'We have wrongly identified socialism with public sector'

A public sector cement plant: A mountain yielding a mouse"If Sardarjis want to run buses, let them do it. I am sure they would do a better job than the public sector." An old speech of Rajaji's whose birth centenary is being celebrated this year? A crack by Piloo Mody in the Rajya Sabha? Actually it is Raj Krishna, former member of the Planning Commission, at a seminar in New Delhi when he really let himself go at public sector socialism, though he describes himself as a socialist and has been known in Delhi for years as a member of the Lohia think-tank.The tank is apparently overflowing with indignation at the very mention of the public sector, though it is not clear why this should be so. Socialists, of all people, should be more than happy at the steady proliferation of state-owned enterprises in India since Jawaharlal Nehru decided that they should form the cornerstone of India's modernisation.Those who are now in charge of public enterprises - a faceless body called the Bureau of Public Enterprises - remember him gratefully. The state enterprises were to achieve "commanding heights" of the national economy, and that is precisely what they have done.Basic and key industrial inputs like steel, petroleum, coal, electricity, zinc, copper and lead are almost the monopoly of the public sector, and so are most heavy engineering products and transportation services.According to the latest report of the Bureau released last week, the share of the public sector varies from nearly 100 per cent in the case of coal, petroleum and copper to 80 per cent in the case of steel. Such a tremendous hold on the key areas of the economy should be its strength.Actually, it is precisely this huge monopoly that has given it a bad name and may one day prove its undoing - as, for instance, it has done in Britain where the nationalised sector is being blamed for everything, from chronic labour trouble to inflation.Efficiency: "If Tatas and Birlas had this kind of monopoly," says a government official who has just retired from the Industry Ministry, "our industry would really go places." Adds Raj Krishna, "We have wrongly identified socialism with public sector. If public sector is socialism, then we can forget about higher rate of growth."Tatas, for instance, did have a monopoly - of a sort - in steel for years but that does not seem to have affected either their efficiency or profits. The net block of Tata Steel, then as now, the biggest company in the private sector, increased from Rs 31 lakh in 1907-08, the year the company was incorporated, to Rs 125 crore in 1958-59 when the first of the public sector steel plants came on stream.During these 50-odd years, profits also went up from Rs 1 lakh to Rs 5 crore and the shareholders received their dividends. "We have been operating a five-year rolling plan worth Rs 40 crore a year for the last 10 years to ensure that our productive assets are in good health," says J.J. Irani, who, at 44, will take over as Tata Steel's deputy managing director in August."It is this kind of close housekeeping exercise that has kept us going, although our plant is the oldest in the country - some equipment is more than 60 years old but still giving good service."Swollen Edifice: Public sector units, on the other hand, are frequently breaking down - the Badarpur power station in Delhi is a good example. They are of course keen on expansion and growth but their expansion draws heavily on funds from the exchequer. that is, from the taxpayer, and only marginally on their own resources.The result is that the public sector is a bloated edifice - bloated to the point of helplessness. Total investment has nearly trebled in six years, from Rs 6,237 crore in 1974 to Rs 18,225 crore in 1980. Profit (pre-tax) has, however, come down from Rs 312 crore to Rs 227 crore, giving a rate of return that is slightly over 1 per cent - a case of a mountain yielding a mouse.The story is slightly different - as it always is - when other indicators are used, but it does not really make much difference. Gross profit as a percentage of net assets has remained stationary at around 7.5 per cent for the last seven years, and is even less - something nearer 6 per cent - for manufacturing enterprises alone (for enterprises run by state governments, it is around 4 per cent).The comparable figure for private sector industry is around 10 per cent, according to the Reserve Bank of India. If, on this basis, the entire capital currently invested in Central government undertakings was to yield the same return as in the private sector, the exchequer would be richer by Rs 750 crore a year, enough to wipe out half the deficit in this year's budget.Big Outlay: Though the total number of undertakings has now reached 186, the top 10, led by the Steel Authority of India (SAIL). Coal India, and Fertiliser Corporation, account for nearly 60 per cent of total investment, or Rs 10,255 crore.On such a vast outlay which is about half the entire investment in the organised privated sector, the loss was Rs 28.9 crore last year. On the other hand, the top 10 business houses led by Birla and Tata made a net profit of Rs 150 crore on total net assets of Rs 4,180 crore.It is often argued that the activities of the two sectors are not comparable as the state undertakings go in for heavy capital-intensive industries while the private sector opts for more profitable outlets.This may be true to a certain extent but steel, fertilisers, cement and shipping, which account for the bulk of the public sector activities also figure strongly in the portfolios of private business groups.The fact remains that the state has taken on far more than it can chew and is not able to offer its management either the incentive of more money - its managers are much lower paid than those in private business - or the whiplash of the sack, except at the top level where it is counter-productive.The main reason for low returns on public investment, says Raj Krishna, is inefficiency. The net result is that instead of generating large surpluses, the public sector has become a drag on resources. People have to be taxed at higher rates year after year to finance the mounting losses. Prices of coal and steel were raised just before the budget although Finance Minister R. Venkataraman says this is not really taxation. Mohammed Fazal, Planning Commission member, who has himself risen from the public sector ranks, said recently that chief executives of state enterprises should be fired if they are unable to deliver the goods. This is precisely what the Government has been doing - it admitted recently that a number of units were topless - but this has not improved matters.S.V.S. Raghavan, who was sacked by former industry minister George Fernandes from his Bharat Heavy Electricals (bhel) job as chairman and managing director, went on to join Ashok Leyland in Madras as their financial whiz-kid and is credited with drawing up the truck company's ambitious expansion plans which will one day make it one of the top five companies in the country, bhel has not improved after Raghavan.Its profits took a dive from Rs 50 crore in 1978-79 to Rs 39 crore in 1979-80, and the downslide apparently continues. "Your public sector boys are as good as boys anywhere else," says a Davy International executive who has been negotiating with some of them his group's proposals for the Paradip steel plant, "I don't mind hiring some of them myself."He is not the only one. Indian business groups are also keen to hire managers from state units, partly for their 'connections', but also because, given their head, they can rise to the occasion as well as anybody else.English Disease: "We agree that the public sector is inefficient and it is our intellectual responsibility to say so in public, but the way to improve things is not what is being suggested by international agencies," says Amit Bhaduri, a teacher in Jawaharlal, Nehru University, the last bastion, apparently, of public sector socialism.Such an attitude is not, however, peculiar to India. In England, the Labour Party is being split right down the middle by persons like Tony Benn, who is all for nationalisation, and Shirley Williams and others, who do not take such a lofty view of the role of the state in economic planning and management. The public sector in India is almost a model operation compared to what is happening in England - Plant after plant, some of them as big as Tata Steel, are being closed down and some like British Leyland which are still on their legs may bite the dust any moment.F.A. Hayek, the Nobel prize-winning economist, thinks that Britain's current troubles stem mainly from the attitude of labour in nationalised industries. "They have become far too powerful for the good of the economy," he said recently. There are many in India who also believe that unless a brake is applied in time, we too may catch the English disease.They point to the current turmoil in such state units as the Life Insurance Corporation (LIC) and nationalised banks, and the long drawn-out strike in Bangalore-based public sector units that has set the country back by over Rs 175 crore in output alone.Social Justice: There are two reasons why the idea of a public sector has such a romantic appeal to Indians, particularly to politicians. Firstly, there is the general feeling that the private sector is an exploiter - of people as well as resources - while the public sector is a kind of benevolent provider and godfather. The latter is therefore equated with social justice. "It is only in government organisations like the LIC that a clerk can make as much as a joint secretary at the Centre," argues a trade union secretary, half in jest, but not entirely displeased that his boys are reaching the top rung, at least in terms of salary. The public sector units employ 1.8 million people.The second, but not so clearly evident, reason is that without a vast public sector under its direct control, the Government would be almost totally powerless and virtually at the mercy of the private sector. "How on earth do we rule this country without a public sector?" asked Morarji Desai once, apparently horrified at the very idea of having to dismantle the vast state-controlled operation.Desai has been a finance minister and knows what budgets can and cannot do. Private industry in India is also subject to state control but it is one thing to pick up a phone and give orders to your subordinates and quite another to summon Tata and Birla and reason with them.Mrs Thatcher in London is finding it increasingly hard to control prices, output and incomes by manipulating interest and tax rates alone and must often be tempted to intervene directly.Dominant Sector: In India, the Government feels safe with such a vast and dominant sector - with a turnover of Rs 23,000 crore, four times the combined turnover of the top 10 business houses - virtually at its beck and call, ready to do its bidding at the drop of a ministerial pen, apart from the considerable patronage that such a relationship affords.It is virtually impossible to walk down the cavernous corridors of Udyog Bhavan and other ministries in Delhi without bumping into half-a-dozen chairmen and chief executives of state undertakings paying 'courtesy' calls on their bosses. This was also the case when the Janata government was in the saddle, though George Fernandes and others made a great deal of noise about 'autonomy' and 'management culture'.The public sector may be bloated and inefficient but it has come to stay and will continue to proliferate. There are far too many vested interests involved for it to disappear overnight.As Arun Bose, a teacher in Delhi University, says, critics may fume and fret against it but when Raj Krishna himself was in the Planning Commission he ended up with a plan that had as large a public sector as before. The public sector, after all, is power - political as well as economic - and it is not only the politicians who know which side their bread is buttered.Published By: AtMigration Published On: Nov 25, 2013 08:32 IST--- ENDS ---

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'We have wrongly identified socialism with public sector'

The main reason for low returns on public investment, says Raj Krishna, is inefficiency. The net result is that instead of generating large surpluses, the public sector has become a drag on resources.

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