What Is The Government Doing Running Businesses?

What Is The Government Doing Running Businesses?

Gandhiji may have written fairly extensively about governance being a solemn trusteeship, meaning thereby, or implying, that the government should let go of assets it crucibles and incubates, when the time is right.

But the notion has, in our seven odd decades since independence, been more observed in the breach. The government just keeps it all.

Of course, M.K. Gandhi could not envisage or visualise in the 1930s and 1940s, with his small is beautiful, and back to the village, labour intensive and swadeshi ideas; the scale, competition, and sheer interdependence that globalisation would impose on the world.

Or indeed, of the relative speed with which technology would conquer everything and capture the narrative, no matter what the ideology being espoused!

But still, India has never really nurtured business and industry in the greenfield stage, only with the intention to hand it over to the private sector to run once its survival looked assured. It tries, from time to time, to unload loss- making lemons at inflated prices, predictably, without success.

It has, in fact, never worked to deliberately build up the private sector, tolerating it as a second fiddle in a ‘mixed economy’, though it now talks of fostering start-ups and skill development which might be a beginning towards it at last.

It has often been said that in taking business and industry upon itself, along with all its other responsibilities, the government did not manage to look after the interests of ‘the people’, whose money went into its hundreds and thousands of badly put together, outdated, inefficient, mostly loss-making  enterprises.

Nevertheless, the government has hung on resolutely to its sizeable number of PSUs in very many fields, and poured countless crores in public funds into the sink hole of their survival and upkeep.

Positive returns under sarkari management are rare, even in public service institutions it runs, let alone industry, services, or enterprise; and in many cases, where the ink on the ledgers is actually black, to use a metaphor from the old pre-computerised days,  the returns are a scandalous 1 or 2% on ROI.

The thinking was/still is, that it provided much needed employment and was a kind of welfare scheme, rather than entities that needed to work to turn out quality goods and services and make a profit.

And gradually the stranglehold of a plethora of enabling labour laws and trade union penetration saw to it that they had to be kept going even if they produced nothing or ran up losses every day.

Today, when the Modi government tries to prise open this stranglehold, the entire status quoist establishment rises up in protest. So much so, that the prime minister  apparently changes course, and tries to nurse the problematic companies back to health. But how long can this kind of person al zeal be sustained, and what will be the net effect of less interested successors?

Every government since 1991, when the most significant reformation of the economy began, has spoken of divestment and privatisation, but faltered at the starting gate. They have made one or two controversial offerings, usually in the manner of a distress sale.

These undervalued sales have gone through thanks to an eye on lucrative physical assets like land and buildings, acting as the lure for private acquisition. This has raised questions of both propriety on the part of government divestment actors, and exploitation, rather than any attempt at fair value, on the part of the private, sometimes foreign investing acquirers.

As  for privatising the management or unloading majority shares, the record has been dismal, probably because of demands that the government absorb all losses accumulated, in order to let the enterprise go forward under private management, quite debt free .

So, most divestment and privatisation targets have remained on paper, administration after administration. No one wants to perform the politically fraught and thankless task, and face the innuendo infused music ever after. But is this because the government has forgotten Gandhiji’s nudge on trusteeship?

In other words, letting a company go into private hands for its eventual  betterment is a moral desirable, and for the government to exit from a distraction to its core functions, even at nominal terms, is a good thing, seen  in this light.

But most governments are bent on earning ambitious revenue from its assets and just cannot manage to do so.  

To be sure, first prime minister Jawaharlal Nehru’s Harold Laski and Soviet influenced ‘commanding heights of the economy’ position, saw the public sector doing almost all the heavy lifting when it came to core industry and infrastructure.

But, this was not just because the private sector, perhaps with foreign collaborators in tow, could not afford to invest in long gestation and expensive backbone industry. The thinking came also from a socialist’s mistrust of the private sector, and its pursuit of profit and supposed efficiency, seen as a code for heartless class oppression.

And so, the privates were kept on a leash for long years in this country, and consequently became very good at thriving in adverse conditions, sometimes by hook or by crook. They learned to use the government regulations to their advantage. They learned how to corrupt its officials to do their bidding.

But still, policy stubbornly kept to the nets and entrapment of the licence permit raj, however convoluted the business climate became as a consequence.

The aftermath of the licence permit raj, with its what can be made and how much of, is still evident to this day. As such, in overall size, the private sector still comes a poor second to the government. 

Deliberately turned into pygmies and bonsai enterprises over decades, privates in India lack major capital, as do Indian banks, both public and private. But in dwarfing private enterprise the government also dwarfed itself. It grew for years at 2 or 3 per cent in GDP terms, probably wiped out altogether or turned negative because of high rates of inflation. This drove the country to undeclared bankruptcy, before it cried uncle and started dismantling its over regulation.

That is why, even now, when our growth rates, at about 7.5% p.a., are meant to  be the best in a troubled world,  prime minister Modi travels the world to attract FDI to fund his growth plans.

After nearly 70 years of running our own show, we have built an economy of around $ 2 trillion, grossly inadequate to meet the needs of our 1.2 billion people. China, with a slightly bigger population, has meanwhile pumped up its economy to over $12 trillion, using unabashed capitalist methods under its communist shingle, consistently over the last 30 years.

That PSUs provide politicians with the scope to distribute patronage is undeniable. But is extensive non-strategic state ownership of business and industry, some of which are outright monopolies, appropriate, if this country wants to develop faster?

Of course, prime minister Modi takes considerable pride in his ability to tweak administrative processes to produce better results. He coaxes out greater productivity and massive cost savings. This, applied not just to business and industry but in the dispensing of subsidies and sops, the LeD light bulb revolution, the more affluent giving up of the cooking gas subsidy  voluntarily, in a massive digitisation push combined with the AADHAR Card.

And then there are the early breakthroughs in his ‘Make in India’ campaign, with its promise of many new jobs, this time emphasising the private sector and foreign collaborators. The Modi government has made major headway in better electricity generation using revived coal mines, more solar energy. There is also an exciting and huge push into road, rail, and port infrastructure.

But as it stands, the old cohabits with the new, and very little is jettisoned.

Should the government not get out of running businesses, as Modi promised on the campaign trail in 2013-14? Why then, is it seemingly comfortable sitting atop a disparate laundry list of non-essential activity?

The gargantuan size of expensive and ever expanding government is eating up a good deal of revenue after all, leaving not very much for development. If it downsized because it wasn’t supervising so many non-strategic industries and businesses, it could concentrate on its real job of providing infrastructure, security and finance.

But coming back to the concept of trusteeship, the only entity that apparently heard and implemented Gandhiji’s message, even if it did so for its own self perpetuating reasons, is private sector primus inter pares, the Tata Group.

It is also, along with fellow Parsi started enterprise, the Godrej Group, renowned for having some of the most enlightened HRD practices and policies in the country as well.

Tata is overwhelmingly owned by a number of trusts, with the largest private holding in the apex holding companies, 18%, being in the hands of the Mistry family. It is also very profitable, and consistently so over decades, but probably because it has differentiated between ownership and management.

Cyrus Mistry, younger son of long time JRD Tata confidant and contractor to the Tata Group , the octogenarian Pallonji Mistry, is likely to be in the saddle for the next three decades or more. Mistry is the present group head, after succeeding Ratan Tata, who was hand-picked by JRD to succeed him.

Ratan carries the family name, but owns just about 1% of the Tata Group. But, after relinquishing his executive position on turning 75, he now runs all the key Tata trusts, for life; and invests in start-ups on his own bat.

So, what is it that the government is missing, or is it concentrating on the big new multi-billion ‘Make in India’ private/ foreign/ government partnerships, to put the old PSUs and their problems in the shade?

For: Sirfnews

(1,617 words)

December 4^th, 2015

Gautam Mukherjee