The Neo-Liberal Push Against India's Public Sector Enterprises Will Come at a Cost

The government, for a variety of reasons, does 'have business to remain in business.'

A shift from closed to open economy through the New Economic Policy in 1991 ended government monopoly on the various sectors of economy. However, the neo-liberal shift did not put an end to the public sector.

In India, public sector largely represents public sector enterprises (PSEs). The significant role that the PSEs played in economic growth and development and in helping them attain the status of commanding heights, provided them with the leverage to continue even when the economy was opened up and the government monopoly was gradually ending.

After 1991, the second generation of reforms comprised those of public sector enterprises. This led to the categorisation of PSEs into Maharatna, Navratna and Miniratna (I & II).

Reforms such as administrative and financial autonomy and self obligations through Memorandums of Understanding (MoUs) manifested the idea that the state intended to own and carry out “business” through these PSEs.

The first target was restructuring the loss-making PSEs. Disinvestment and privatisation were used as an option to get out of the loss-making PSEs.

The second was to provide financial and administrative autonomy to profitable PSEs. 

Also read: The Dangers of Dismantling India’s Public Sector

However, the loss-making PSEs continued to represent the perception about PSEs. This narrative was pushed by neo-liberals. As a solution – which had been promoted in France and Britain as well – disbanding of the Keynesian institutions was provided as the alternative.

This was a push from what was a welfare state into making India a neo-liberal state. Even though the target was privatisation of the whole sector, it was not justifiable in the case of the profitable PSEs.

Further, disinvestment of the PSEs would be politically articulated to promote state-led development, a social welfare state goal. The loss of taxpayers’ money to keep the loss-making PSEs running would strengthen the push towards disinvestment and privatisation.

The policy outlined by the prime minister at the webinar on ‘privatisation and asset monetisation’ is the epitome of the neo-liberal agenda. He provided selfsame arguments – misuse of taxpayer’s money for rejuvenation of loss-making PSEs and using of the money for social and economic development. He also added the ‘human resource argument’ by stating that the civil servants serving in the PSE are not using their skills in the domain in which they are trained and as such “it is injustice to their talent.”

Prime Minister Narendra Modi. Photo:

However, the prime minister has not prescribed the privatisation antidote only for loss-making PSEs. He has extended it to the whole sector except “the bare minimum PSEs in the strategic sector”.

The prime minister provided the argument – essentially a neo-liberal one – that “the government has no business to remain in business”. 

This is a concept of the limited state and has found proponent in the ‘good governance’ concept. Good governance, which on the surface postulates somewhat ideologically neutral characteristics like ‘participatory’, ‘accountable’, ‘transparent’, ‘responsive’, ‘effective and efficient’, ‘equitable and inclusive’, and ‘rule of law’, also pushes a neo-liberal agenda through the much publicised ‘minimum government, maximum governance’ maxim. This aspect of good governance has been at the core of the current government’s public policy narrative.

There might be an ideological debate on ‘welfarism versus neo-liberalism’, but the representative government is well within its rights to promote a policy that it deems right to achieve economic growth and development and reform the public sector.

The status quo is not always the way out, neither is incrementalism. A government with a majority is a dreamlike situation in a representative democracy to push a neo-liberal agenda. The question, however, remains as to what will be the implications of this neoliberal push in the PSEs.

Welfarism would continue even with this neo-liberalism, through utilisation of funds collected through disinvestment and privatisation for promoting what the prime minister mentioned – “Making homes for the poor, building roads in villages, opening schools and providing clean water to the poor.”  

First, reforming public sector enterprises may end state monopoly, but what would prevent privatisation from concentrating power in few capitalist players in a country where the top 1% own more than 40% of wealth? This oligarchy would not limit influence in the enterprise sector alone but on policy formulation in other sectors as well. 

Secondly, economic growth was not the only objective of the PSEs. These provide employment opportunities to a number of people with representation of Scheduled Castes, Scheduled Tribes, Other Backward Classes and recently, Economically Backward Sections. In that sense, PSEs act as an instrument of social justice. With no reservation in the private sector, privatisation of PSEs would mean the revival of the ‘historical injustice’ that necessitated the reservation in the first place. 

Thirdly, privatisation does not limit the state. There is no minimum government. A neo-liberal state is in reality a regulatory state. It creates regulatory institutions to govern and ensure compliance of laws and standard practices or services. It creates a red-tapism of its own kind. Further, by serving in these institutions, civil servants do not do any justice to their technical domain. 

Finally, it is often said that professional competence, practices, efficiency and effectiveness are the sole prerogative of the private sector. Recently, the long list of loss-making private companies has only grown longer with several cases of bankruptcy in banking and aviation sectors.

The state has to be entrepreneurial.

It need not only be the spending entity, but an earning one as well – and that will happen when its remains in the business. The goal should be better administration in the PSEs. Profitable PSEs should be a model for administration of other PSEs. Even if loss-making PSEs are reformed, the profitable ones should be empowered. Good administration can ensure efficiency, economy, effectiveness and accountability in public sector as well.

Zubair Nazeer is an Assistant Professor (Public Administration) at Jamia Millia Islamia, New Delhi.