Kanika Datta: The 'private' face of the private sector

SWOT

Back in the nineties, when the government started vacating swathes of economic activity, the private sector was viewed as the great hope for Indian consumers long harassed by the shoddy service and restricted choices of the pre-liberalisation era. Certainly, in the 15 years since Manmohan Singh's seminal 1991 Budget, the private sector has occupied the "commanding heights" of the economy in a dramatic reversal of the Nehruvian vision.

The results so far: India has embraced consumerism with joyous gusto. Relatively unfettered competition has visibly altered the quality of life for average young middle class Indians. Armed with unprecedented spending power""also a consequence of heightened private sector activity""it is now possible for them to afford a range of goods and services that their parents' generation could scarcely have dreamed of or spent lifetimes acquiring""cars, homes, refrigerators, washing machines, credit cards, multiple phone connections, bank loans at easy rates, easy airline travel.

Though the metamorphosis in India's consumerism landscape is vividly evident in urban and even small-town India, it is worth asking what best practices the private sector has introduced in terms of consumer service. Can it really be distinguished from its pre-liberalisation predecessor in this respect? The answer should be a resounding yes, but surprisingly, it isn't. To be sure, in areas where competition is relatively unrestricted, consumers have gained significantly in terms of the off-the-shelf availability of cars, telephone connections and a range of products and services. The principal detractions here lie in the irritating phone marketing solicitations and post boxes that bristle with junk mail.

It is in areas where competition is relatively limited or in post-purchase transactions where exit is difficult that there is often a disquieting inability to distinguish between an old-style public sector company and a private sector one in terms of worst practices""striking examples being power, cable TV distributors and after-sales service networks. The stories are all too familiar""of lax or inept after-sales service behind the slick hard-sell or the ennui of inefficient delivery, and so on.

Even more disturbing, however, is the evidence of rank corruption. Among the frequent culprits are after-sales service agents of white goods manufacturers. Most companies tend to limit the number of after-sales agents per locality to one or two. This makes business sense but, from the consumer point of view, it creates quality-distorting cartels or monopolies. Today, there is any number of after-sales agents representing the most blue-blooded of global durable manufacturers, who think nothing of switching parts from machines or gadgets under warranty with a defective part from a machine under repair. Nowhere does the harmful impact of a private sector-imposed collusive association reflect better than in the cable TV distribution business, where consumers have little recourse but to pay the price of almost criminal inefficiency from politically protected service providers. In Delhi, workmen of the newly privatised power distribution companies""both monopolies in their areas""offer to "fix" your meter to record lower bills, in return for a mutually agreed consideration or ask for bribes to attend to your problems. In Gurgaon, the staff of private housing companies asks for speed money to transfer sales papers as a matter of routine.

The answer to all these problems, of course, is more competition. But the overarching lesson from these small but irritating examples of private sector corruption""practices that no amount of SOX or Clause 49 compliance can touch""is that the private sector cannot be relied on as the sole panacea of India's all economic ills. The private sector is not a virtuous beast in itself; it is competition and regulation that make it efficient and ensure that consumer interests are protected.

These are issues that policy-makers need to consider in the current environment where private capital is increasingly being lured into the provision of public utilities. Should the private sector be relied upon for efficient delivery of services in water, power and roads, even education and health, where the gains have to be offset against consumer benefits, and asset-building requires long-term commitments? The transformational impact of the private sector on the Indian economy cannot be denied.

But private enterprise is inherently profit-seeking; India's experience with a mixed economy has shown that efficiency and consumer orientation are functions of competition, not natural compulsion. As early attempts at power reform have demonstrated, simply transferring a monopoly from the public to the private sector amounts to a zero-sum game.

The views here are personal