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From the commanding heights to the torturous disinvestment process, Sheela Dubey, in her book Public Sector and Privatisation in India, takes us through the journey of the Indian public sector in independent India.
It was the 1956 Industrial Policy Resolution (IPR) that set the foundation for a major role for the public sector in India’s industrialisation.
Dubey describes the IPR 1956 in great detail, especially the strategic sectors that were reserved for the public sector. It was during the Second Five-Year Plan period that steel and heavy engineering plants were set up in the public sector. State intervention in the economy was very much the “zeitgeist” of that era.
Though Nehru was quite pragmatic and wanted public sector enterprises to be run like private sector entities, Dubey argues that in due course this model transformed into a “stifling form of authoritarian statism long after Nehru was gone.”
Lal Bahadur Shastri, who succeeded Nehru, shifted the focus from industrialisation to agriculture, hardly surprising given how India was relying on massive food imports to feed its population. But by the Third Five-Year Plan, it became apparent that the public sector was not generating the surplus required for future investments and had to rely on government support. Shastri was quite critical of the public sector’s functioning. Dubey, citing IG Patel, wonders whether Shastri would have effected a course correction on the public sector had he lived longer.
Nationalisation mantra
The Indira Gandhi era was really the high noon for nationalisation in India. For Indira, economic policy was always a means to achieve political ends. It was under her regime, especially between 1967 and 1974, that major industries were nationalised — banking, insurance, coal, steel, textiles, wheat trade (though the wheat trade nationalisation was happily short-lived given the disastrous outcomes).
Dubey mentions how a leading light in the Indira Cabinet wanted her to nationalise TISCO (as Tata Steel was known then), but was fortunately dissuaded by her economic advisor PN Dhar. Nationalisation was seen as the panacea for all of India’s economic evils then.
The Janata government, beset with various pulls and pressures, could not come up with a coherent policy on the public sector and lasted only for two years.
The tide turns
Dubey argues that during Indira’s second stint (1980-84), there was a perceptible shift in perception — both within and outside the government — about the public sector’s functioning. Though some of these ills were brought out by various government reports in the late 1960s, it was in the early 1980s that criticism became shrill.
The talk of reforming the public sector by giving more functional autonomy and injecting professional talent gathered momentum.
Rajiv Gandhi was quite blunt in his criticism of the public sector, but Dubey says his reformist zeal died down due to the political headwinds he faced. Despite setting up committees to improve the functioning of PSUs, the promises remained unfulfilled.
Dubey says that right through the 1980s, the talk was only about reforming the public sector, disinvestment and privatisation were not on the agenda, as they were still seen as politically unpalatable.
Dubey devotes an entire chapter on the performance of the PSUs and the reasons for their anaemic achievements. These include lack of functional autonomy, excessive bureaucratisation and political interference, and risk averse nature of PSU managers due to fear of scrutiny from investigative agencies.
The disinvestment era
Disinvestment made an entry into the economic discourse only in the early 1990s during Narasimha Rao’s stint. But Dubey says that Rao, despite his impeccable reformist credentials, was wary of outright privatisation and was happy with the sale of minority stakes in PSUs.
It was during the Vajpayee regime (1998-2004) that disinvestment and privatisation gathered steam. He set up an exclusive Disinvestment Ministry headed by the high-profile Arun Shourie. It was during this time that a number of PSUs were sold to private entities — Modern Foods, BALCO, IPCL, CMC, to name a few.
But Dubey also describes in detail the political backlash that the Vajpayee government had to endure, especially on the BALCO deal. Some of the cases are going on even today.
The UPA regime was lukewarm towards privatisation, given that in its first stint it was reliant on Left support. But even UPA II didn’t take forward privatisation and was more happy to shed stake in PSUs.
Narendra Modi took over in 2014, with the “minimum government, maximum governance” promise. But Dubey argues that though during the first stint (2014-19), the government was able to garner substantial sums though disinvestment proceeds, which helped its fiscal position, its overall record on privatisation was quite patchy.
In recent times, though, the sale of Air India to the Tatas and Neelachal Ispat Nigam to Tata Steel were the Modi government’s significant achievements.
Also during the last few years, PSUs picking up stake in other government firms gained momentum, but this is hardly disinvestment, as Dubey rightly argues.
Modi was also wary of privatisation, perhaps mindful of the backlash that Vajpayee faced during his stint.
Dubey is also critical of governments viewing disinvestment proceeds as a fiscal measure to garner revenue and argues that it should be pursued for bringing in economic efficiency and reducing government support.
In the last chapter Dubey gives a series of recommendations to take disinvestment forward and why forging a political consensus on this issue is crucial.
This book will be useful for students to get acquainted with the history of the public sector in India and the contentious experience with disinvestment.
Find the book here
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