Government-ownership must end

Jun 05 2014, 01:24 IST
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SummaryThe economy will move forward faster if PSUs are privatised and the government develops infrastructure with the earnings

The UPA government spawned many good ideas, such as the PPP, urban renewal (JNNURM), rural employment guarantee (MGNREGA). Each of these was an innovation in a so-called socialist economy. Through PPP, the Indian economy was opened up from domination by government-owned enterprises in key areas (coal, oil & gas, steel, petrochemicals, civil aviation, roads, metro rail, etc). Rajiv Gandhi opened many of these areas to private investment, and private entrants flourished even as the state enterprises declined.

Vajpayee began to privatise them. He achieved additional revenues to the government by sales. By improving their efficiency under private ownership, the sold enterprises added to the GDP. PPP is a good idea but poorly executed. Poorly drafted contracts, long periods of ‘levellised’, i.e. more or less fixed tariffs, delays by government departments in giving clearances, aggressive bidding at unviable tariffs by private parties, and the faults in implementation are legion. The result was poor progress with the new enterprises in adding to production, and with the high debt allowed to them, huge unproductive bank advances.

To work, it must be carefully redesigned. Apart from the contracts being redrafted, the fixed tariffs must be for a maximum period of 12 years, as required by the lenders. All government departments that have to give clearances must be set time-limits and pay penalties for delays. A statutorily-created regulator must clear each contract and monitor that the terms are not violated.

The government invested in heavy industry and infrastructure in the 1950s and 1960s because private enterprises could not raise funds. Foreign investment was taboo because the government was afraid of being dominated by the West. By the time Lal Bahadur Shastri became the PM, the conditions had changed and the government should have stopped investing in new industries; it should have begun to exit from those it had entered. Instead, it continued on the same path, and took over private enterprises in some sectors. These enterprises were controlled by bureaucrats. In many cases, they were the CMDs. In others, there might be a career professional in charge but he was heavily subservient to the ministry.

Even R&D was largely under the government. Modest successes apart, the government-owned laboratories contributed little. They might have been better off if they had worked under the Boards of private sector managers. The worst perhaps is the case of the DRDO. Hugely wasteful, delay prone and inefficient, it cost the nation both in the

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