Ever since the government at the Centre, adopted the policy of neo-liberalism, of a market-friendly regime, it has been on an overdrive for privatising the PSUs. To begin with, the argument was that the private sector is inefficient; they are a drag on the public exchequer. They should better be handed over to the private sector, which is presumed to be efficient. Evidently this was with a view to prepare the ground for eventually privatising them. It was a case of giving the dog a bad name and then hanging it. As we can see now it is precisely the profit-making ones, the top ones among them, that are targeted for disinvestment.
In fact, the history of the growth of the public sector in India is being deliberately ignored. The public sector in India came into existence with the aim of developing the country’s economy. Even under colonial rule, railways, post & telegraph, defence industry were developed as government departments. After Freedom the need was to overcome rapidly the legacy of colonial backwardness. Basic industries and infrastructure had to be built without which there was no possibility of developing industry or agriculture or even to raise the social and cultural level of the people. The nationalisation of insurance and banks and creating a public sector in energy, were steps in that direction. The Soviet Union rendered all possible help to India in this endeavour, in building the ‘commanding heights of our economy’. No capitalist entrepreneur came forward to carry out this task. Even the private sector grew because of the facilities provided by the public sector that had come up.
There was another source for the expansion of the public sector. It was the government takeover of mills and factories that were closed or bankrupted by the owners, due to financial mismanagement and other factors thereby throwing tens of thousands of workers out of jobs. Naturally, the performance of each category is not of the same order.
In course of time many public sector undertakings especially in the core category have grown into giant enterprises. They well deserve the title of ‘Navratnas’. Their contribution to the government exchequer in terms of taxes and dividends has been considerable in addition to developing their own internal resources for growth and carry out many social obligations.
In the matter of employment too, the PSUs have a far better record than the private sector. Unfortunately, though in recent days, as part of the government’s drive to withdraw all control and regulation and leave everything to the marker, there are moves towards outsourcing, contracting out, employing casual labour, and looking for franchisees etc. which trade unions are firmly opposing. Private public partnership (PPP) is the new ploy of the privatisers, for instance in railways.
Public Sector Enterprises by and large have been the mainstay of the budget and the economy. If the latest economic crises has not led to disastrous consequences in India, as in most other capitalist countries of the world, it is precisely because the financial sector in the country and the core manufacturing and service industries have been in the public sector. This is now well recognised.
Since there is so much hype about the efficiency of the private sector, let us have a look at the relative performance of the two sectors.
Recently, a study has been conducted by Dun & Bradshaw, who have analysed the financial and operational performance of 121 Central public sector undertakings and then compared a selection of 31 top government listed companies (29 central and 2 state government owned companies) with their private sector peers (viz.216 private sector companies).
The conclusions of the study are as follows:
· Total income of the profiled 121 Central PSUs was Rs. 14,675.41 billion during financial year 2008, which was equivalent to 31.1% of India’s GDP at current market prices.
· The aggregate net profit margin (NPM) was 8.3% in financial year 2008. Within this, the manufacturing PSUs and service PSUs had an NPM of 9.1% and 7.8% respectively.
· The 18 Navratnas had a total income of Rs. 6,871.62 billion in Financial year 2008 which is equivalent to 15% of India’s GDP at current market price.
· Comparing 31 PSUs (29 Central + 2 state) with 216 private sector companies, the study revealed that apart from fulfilling their social sector commitments, PSUs are contributing a huge sum to the exchequer through direct taxes & dividends. The effective tax rate for the PSUs grew from 28.9% in 2004 to over 31.4% in 2008 while the effective tax rate declined by over 350 basis points for private sector companies to 22.9% for the same period.
· In 2008, the PSUs paid over 33.5% of their net profit as dividends, whereas their private sector peers paid only 20.6% of their profits as dividends.
· The total sales of the 31 PSUs were just marginally lower than the total sales of the 216 private sector companies. Even though PSUs are losing their monopoly and India is taking further strides in liberalizing its economy, PSUs are managing to grow at a healthy pace.
The disinvestment drive has been going on ever since the launching of the so-called economic reforms in India. The government of the day had adopted the neo-liberal policy of liberalisation, privatization and globalisation. They were committed to privatise the PSUs and hand over their assets and management control to corporates and MNCs.
During the NDA regime even a Disinvestment Department was set up under a full-time minister. The UPA-I was restrained due to pressure from the Left and the Common Minimum Programme to which it was committed. But with the UPA-II the drive for disinvestment has resumed with renewed vigour.
What is the real object of disinvestment? In addition to promoting a sort of ‘crony capitalism’, the immediate objective is to bridge the burgeoning budget deficit, arising from refusal to raise revenue by taxing the rich on the one hand and exorbitant expenditure on the other. It is resorting to sale of equity to meet its immediate revenue needs. Targets for realising receipts from sale of assets are being fixed in every budget. This is nothing but selling the family silver to pay the grocer’s bill. Like a greedy man the government is virtually killing the goose that lays the golden egg. The long-term steady annual benefit that it would make in terms of revenue earnings through taxes and dividends from the profitable PSUs is being sacrificed for making an immediate one-time additional revenue gain to bridge its budget deficit. The future is being bartered away in the name of a comfortable present.
Announcing targets for off-loading bulk shares of profit making PSUs have other negative consequences as well. It leads to lowering the prices of the shares; offering the best assets for sale, and even yielding management control to the ‘strategic private investor’ ahead of his acquiring majority of shares in order to lure him to buy.
The reported statement of a prominent UPA spokesman that the ‘public’ has a right to own shares and participate in the equity of a ‘public sector enterprise’ is both deceptive and mischievous. Such shares in bulk offered for sale are cornered by ‘big buyers’, some of whom have been private competitors in the business, thus helping them to acquire a monopoly. The man-eaters are at large to gobble up the fare that is offered. There is no ‘people’s ownership’ that comes about from such sale. We should not be misled by such glib-talk of bourgeois politicians and economists. They are worshippers of neo-liberalism and the Free Market.
The trade unions, the CPI and other Left parties have been fighting and will continue to fight all moves for disinvesting and eventually privatising the public SECTOR