The 'rise' of the public sector

It is now well established that successive efforts to monetise the government’s massive shareholdings in state-promoted companies since the exercise began in 1992 has been a case of hope triumphing over experience. Most years, there’s an appreciable gap between ambitious targets and achievement. But there is a surprise embedded in the data. 

Between the annual efforts at disinvestment and the expansion of the private presence in a host of sectors from aviation to the oil and gas, you would assume that the predilection for setting up public sector units (PSUs) had abated. On the contrary, the decades between 1990, when the term disinvestment came into vogue in India, and 2010 saw the addition of 119 new PSUs, according to data crunched by Prashanth Krish of Capitalmind, an online investment advisory. 

This pace of creation, in fact, slightly exceeds that in the decades between 1960 and 1980, when the public sector was deemed the “commanding heights” of the Indian economy. 116 new PSUs were set up in this period. The decade of the 1990s alone saw the creation of 46 new PSUs. The habits of quasi-socialism die hard, it would seem. 

What are these “new” government companies and what do they do? 

Some of them admittedly have sound reasons for their existence. There is, for instance, the Delhi Metro Rail Corporation, incorporated in 1995. No one would cavil at the creation of the Delhi Metro, especially since it has set a proud standard for similar services in other cities. Then there is the Dedicated Freight Corridor Corporation of India, a special purpose vehicle under the railway ministry that was incorporated in 2006 to build the rail Golden Quadrilateral linking Delhi, Mumbai, Chennai and Kolkata.        

There are others that represent an attempt to streamline a poorly performing business, or what businessmen would recognise as making the best of a bad deal. Air India, the prospective sale of which is eating up acres of column centimetres of opinion pages — again — figures in this list. In 2004, the state-owned airline set up Air India Engineering Services Ltd (AIESL). 

The formation of this company followed a disastrous merger of the domestic (Indian Airlines) and international operations (Air India) — initially called the National Aviation Company of India and eventually rechristened Air India.  AIESL was an attempt to improve the flag carrier’s performance (including an embarrassingly poor employee-to-aircraft ratio). Thus, AIESL was essentially a spin-off of the maintenance, repair and operation (MRO) unit. Given the feverish discussions in the public domain, it is fair to say that this strategy, which made eminent sense at the time, has had limited impact.

One intriguing name on the list of “new” PSUs is Balmer Lawrie Investments, incorporated in 2001 under the Ministry of Petroleum and Natural Gas. This is nothing but a financial vehicle that holds the government’s shareholding  in the rump of a British-owned chemicals company — relic of a bygone era if there ever was one — that was demerged in the latter half of the nineties as part of a strategic disinvestment programme.       

Still other “new” PSUs may need to justify their existence in today’s business environment. In 1995, for instance, the Ministry of Civil Aviation also set up the Airports Authority of India (AAI). With some 22,000 employees, its mandate was to create, upgrade, maintain and manage civil aviation infrastructure. AAI’s biggest projects, however, have been joint ventures with private investors to build major airports (Delhi, Mumbai, Hyderabad, Bengaluru) that transformed the face of India’s dowdy aviation infrastructure forever. Meanwhile, the many regional airports AAI had set up have been the focus of a recent controversial incentive scheme to encourage airlines to run short-haul routes from them and ensure their viability. 

Perhaps the most intriguing “new” PSU is Bharat Sanchar Nigam Ltd (BSNL), incorporated in 2000 after it took over central government’s network once the telecom business was opened to private investment. With a staggeringly large employee base of over 200,000, a shrinking market share and mounting losses, BSNL swiftly became a symbol of the crisis in the public sector. 

In 2010, a tentative announcement of disinvestment prompted some aggressive protest from the unions, forcing the government to back down. Now, BSNL’s name is being lumped with Air India as a possible candidate for a strategic sale, even as the company announces an entry into the near-defunct business of satellite telephony. Who knows, that bizarre plan may yet save it from the disinvestment axe.