Prime Minister Narendra Modi was spot on when he told the Wall Street Journal that the public sector has “a very important role to play” and should not be done away with. But not, perhaps, in the way he intended.
What would we do without the public sector? Considered objectively, it can boast a number of negative advantages.
Take the question of jobs, one of the most contentious emerging issues for this regime. No matter how much it suffers from serial, ham-fisted interference by politicians, the Indian public sector remains the country’s only durable safety net, invaluable in the absence of a formal social security system.
The public sector accounts for roughly 18 million jobs in the formal sector, compared with 11 million in the private sector, and employs a sizeable chunk of the 400-odd million in the informal sector. Many of its companies are ailing but bloated beyond belief. If they were closed, joblessness may be even higher than we can guess. For example, BSNL, which has accumulated losses of Rs 36,000 crore and an eroding market share, employs over 200,000 people, compared to 24,868 for Bharti Airtel, the largest Indian-owned private sector telecom service provider. Periodic attempts to privatise BSNL have met with such fierce resistance from its unions that the government has backed off.
Air India is another fine example of a proxy dole in operation. From being the monopoly airline, it now stands at number three. It suffers accumulated losses of over Rs 7,500 crore. It survives principally because all government employees fly it at full fare. It has 28,085 employees, a number that is static only because employees who retire are (sensibly) not replaced. By comparison, Jet Airways, India’s second largest airline by market share, has 14,000-odd employees.
True, both Air India and BSNL (and there are many like them) suffered appalling decisions imposed on them by politicians. Had they been in the private sector, they would have folded. But with our pesky labour and (till now) bankruptcy laws, private promoters of such businesses would not have been able to close them in an orderly fashion. Most likely, these promoters would have decamped overseas, leaving unpaid employees in the lurch. In the absence of a public social security net of the kind that exists in most developed countries, heartrending stories of suicide and ruin have been inevitable (Kingfisher Airlines has been a recent visible example but workers in the jute industry in Bengal suffered thus for decades). The government, obviously, cannot abscond; so employees of BSNL, Air India et al and their families continue to enjoy lifelong security courtesy the Indian taxpayer without having to exert themselves to meet any performance metrics. Popular unrest is averted.
The private sector has also enjoyed many indirect bonanzas from the public sector, especially after the dismantling of the licence raj from 1991. Had it not been for these companies, large private sector corporations would have been harassed even more by politicians for favours and funds. Then, in areas where the government vacated its monopoly, the public sector provided an invaluable recruitment pool and an eminently competent management cadre for private competitors — from oil and gas to electricity utilities, telecom, airlines and financial services and scores of others. This steadily stripped the public sector of most of its best talent, but no one was complaining.
From relatively successful conglomerates like LIC and Maruti, the private sector also derived the benefits of a readymade critical mass of India’s vast consumer base. Meanwhile, former monopolists in airlines, telecom, the gas agencies and the state-owned banks provided a useful lowest-common-denominator benchmark in service delivery.
At the other end of the benefits spectrum is the ability of influential businessmen to importune easily persuadable politicians to suborn state-owned banks to lend enormous sums to patently unviable projects. Few private banks would take the kind of risks their public sector counterparts are regularly pressured to undertake, a differential that is visible in the bad loan statistics. Again, it is the public sector than enables private players to abdicate with impunity social responsibilities such as rural telecom, short haul air connectivity or special benefits for poor consumers.
Taxpayers may cavil at being forced to bankroll an inefficient public sector. Though this is no justification, fuzzy political thinking has also ensured that rich and middle class Indians and wealthy farmers derived the benefit of subsidised fuel (till recently) and electricity for decades at the expense of the public utilities.
Back to politics: without the public sector banks, insurance companies and utilities, governments would not be able to hand out eye-popping loan waivers and free electricity to boost their electoral chances, salvage disinvestment IPOs that attract poor investor interest and save India the public embarrassment of poorly negotiated international projects like Enron.
In short, the roots of the Indian public sector’s structural deficiencies are deeply embedded within the political economy. If Mr Modi is mystified about the meaning of “big bang reform”, as he confessed to WSJ, he should look no further than the sector he thinks he must sustain.
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
