Real Economic Reform Total Disinvestment WHY & HOW
There is widespread criticism of the price rise. This is understandable. Common people are hit unbearably hard by current prices. The government cannot help them too quickly. The opposition is demanding a rollback of the fuel price hike because it will further raise prices. Finance Minister Pranab Mukherjee responding to opposition demands for the rollback said: “My financial condition does not permit me.”
The crippling agony of the price rise may not last. Chairman of the Prime Minister’s Economic Advisory Council C Rangarajan said: “In recent period there have been some signs of decline in food inflation…if the Rabi crop is extremely good there will be a sudden decline in food inflation.” But even if that happens will the government’s overall financial condition improve? Not really. Pranab Mukherjee’s helpless financial condition arises from causes more permanent. India’s future is being strangled because its economy is trapped in the coils of a silent and deadly crisis. Singapore based think-tank Economy Watch describes it as “explosive”.
This is why. There are about 500 Public Sector Units (PSUs) in India. All together these are worth about Rs 20 trillion. This is a little less than half of India’s Gross Domestic Product (GDP). India also has a huge public debt, about 80 per cent of GDP. But unlike the US, 90 per cent of India’s debt is owed domestically. Nevertheless it is crippling more is paid to service this debt than to any other item in the budget, including defence, social sector or health care. Finance Minister Mukherjee said: “GDP means National Rural Employment Guarantee Agency (NREGA), loan waivers: without growth all this is not possible.” Quicker growth necessitates the fuel price hike. That in turn will trigger a general price rise hike. That is the problem.
However, to get out of the jam, think out of the box! There is a radical and effective solution available if the government has the guts to dare. This solution requires the government to take on sacred cows head on. Quite simply, the government must go in for total
disinvestment instead of disinvesting in driblets. That would reduce the huge amount frittered in debt servicing and release funds for a mega stimulus that could create massive rural infrastructure, social services and rural employment. All the money obtained from disinvestment must of course be earmarked only for rural welfare. That would optimise the nation’s most valuable asset its human resource. This proposed mega stimulus would dwarf the NREGA scheme.
This stimulus must be accompanied of course by stringent discipline to curb official wasteful expenditure, as well as a reformed political culture that curtails corruption. This may seem a tall order. But a mega stimulus unleashed after total disinvestment might prove to be just the catalyst to encourage radical all round political reform. The problem is that political opposition to this idea would prove too formidable. The vested interests favoring PSUs are exceptionally powerful and well entrenched. Even The New York Times of February 25, 2010 wrote that India’s PSUs “became the backbone of political patronage, providing, for example, relatively secure and high-paying jobs to members of powerful unions. As a result, India’s leaders have found it hard to let go of the companies.”
However, there is one way that a government with guts could politically take on the vested interests supporting PSUs. The employees of the 500 PSUs should be given the first option to take control of their respective companies by converting these to workers’ sector units. Quite simply all workers should be given share in ownership, profit and floor level management of their companies. The government should confine itself to only effective regulation. Workers’ provident fund should be adjusted against their controlling share of equity ownership. The units should appoint professional management from within or outside the employees-pool that would be accountable to workers. Like any multinational corporation these worker sector units could attract foreign or domestic investment. Only if employees of a PSU are unwilling to take charge should the government auction the company to outside bidders.
Amul, Mother Dairy and some units in Kerala have demonstrated the success of workers running companies. Critics scoff that food products require skills different from other industries. The critics are wrong. It is not a question of skills. It is a question of attitude. Ownership will create an equally strong vested interest in the progress of the company among workers as it exists among traditional capitalists. Only, workers most likely will be more sensitive to social concerns. And strikes would become redundant in their companies.
Is this too utopian? Why not test the idea?
Right now the National Aviation Company of India Ltd (NACIL) is in a royal mess. NACIL controls both Air India and Indian Airlines. Both airlines are in the red and badly managed. Last Friday the Committee on Public Undertakings presented in parliament its report on NACIL. The parliamentary committee was entrusted with finding “the root cause of malaises and propose ways for revival” of PSUs. It reported: “The so-called merger (of Air India and Indian Airlines) was an ill-conceived and erroneous decision neither arrived at by the two airlines on their own accord nor mutually considered by them to be in their best interests.” It recommended that NACIL should become the holding company with two separate wings—”NACIL Indian Airlines with its headquarters at Delhi and NACIL Air India with its headquarters at Mumbai, each headed by a managing director.”
One dares the government to gamble. Let it suggest to the pilots and all other employees to consolidate their unions and take over the future of NACIL. Let it be seen whether they succeed or fail. This scribe would put his money not only on their spectacular success. He also believes that this experiment would prove to be a game changer. It would open the door to the emergence of a nationwide Workers’ Sector that could revolutionise democratic societies. It would usher industrial democracy. It would marry democracy and socialism that are in truth made for each other. Politically or economically, both aspire for the same goal.
By Rajinder Puri