International rating agencies have repeatedly refused to improve the raking of the Indian economy because of the drag of the Public-Sector Banks (PSBs) and Public-Sector Undertakings like Air India. Actually, these PSUs have served their purpose and should now be handed over to the private sector.
The Government is moving in the direction of “disinvestment”. It is proposed that 51% shares and management of the PSUs will remain with the government as in the State Bank of India. Strategic sale in favour of private businessmen as in VSNL and Modern Foods will not be done. There is a need to reconsider this policy. The objective of the Minister is to garner votes and that of the officers is to secure promotions. These objectives can be fulfilled by pushing the PSU into loss. For example, the minister can get the PSU to employ his supporters even when there is no need for labour; and the officers can bleed to unit to provide political donations and get promotions. This problem can only be solved by making a strategic sale in favour of private party.
It is proposed that a huge amount of Rs 2 lakh crore will be infused into the Public-Sector Banks to help them survive. In doing so, it is being assumed that shortage of capital was the reason for their going sick. The main reason for the PSBs going in red is the divergence of the objectives of the ministers and officers and the needs of the market as explained above. There is no such divergence in the private sector. The private businessman may debit his petty personal expenditures such as that of foreign travel in the company account, but his objective is to make profits. There is a convergence of the interests of the unit and the private owner as far as making profits is concerned. This problem is not solved in the revival of sick PSBs. The money invested in revival will go the way the initial capital has gone.
There is a need to think differently. The PSUs were established in areas where the private sector was not able to make investments like the integrated steel plants established after Independence. The private sector has since developed the capacity to establish and run such units. Absence of public investment in these sectors will not hurt the economy now, because the private sector is in a position to do the job. But, there are new areas where there is a dire need for fresh public investment. The government should sell the share of old PSUs which have served their purpose; and invest in new PSUs which are now needed.
Mokshagundam Visvesvaraya, the Dewan of Mysore said, “Role of the State was not to run industries. That was the private sector’s job.” However, this did not mean leaving the task to them alone. The State had an active role in supporting the private sector. The starting of new industries calls for entrepreneurship and adventure. The private sector suffered from the fear that even the capital that was invested might be lost. Therefore, Visvesvaraya held that the government must itself start new industries on a pilot basis and hand them over to private hands when successful. We should look at PSUs in this light.
Indian space and defense scientists have developed considerable ability in satellite delivery, imagery and communications. Agencies like Indian Space Research Organisation lack the commercial bent of mind to sell these services to buyers across the world. A PSU must be started to sell these services.
We have much scientific expertise in genetic and biotechnological research. But research in these areas is risky. One has to make a large number of experiments before some are successful. The investment required is very large. Indian private sector is not rising to the occasion. A PSU should be established to develop and commercialise these technologies. Let us set up a Monsanto in the public sector.
A new generation of internet is in the offing. The internet was developed with the assistance provided by the United States’ government. The Government of India should take the lead in this work. We can develop the new internet at a fraction of the cost of the United States. We should establish an Internet Development Corporation.
Most developing countries are having difficulty in understanding the rules of the WTO and presenting their cases. There is a need to establish a WTO Support Services Corporation to provide these services to other developing countries. We know that countries regularly engage lobbying firms in the United States to present their cases to the American pubic and policy makers. This company should provide similar services in the WTO. It may also have a legal wing to provide assistance in pleading their cases before the WTO dispute settlement boards. There is much scarcity of information about the happenings on in the WTO. The Corporation could bring out a series of journals to update the businessmen, exporters, government officials, attorneys, etc. about the latest developments. Such a corporation would give India much influence in molding the opinion of the developing countries.
India has an immense potential in exports of labour intensive services like health and education. But, we are not able to sell these services. The tuition fee alone for a two-year master’s degree at London School of Economics is about Rs 15 lakhs. It is easily possible to provide the same quality of education in India at half the price – including transport of the student. A PSU must be established to sell these services to the world. The job of the corporation would be to scrutinise the educational institutions and rate them – somewhat like CRISIL does for the share markets.
Then, it should arrange for testing to be done by internationally renowned agencies like the Educational Testing Service of University of Michigan or by renowned institutes like IITs and IIMs or similar institutions abroad. It should then sell these services in select foreign destinations. The PSU should pick up the students in their home country, bring them to India, educate them, get internationally acceptable certification and place them. This would give a big boost to our education sector. The same holds for health services. It is cheaper to come to India and have a bypass surgery done than getting it done in the United States. We must establish an Indian Education and Health Services Export Corporation.
The writer is a formerly Professor of Economics at IIM Bangaluru.