Power units that the government wants to privatize should be administratively strengthened, which only industrial officials, not bureaucrats, can do.
In India, it’s better to go public basically because we don’t have a sufficient number of entrepreneurs with enough free wealth to pay for them. public sector companies (PSU). Many houses, while efficient, have already borrowed more than ideally desirable, which is why the government’s push for privatization has so far been delayed. At this point, a brief historical reminder would be useful.
At independence in 1947, India had many more traders than industrialists. Take the textile factories, of which India had quite a number. How many survived? In most factories, the problem was with the looms. They were obsolete and needed to be changed. Alternatively, the factories could be divided into one, carding / spinning, two weaving and three finishing / wrapping. Instead, they kept going for as long as they could and when they couldn’t, the owners went to shutdown. That the National Textile Corporation (NTC) ushered in the expansion of what might be called the hospital sector of industry; it was really not the public sector although the bureaucrats chose to mix the two.
When NTC couldn’t absorb more sick factories, they were allowed to liquidate, sell their fixed assets, including land, pay employee contributions, and then compensate shareholders. New hotels, office buildings or residential apartments have come to the graves of windmills in liquidation. Yet people continue to dress well, better than before. Spinners, new weavers called power looms, and finishers operate profitably in place of many of the outdated factories. The little industrial tragedy is a reflection of the industrial limitations of some of our entrepreneurs.
On the other hand, there were trading houses that functioned commendably well but their hands and legs were bound by Nehruvian socialism, also vigorously practiced by Indira Gandhi. His plea was that the only means of coexistence for the rich and the poor was socialism. In addition to suppressing business growth with the Monopoly Commission and other similar laws, it nationalized 19 banks, the entire coal industry as well as general insurance. She did not realize that the entire public sector represented state capitalism and not socialism at all. There would be socialism, provided the common people had the opportunity to invest and get dividends. Even according to Karl Marx, socialism was “from each according to his abilities, to each according to his opportunities”.
Thus, Indian businessmen were denied the opportunity to develop and become industrialists. Those who did have succeeded in creating small and medium industries by borrowing even too much money from nationalized banks. Then Prime Minister PV Narasimha Rao did the economy a favor by liberalizing procedures and removing many restrictions. But in his temptation to be re-elected for another five years, he went slowly on his reforms in the second half of his term. If you look at his years in supreme power, he has done more for India politically than economically. Ayodhya was his greatest achievement and the first step in national renewal for centuries.
Bearing in mind all Indian conditions, the PSUs that the government wishes to privatize should be managerially strengthened. Only industrial officials, not bureaucrats, can do this. If they are structurally unbalanced, some of them may need to be merged with other suitable PSUs. The treatment of toning would differ from unit to unit. The toned shares must be offered through one or more public share issues according to SEBI and stock market rules. As long as the Indian state retains at least 40 percent of the shares, the public has shares. Many individuals have savings that they wish to invest but cannot find suitable avenues. On debt securities, interest rates have fallen so low that they have become unattractive.
Note that most of our bureaucrats, ICDs and others, are top notch administrators, but they are unlikely to be effective managers. The former are above all linked to rules and procedures while the priorities of the latter are decisions, production and profits. The two cultures are quite distinct. Therefore, a CEO of PSU should not be accountable to a bureaucrat but to his shareholders. The solution lies in the fact that the President of India separates from the actions of all PSUs to financial institutions such as LIC, GIC and its subsidiaries, banks, Unit Trust of India, etc. When that happened, these new holders would behave like investors and not like zamindars. In addition, politicians would no longer have easy access to recommend their candidates, use their guesthouses and cars, etc. PSUs would then function as businesses and industries, and not as jagirdaris.
If only for taking stakes in paneled office companies from the upper classes to the masses, the late Dhirubhai Ambani must be honored. The best way to do this is to have the public as a partner rather than the banks. His logic was that loans cost interest, not stocks. The actions force management to make and pay lucrative dividends, which Indians expect from PSUs. Karl Marx believed that religion is the opium of the masses. The loans may be the opium of the classes.
(The writer is a well-known columnist and author. The opinions expressed are personal.)