Public assets, private gain

Private enterprise flourished in the post-1991 reforms because a solid foundation had been laid by public sector undertakings.

The editorial, ‘The Message from Maruti’ (December 23, 2006), stated that in the age of globalisation and market-friendly economies, government should keep out of industries that have no social, environmental or security implications. But, surely, one cannot have rigid norms or criteria on such matters.

To begin with, not too many people today bother to recall that it was the State that built almost all of the industrial brainpower and muscle from 1956 to 1991. The government launched the so-called liberalisation, privatisation and globalisation policies only in 1991.

In 1956, the larger companies in the private sector, Tisco and some of the Birla companies, neither had the the finances nor the commitment to build technological capabilities of personnel and machinery for the expansion of steel, heavy engineering, heavy electricals, electronics, petroleum, petrochemical and the chemical industries. Where would India have been today had the State not moved into the economy in a massive way, starting way back in 1956?

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It is because the State provided a sound foundation of such core-sector industries over the last 40 years that the private sector was able to move into the consumer and light industries in the last 20 years. It is only recently that the private sector has started manufacturing products that need superior technology and large investment; products that the public sector had till then been making.

When Maruti was launched in 1982, the majority of the machines that it bought for its plants were sourced from public sector companies, like Bharat Heavy Electricals Ltd. and Heavy Engineering Corporation. Naturally, the machines were much cheaper than the imported equivalents. The same applies to Tisco and Telco. We could not have set up our first petrochemical complex — public sector enterprise Indian Petrochemical Corporation Ltd. (IPCL) at Baroda — if the State had not already set up the Gujarat Refinery of Indian Oil Corporation, which produced the naphtha,  the raw material for IPCL.

What is more, the IPCL plant, like the Gujarat Refinery, was designed and engineered by the public sector design engineering company, Engineers India Ltd. Again, our costs of design engineering and equipment were much less than those of imported equivalents. Such indigenous input-providing capabilities gave us tremendous bargaining power vis-à-vis the multinational companies of the US and Western Europe which monopolised petroleum refining and petrochemicals production worldwide at the time.

Apart from the industries that are social, environmental or security-related in nature, which must be promoted, developed and operated on a continuing basis by the State, there is another category — the ‘strategic’ industries — which must be kept under State purview. These are all petroleum-related, energy-related industries and the hi-tech machine-building industries. Reliance has undertaken petroleum refining, on a large scale, only in the last decade or so.

Moreover, Reliance got into petrochemicals by purchasing the superb IPCL plants at Baroda and Nagothane. These were fully operational world-class plants which had the additional financial advantage of being totally depreciated. It is unfortunate that despite the opportunities, India failed, over an entire decade of the Nineties, to set up power generation and transmission capacities.

China has undertaken a massive export drive, primarily to the US market, for the last 15 years or so. The drive is dominated by huge State-owned companies which includes textiles, footwear, electronics and even toys.

The problem with dealing with ‘privatisation’ on a ‘macro’ level is that it does not provide for policy-making on an enterprise-specific basis. What is more, it leads to emphasising on the revenue realised by the State through the ‘strategic sales’ of public enterprises. Most of these enterprises do not constitute only financial resources. Much more importantly, they are sources of industrial, technological and human resources — assets which have been built over long periods of time. This applies equally to Maruti.

Anomalies do exist in the public sector family. What we need to do is correct such anomalies rather than pursue privatisation as an all-embracing macro policy.

Ashok Parthasarathi is former Science  Advisor to Prime Minister Indira Gandhi and Permanent Secretary to scientific departments in the Government of India.