaven on earth otherwise?

Economics, let alone economic history, is not cup of tea for many political stalwarts. Now shouting hoarse. The idea being sold is that the denial of a free hand to private capital was the biggest mistake of independent India.

Most are blissfully unaware of the developmental compulsions at a crucial point of time. When capital was scarce. And entrepreneurship was as under developed as the country. A narrow view about it all is now tantalisingly popular.

Indian industry (and industrialists) has not proved its maturity. Either then or now. It took to commodity production. As the fish takes to water. Its radar picking up mainly plantations, hotels, real estate and travel agencies.

Even the well-heeled industrial houses were more at home with the less challenging enterprises. Also shunned is tourism proper. Going modern is made easy now. A mere dot.com label could do it.

The following article lists the direct and indirect benefits India had from public investments. The set-up was not ideal. By and large, however, PSUs preserved professionalism. To the extent possible under political patronage. Amidst the cesspool of dynastic arrogance in Indian industry.

What if we had market forces let loose? And banks left in the control of private parties? The answer is not far to seek. The local felines would have gone the tigers trail much earlier. It may be different tomorrow. 

Despatch PSUs to the death row. Fine. But they are only the tangible symbols of public investments. The government (Centre and States) had huge stake in the capital of private sector companies. (Often the promoters share is nominal). Their sale (to an highest bidder) can also fetch good money. Why all are silent about it?

Everyone here is seen with a drawn sword. Yelling the mantra that PSUs should go. The government takes too much time to lit the pyre. Why look left and right? "Carthage must be destroyed". 

Yes all agree. The visas for PSUs have long expired. They survive on doles. Taxing the taxpayer. The ministry's latest annual report is yet another chilling reminder. Red ink flowing. Unrelieved by the black dots here and there. An early despatch is right in order. 

What we do not agree with is the campaign style and philosophy. The PSUs were there for nothing? Remnants of an ancient regime? Why they were brought into being? In the first place? Just for the heck of it? A wrong policy decision? What purpose, if at all, they served?

A slew of questions. The more important, however, is something else. How relevant are the modern business models here? The management gurus (sic) call then all a waste. When it comes to capital flows, command economies woefully lacked the pull, they insist. Would it have been a flood of milk and honey if it were a free for all?

Yes. India would have had Kentucky fried chicken and McDonald's much earlier. And more Pepsi and Coke to wash them down. Could one say the same thing about key and basic industries? 

No. Evidence lies in the archives of the heavy industry department. Somewhere around 1948-49, General Motors, the US auto major, studied the Indian market. Possibly as a first step for considering investments. No market in India, the study recorded in so many words. Nor there could be one in the next 50 years. The report in original is not found. But excerpts from it were filed with the feasibility studies on the small car projects - in the sixties. 

Even after 50 years what happened? Foreign interest is patchy. The GM reading came true. Auto MNCs never took even marginal interest in India till the nineties. Only a toe-hold then in each case. In anticipation of better growth ahead. And GM was one of the last to drive in. 

True, India was a command economy. Also called mixed. There was huge scope for private investments. Where the gestation periods were not long. Better profit margin too. Thanks to maximum tariff protection. Ready demand and nil competition. For full five decades. At the end of the day what is the sum-total of all investments?

It was a feeble structure that emerged in the name of private industry. Protection did away with the necessities of scale. It is also possible, with no protection fewer entrepreneurs would have set up shop. Pilot plants abroad were bigger than the factories floated by even the big-ticket industrial houses in the country. Some were the lords of all they surveyed. All are on tenter-hooks now.

Private sector had also a heavy presence in a wide range of major industries - coal, steel, textiles, engineering etc. What was its record running them? Skimmed, they all became bankrupt. To save jobs the government stepped in. Bulk of the public sector is made up of such companies. Any assurance that private sector (in India) is qualitatively different now?

No changes even after the so-called opening up. Take the power sector. Out of bound for government ownership. But governmental guarantee is welcome. In the new economy. For private investments. How to explain this dichotomy?

As it turns out, the number of (private sector) companies capable of holding out is negligible. Many are selling up. Cement for instance. Tyres will follow. The two auto companies that had the market at their feet are now a ghost of their former selves. Most were more interested in control than scale. As a result, professionalism takes a long time to come in. Also ignored were the lessons in integrated growth. Often we saw the spectacle of major companies being quite at home with horizontal, unrelated, expansion.

They all were there because there was no competition. All are in one stage or the other of winding up. And crying for level playing field. In private, senior bankers admit their finances are parlous. The number of accounts (of major corporates) regularly serviced is no more than two!

Sustaining a fragile economy so long is not the sole contribution of the PSUs. Less tangible (but more important) was their role in human resources development. Called teaching/training in simple, old English. Independent India set up more universities in its first 30 years than US in 200 years. They spawned ever so many colleges and institutes. All incubating skills - graduates, post-graduates and diploma-holders. 

Where their products would have gone for employment. The PSUs absorbed them most. Private sector companies thriving in the shadow of PSUs came next. The second generation proved more resourceful. Thanks to the more facilities they had. And they surpassed the skills abroad. The brain-drain came that way. As it is, brain-power is India's major asset. And it will be for most of this century. A reasonable hope. ICE companies are showing the way.

Why the focus is only on PSUs? Investments are equally heavy in the equity capital of private companies. Huge stakes by central and state governments. And their institutions. Many companies are private only in name. The promoters holding not even one per cent of the capital. The sale of state's share in them is also logical. But all are intriguingly silent about it.

The blow-out of the tiger economies has muted the management gurus -now milking every one, from FIs to corporates, in the name of restructuring. Otherwise their barrage, laced with exalted references to SE Asian miracle, would have been unstoppable. 

Looking back, India's command economy had only one flaw: over - emphasis on self - sufficiency/import substitution. Utter disregard for export promotion. Where China scored with considerable ease. A lost chance for scale and professionalism. Perhaps, that is the way the local industry wanted it all.


Boxed in?
It was a bang. That ended in a whimper. Andhra Pradesh CEO Chandrababu Naidu looked taking Delhi by storm. He was deadly serious.

He had to be. After being short - changed on PDS prices and subsidies. On the sale of the PSUs in his state, he put his foot down. Or so it seemed.

He called for the decasualisation of the disinvestment policy. A status report and even a schedule. All thought he had his way. After all, Naidu keeps the balance of power in Delhi.

Latest reports indicate a compromise. Or was he boxed in? By the Delhi samrats. Enough, Mr. Naidu reportedly saying, if the sale proceeds are reinvested in the State. Clear he had in view the lay readers. 

What is not clear is something else. What guarantee that sales will always yield a surplus? To be ploughed back into the region? Often the residual value will be nil or negligible. Even negative.
So, it's status quo. Everything as programmed. Status report and schedule not- withstanding.

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