Redefine reform as privatisation

Economic reforms have led to welcome progress in disinvestment of the PSUs, reduction of food and fertiliser subsidies, devaluation of the r...

Economic reforms have led to welcome progress in disinvestment of the PSUs, reduction of food and fertiliser subsidies, devaluation of the rupee, freeing of gold imports, reduction of IT rates and dismantling of the license-permit raj. However, on some other issues the reforms have begun to mean exactly opposite of what they are thought to be. Instead of increasing investment in infrastructure to make the economy globally competitive, reforms have come to mean a reduction in such investment. Instead of a reduction in the powers of the PSU bureaucracy, reforms have come to mean increase in the same in the garb of autonomy. The challenge before the new government is not to deepen the existing reforms as much as it is to straighten out the meaning of reforms on these issues.

The first fallacy is that of investment in infrastructure. Manmohan Singh had started the process of inviting foreign investment in power, roads, etc. However, for various reasons the actual inflows have been meagre. Yet, the government has continued to proceed on the assumption that such foreign funds will surely come sooner or later. They well may. But what if they don8217;t or too late? There has to be a contingency plan. Unfortunately there is none, which means that if foreign or even Indian private investment does not come in, then that is the end of infrastructure. Bye, global competitiveness, courtesy economic reforms.

It is essential that the government continues to make all the necessary investments in infrastructure even if that leads to increased fiscal deficit. Of course, it is desirable to privatise infrastructure as much as possible, but that should not mean abandonment of public investment in the name of welcoming private capital. Infrastructure is the constraint on Indian industry becoming globally competitive. Economic reforms should mean increased public investment in this sector, not less with increased fiscal deficit and inflation if need be. This public investment must be seen as the medicine which makes the patient standon his own feet.

The second fallacy is in relation to the PSUs. The government servants have managed to create an impression that it is mainly political interference that leads to inefficiencies in the public sector. That may be largely correct. However, the solution is not to replace political with a Chairman8217;s interference. What is the proof that the Chairman will do better than the secretaries or the ministers?

The demand for autonomy fails to answer the question of accountability. Disinvestment only brings forth an indicator of the success of the management. It cannot create a competitive management. It does not provide any check whatsoever on the malpractice indulged in by the PSU bureaucracy. If the stockmarket determines that the company should die, the government servant still lives.

Autonomy only means that the government servants will no longer be as accountable to the people of the country as they were previously. Instead of the whims of the ministers, those of the government servants will prevail.If a businessman loses money, then it is he personally who loses. If a PSU loses money, it is still the people8217;s money that is lost, not the government servants8217;. Let us face it. The government servant is basically a servant, not a businessman. To expect a servant to run a business profitably, more so when he has little personal stake, is simply nonsense. Of course, there are successes but then there are ten times more than that number of failures.

PSU reforms have to be redefined as privatisation 8212; even selling the controlling shares to the employees at throwaway prices is better than autonomy. At least, the hidden businessman in the employees8217; psyche may come to the fore if they control the companies. Reforms must mean bringing personal stakes in the success and failures of the PSUs and that can only happen with privatisation, not autonomy.

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The challenge before the new government is to make these corrections 8212; increased public investment in infrastructure even at the cost of higher inflation; and privatisation of the PSUs, not granting them autonomy.