the total factor productivity in private sector recorded
3.4% growth since 1985, in public sector there is a negative
growth of - 1.1%. Manufacturing PSEs continue to show losses,
while manufacturing private sector shows decent profits.
From resource utilization point of view and competitiveness,
the most critical comparison relates to cost structure of
power and fuel, wages and interest as a ratio of net sales.
In 1990-91, the public sector (minus oil sector) spent 37.7%
of net sales on these three heads, as opposed to private
sector's cost of 21.7%, with a net saving of 16 %. Amazingly,
by 1997-98, this difference in cost incurred has increased
to 38.3% of net sales, with public sector spending 54.5
% of net sales on these three items, and private sector
16.2 %! Increased competition and open markets forced private
sector to reduce costs to a tune of 5.5 %, whereas public
sector costs went up by almost 17 %! There cannot be a more
severe indictment of public sector management. The managers
are not at fault; the same personnel in private environment
produce excellent results. We must recognize that even if
all else is equal, public sector culture does not foster
the best management practices. With the economy opened up,
and competition growing, continued insistence on government
controlling PSEs will only erode their assets, and eliminate
them from the market.
the debate on strategic sale vs diluting government's equity.
Again data shows that sale of shares yielded public exchequer
a PE ratio of 4.4 to 6; whereas the strategic disinvestments
in the last 2 years yielded a PE ration of 11 to 89. Earlier,
a sizeable part of the equity was picked up by public sector
financial institutions, and indirectly contributed to UTI's
losses. And government control is only continuing the hemorrhage
of public funds. In 1997-98, the total liability of government
on PSEs (budgetary support, guarantees and waivers) was
Rs.13,065 crores, as opposed to dividend of Rs.3,609 crores.
In 2000-01, the liability mounted to Rs.25,377 crores, and
dividend is Rs.8,260 crores. Over the past two years, equity
of Rs.891 crores was divested through strategic sale yielding
Rs.11,315 crores to the government. The saving to government
(10 % interest on borrowings, and annual losses) on this
equity was Rs.1,257 crores per annum, while lost dividends
amount to a meager Rs.52 crores ! And how did the capital
market respond? From January to May 2002, the PSE shares
index in BSE rose by 73.5%, as opposed to 14 % rise for
the total BSE index! Once the disinvestments blues became
evident, the PSE shares took a beating of 4 to 26 %! Can
there be any doubt about the best method of disinvestments?
the champions of state control and mere dilution of government
equity without change of management must answer a fundamental
question. Have people elected them to govern, or to run
businesses? Socialism took roots as a moral philosophy based
on compassion and concern for equity at a time when predatory
capitalism of robber baron variety led to extreme degrees
of oppression and misery. But today's market economy adapted
the best features of humanism, welfare and sustainability.
Resort to outdated arguments and shibboleths, and criminal
waste of scarce public resources at the cost of justice,
rule of law, education, health care and decent infrastructure
is cruel to the poor and disadvantaged. Quality schooling,
accessible health care, speedy justice and security net
for the indigent are the best anti-poverty programmes. A
government which cannot provide these has no moral authority
to take upon itself other burdens, and discharge them incompetently.
Ministerial office and bureaucratic sinecures have become
private fiefdoms, and loss of patronage and control unnerves
those in authority. But equating self-interest of those
in power with public interest is an insult to the intelligence
of the long-suffering people of the country, and a cruel
irony in a society impoverished by bad policies and worse
The considerable political skills and energies of the opponents
of disinvestments should be deployed to set the right priorities
for public expenditure, and get good value for citizens
for every rupee spent.