Modi’s Great India Sale

Sushil Khanna

Even as the Indian economy was reeling under the world’s most severe lockdown due to Covid, and thousands were dying on the streets without oxygen and hospital beds, the Modi government launched a direct attack on the Indian working class. The BJP ruled states announced the suspension of labour laws in the name of reviving the economy. Simultaneously, the Modi government announced The Great India Sale : of privatising public sector enterprises ranging from banks, insurance companies, railways to land, waterways and airports. For the bankrupt government everything was up for sale.

The bankruptcy is not limited to the fiscal situation. The current government has exhibited a bankruptcy of ideas and policies not seen since India’s Independence 74 years ago.As a consequence, jobs and livelihood have been made worse by a series of bizarre and ill-conceivedeconomic policies, beginning with demonetisation,and the poorly planned Goods and Services Tax (GST), and the fiscal squeeze on important social programmes like the NREGA. Following these ill-conceived interventions, the Indian growth rate has fallen consistently for five consecutive years to 4 percent from 8 percent before the onslaught of Covid. Draconian measures like severe lockdown and curfew ensured that the Indian economy contracted by 9 percent (Negative Growth Rate). No other country in the world has experienced such contraction leading to 6 million workers losing their jobs and livelihood resulting in the sharp increase in poverty and hunger. Even before the economy struggled to stabilise, the government announced the sale of some of India’s most successful enterprises.

The public sector enterprises in India, though few in number have played a significant and strategic role in India’s industrialisation since Independence. As the national savings rates were low and the Indian private corporate sector was weak and technologically under-developed, the public sector assumed the responsibility of establishing capital goods and intermediates to support the private sector’s need for critical inputs. To finance this investment, the central government imposed high indirect taxes, as the direct tax base was small and the wealthy then and now, avoided paying taxes. It was the heavy tax burden borne by the common man that laid the foundation of a modern industrial sector under public control.

The units financed and established in the first two decades spanned a broad field covering basic metals, heavy engineering, machine tools, electrical equipment, aircraft and ship building, basic chemicals, fertilisers, petroleum extraction and refining, and design and engineering. By the mid-1970s, India was seen as one of the few post-colonial economies with a diversified industrial sector. Public sector prices were kept low to subsidise farmers, consumers, small industrialists and entrepreneurs. Generating high profits or providing large dividends was never the goal; nation-building and strengthening modern manufacturing and services were the main objectives.

As the Indian economy faced its first crisis in the late 1960s, due to two wars with China and Pakistan, severe drought and crop failures, many private firms by early 1970s began to shut down. They were taken over by the government to protect jobs and output. Coal mines, well known for very exploitative labour practices and unsafe mining, were nationalised. Fourteen private banks were brought under state control as many monopolistic business groups used them for private accumulation rather than for taking banking to the common man. In 1980 six more private banks were nationalised.

The Neoliberal reforms carried out since the early 1990s, abolished the exclusive sphere of the public sector enterprises (PSEs—also called State Owned Enterprises or SOEs) and industries till then reserved for public sector. Private and Foreign capital was welcome to come and invest in most areas including mining, petroleum, steel and non-ferrous metals, machinery and capital goods, petrochemicals, etc. Even banking was thrown open to foreign and Indian private banks. What is significant, the well-run public financial institutions that provided long term financial support to industry, like Industrial Development Bank of India (IDBI), Industrial Finance Corporation of India (IFCI) etc, were denied government support and eventually phased out or privatised or like IFCI allowed to become a pale shadow of their earlier avatar.

One of the main charges against the PSEs was that they were often loss making, and those that made profits provided low returns to capital. But critics ignored the fact that the PSEs were not allowed to set their own prices or even charge `market prices’. For decades their prices were set with the consumer in mind. Thus,very efficient companies like NTPC and Indian Oil, who technically ran their plans with international efficiency had low returns, were forced to subsidise kerosene, gas and power etc. This was good for the poor consumers but came at the expense of financial returns. This also meant that though the neo-liberal reforms had opened all sectors of the economy to the private sector, the actual investment from private sector remained insignificant. The private capitalist found investment in such sectors unviable, as PSEs flooded the market with low-priced steel, power, coal, and petroleum products.

In 1998 under prime minister AB Vajpayee, India too embarked on public sector enterprises (PSEs) reforms with the Nav-Ratna Scheme. The large profit-making PSEs were granted autonomy in strategic and operational decisions, including investment, acquisitions, and borrowings. The Vajpayee government also encouraged these PSEs to charge market prices, dismantling all price controls. PSEs were asked to become “global’ and acquire assets and strategic minerals abroad. However, the PSEs were denied any fiscal support, rather the government insisted on taking large dividends from such enterprises who were asked to give away one third of their profits as dividends.

One unintended consequence of these price reforms was that the inherent 'superior performance and efficiency’ of the public sector enterprises became apparent. Their profits and cash flows saw a phenomenal increase. As the Governments’ own reports of `Public Enterprise Survey(s) show, the profits of profit-making public-sector enterprises jumped from Rs 28,000 crore in 2000-1 to Rs. 76,000 crore in 2005-06 and further to Rs 130,000/- by 2010-11. Today the net profits (after taxes) of such corporations stand at Rs 175,000 crore. They provide large dividends amounting to about Rs 1 lakh crore. What is more, they have emerged as the main drivers of public investment with annual investment levels exceeding Rs 2 lakh crore, much more than what government is able to invest. Compared to these large profits from profit making PSEs, cash losses of small number of PSEs like BSNL or Air India are about Rs 9000 crore only. In other words, with taxes, PSEs generate a surplus of more than Rs 2 lakh crore.

The NDA-I government led by Atal Behari Bajpayee also made serious efforts to privatise several public sector units. It sold VSNL to Tatas and Indian Petrochemicals Ltd to Reliance Industries, making it possible for Ambanis to monopolise market for petrochemicals, plastics and synthetic fibre and yarn. The process was riddled with corruption with many hotels and units resold at much higher prices. Today, once again the crony capitalists around BJP are getting ready to grab land, companies and even ports and railways about to be sold.

India’s approach towards state-owned enterprises is in sharp contrast to that of China. Like NDA-1, China too embarked on reforming its State-Owned Enterprises (SOEs) in 1998 at the 15th Congress of Communist Party of China (CPC). The Congress approved a radical restructuring of the State sector. While closing or privatising about 90000 small SOEs, it decided to merge and make several hundred large SOEs with global reach and competitive capacity (called “Grasp the Bid, let go the Small. The reforms launched by the15th Congress was to restructure larger SOEs, `corporatise’ them and list several on the stock market, making them profitable and competitive in the global markets. Simultaneously, China set up 37 new SOEs in new emerging industries and technologies like mobiles, aviation, electric cars and storage batteries, wind energy etc.

Today Chinese SOEs have captured the "Commanding Heights" of Global economy. As the “Fortune Global 500” list for year 2020 revealed, Chinese large firms had overtaken US-based firms in the list of world’s largest companies. China today has 124 firms in the Fortune list, of which 95 are SOEs, compared to 118 from the USA. Many so called private Chinese firms like ZTE, Lenevo are known to be controlled by SOEs. Along with other public sector firms from countries like France, Brazil, Saudi Arabia, Russia, Denmark etc, for the first time 30 percent of large global companies are state owned firms.

Such public sector firms play a strategic role in defending countries national interests, national security and provide relief to consumers in time of crisis like the one faced by the world economy today. China has used them to roll out its “Belt and Road” initiative.

While shouting slogan of ‘Atmanirbhar (self-reliance) Bharat’ present government is doing the exact opposite by allowing 100% Foreign Direct Investment (FDI) in such strategic sectors of the economy like defence, railways, telecom, civil aviation, satellites, power, petroleum, mining, coal etc. It is offering to sell to foreigners even the companies like Burma Shell and Caltex, that were taken over or nationalised in the 1970s. This will adversely impact the functioning of the PSEs in the concerned sector and compromise India’s national interests including national security.

This agenda of privatising and dismantling the public sector in the country could cause irreversible and severe damages to the nation’s polity and economy. It will destabilise the economy, and drive the market towards control of private monopolies, many linked to Modi-Shah clique. Privatisation of banks and insurance will once again allow banks being controlled by big business houses, which had regressive consequences for the economy. The dubious practices of private bankers will jeopardise the hard-earned savings of the common man.

The mindless privatisation by NDA-I was responsible for the defeat of BJP-led alliance in 2004. People are hoping, not against hope that the protests by workers, farmers, and common consumers reeling under high taxes and prices, and opposing this drive to sell public assets to cronies of the regime will help unseat NDA-II.

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Frontier
Vol. 54, No. 14-17, Oct 3 - 30, 2021