PM Modi’s defence of the much-demonised private sector comes at the right time

The ‘Suit-boot ki sarkar’ jibe by Congress leader Rahul Gandhi aimed at the Narendra Modi-led government during the land acquisition laws (2014) reached its crescendo with the three farm laws (2020). Among other things, these reforms allow farmers to sell their produce to anyone — to the State apparatus under the Minimum Support Price (MSP) regime or to private buyers.

If the big private sector companies were initially the red rag for the communists, soon other opposition parties latched onto this bandwagon, probably with an eye on possible electoral gains.

It redounds to the credit of Prime Minister Narendra Modi that he minced no words in condemning this attitude in the course of his reply, on February 10 in the Lok Sabha, to the President’s address of the joint session of Parliament last month.

Under India’s first Prime Minister Jawaharlal Nehru, the country set store by planning and its adjunct public sector enterprises (PSEs) to occupy the commanding heights of the economy. There were two rationales given — the shyness of the private sector in entering sectors that call for huge investments, and the need for keeping strategic sectors away from the covetous eyes of the private sector.

This Congress worldview was disowned in 1991 by Prime Minister Narasimha Rao when he teamed up with Manmohan Singh to liberalise the economy. Indeed that started the process of unleashing the proverbial animal spirits of entrepreneurs. The automobile and telecom sectors have been sterling examples of the positive potentials of the private sector.

Come to think of it, the ‘suit-boot’ jibe is not so much at the private sector per se as it is against big corporations. This is because the MSME sector, which political parties of all hues champion, belongs to the private sector. About 85 percent of the GDP attributable to manufacturing comes from the MSME sector. About the same is its contribution to employment or self-employment.

In the event, the attack on the private sector is actually targeting of the large corporate houses who are excellent readers of straws in the wind and give political donations to parties who are likely to be in power. The Congress’ ire perhaps stems from this fact that about 90 percent of donations through electoral bonds have gone to its rival the Bharatiya Janata Party.

That the PSE did not live up to their expectations would be evident from the following facts and figures.

Employment in Central Public Sector Enterprises (CPSEs) grew massively in the 1970s — from 0.7 million in 1971-72 to 1.94 million in 1981-82 — driven by nationalisations and political patronage. It further increased in the 1980s, peaking at 2.24 million in 1989-90. Since then it has halved to 1.13 million in 2016-17.

Much of this came through voluntary retirement schemes (VRS’) in bloated employers such as Coal India, which saw its numbers decline from about 0.65 million in the mid-1980s to just above 0.3 million end-2017. Another large employer, the National Textile Corporation, the repository of scores of erstwhile private textile mills that had gone ‘sick’, closed nearly 80 mills over the past two decades and employment declined by 90 percent in this period.

Even as early as 2001-02, as far as employment is concerned, the share of private sector was 51.2 percent against 44.3 percent of the public sector, testifying to the fact that the economy was slowly moving away from its PSE dependence.

If the PSE contribution to employment generation is dwindling, its track record of profitability has been abysmal. There were 331 CPSEs with a total investment of Rs 12,50,373 crore as on March 31, 2017. Of these, five were agriculture-related and 24 were in the mining sector. The bulk is in manufacturing and generation (96), services (119) and construction (76). While 174 CPSEs made profits (Rs 1,52,647 crore during 2016-17), just 10 — largely in the energy sector — accounted for nearly two-thirds of all profits.

About 82 CPSEs made losses amounting to Rs 25,045 crore in 2016-17, with just 10 loss-making companies accounting for 83.8 percent of the total losses, with Bharat Sanchar Nigam Ltd, Air India Ltd, and Mahanagar Telephone Nigam Ltd being the worst performers. The number of loss-making CPEs has grown from 54 in 2007-08 to 82 in 2016-17. The CPSEs in agriculture are the worst performing, with negative return to equity.

It is strange that the current Congress leadership should decry the role of corporates when its own government in 1991 made the economy leapfrog, thanks to decisive liberalisation measures that unshackled entrepreneurs.

It is also significant to note that Modi, who reportedly relies more on bureaucrats than on his Cabinet colleagues, chose to put them in their place — IAS officers cannot run industries.