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Second thought

Serving to create diversified value in society, state-owned enterprises must be restructured rather than sold or privatised for the benefit of economy and people

Second thought

In the midst of a severe downturn of the economy and the GDP growth rate touching a new low, Modi government has launched large scale privatisation of the public sector companies, expecting one lakh crore rupees as proceeds to cover up the shortfall in revenue and deficits. It has been termed as the largest privatisation drive in the country. Though the government has phrased it a part of economic reform to overcome serious slowdown of the economy, there are no takers of this overt statement primarily due to its time and manner of implementation. People are apprehensive of the real intention of the government which has a track record of putting national assets into private pockets in the name of nationalism.

Is privatisation good for the country? Answer to the question may be in affirmative 'if public enterprises function like private sector organisations, very efficiently without actually privatising the enterprises, they can satisfy both the agenda of profit-making and the social responsibility' as a recent ADBI working paper has put it. But this 'if' is too big a condition to be fulfilled in the present scenario of the private sector in the country — most of which are themselves in very bad shape.

It proves privatisation inefficient of solving all economic evils, especially when it is self-inflicted by the government's own faulty decisions, such as the present economic crisis that India is undergoing. Moreover, it must be noted that private sector concentrates more on the target in profit maximisation, ignoring the social responsibility which is minimal when compared with those of state-owned enterprises (SOEs). They do not give much importance to transparency and keep their stakeholders in the dark. To achieve their goals, they make every effort such as encouraging corruption, unlawful ways of accomplishing objectives, lobbying and so on. A review of the privatised status has indicated that privatisation results in high employee turnover, retrenchment, low salaries and so on, causing a certain imbalance in society. Privatisation and price inflation go hand in hand. Many more inconveniences, disadvantages, difficulties, setbacks and troubles have continued during and after the privatisation of SOEs in India, the ADBI paper has mentioned.

Nations throughout the world have their own enterprises, and every state has a responsibility to have active and professional ownership to create value. Such value can include economic value, social value, sustainability value, livelihood value and so on. The SOEs have legal bindings to achieve the state's vision and mission. It is also the responsibility of the SOEs to work following a strategic method befitting a business to support themselves, achieve continued development, fulfil the purpose of their existence and enhance the income of the state without incurring losses.

SOEs need to improve the monitoring of the performance of public policy assignments within the scope of their corporate business administration. Many Indian SOEs' performances are commendable, but it is painful to see them sold and partially or fully privatised by this government, though they have achieved sustainability in the past and expect to do so in the future.

However, evidence and case studies have shown that many SOEs do not contribute in accordance with the expectation. They are characterised by low-performance levels and systematic variations which is a major weakness of Indian SOEs. The paper says that the labour laws almost entirely ignore the privatisation of public enterprises and therefore are unable to support the economic growth of this country. It is in this context that reforms, including full and partial privatisation, have to be continued to enhance the efficiency of SOEs in India, but social justice is necessary to be secured in the process. Involving members of the public as shareholders of SOEs will certainly improve their performance and accountability. Granting funds and concessions should avoid loss-making and problematic public enterprises.

Despite implementing product mix diversification, Indian manufacturing companies present poor performance, especially financial performance, because of the lack of modernisation of machinery and people's skills. These firms make positive contributions to the operating margin before direct labour, but most of them lose at the earnings before interest, tax, depreciation and amortisation level.

The ADBI paper has suggested two solutions to this issue, consisting of restructuring and disinvestments. It says that India should adopt suggestions to reform Indian SOEs: first, enhance the power of SOE boards to undertake decisions after considering all the relevant interests; second, improve the independence of SOE boards; third, reduce the government interventions in the functioning of SOEs; fourth, simplify the ownership of SOEs by consolidating ownership in a single entity, like the State-owned Assets Supervision and Administration Commission (SASAC) in the People's Republic of China, Temasek in Singapore, or Khazanah in Malaysia; fifth, provide greater recognition and protection of minority shareholder interests, and finally, implement appropriate balancing of the interests of shareholders and other stakeholders.

There is no denying the fact that the public sector needs renovation since it makes a crucial contribution to national investment and growth. They may need more dynamic shaping for better performance. Privatisation must not be used as an escape from the responsibility of the government because SOEs have fostered their profitability, investments and growth since India transferred to market-based prices and incentives with better contract enforcement. In the manufacturing sector, the profitability and efficiency of SOEs are superior to those of private enterprises. However, the performance of SOEs in services is poorer than that of their counterparts, which can be improved if there would be a political will.

While privatising the SOEs, we must also take into consideration that there has always been a considerable amount of political interference in a public enterprise, and this interrupts the company in terms of taking economically beneficial decisions, which hampers their performance. The ruling establishments are also known for their short term goals because they often expect to obtain more votes. The question must be asked — Can the government not mend its ways for enhancing the performance of the public sector, rather than privatising them to cover up the deficits and revenue shortfalls, or putting the national assets in private pockets, overtly in the interest of the national economy, and covertly for ulterior motifs best known to themselves? We must not forget the SOEs' contribution to the Indian economy and the well-being of people.

Views expressed are strictly personal

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