5. Rise of the Private Sector

As the PSUs took the responsibility of supplying the infrastructure and the basic industries to the economy, a base for the rise of private sector industries was slowly established. With the rise of private sector industries in the country, the process of industrialisation was thought to be completed. Out of the many roles the PSUs were supposed to play, this was the most far- sighted. What happened to the different roles the PSUs were assigned is a totally different matter, to which we will return while discussing the industrial scenario of the country. Here we have analysed why the government of India after Independence went for such an ambitious plan of expansion of the public sector.

Besides, the PSUs were aimed at many other connected areas of developmental concerns, such as, self-sufficiency in production, balanced regional development, spread of small and ancillary industries, low and stable

prices, and long-term equilibrium in balance of payment. Over time the PSUs have played a critical role in promoting the growth and development of the country.22

By the mid-1980s, there emerged a kind of consensus across the world (including the IMF & World Bank) regarding the inefficiency and under- performance of the PSUs (in the wake of the idea of the Washington Consensus which is said to promote ‘neo-liberal’ economic policies across the world). In the wake of it, there commenced a process of privatisation and disinvestment of the PSUs among majority of the economies in the world— India being no exception to it. By late 1990s, new studies proved that under- performance and inefficiency could be there in the private sector companies, too. By mid-2000s (in the wake of the US sub-prime crisis) a new consensus emerged among the international organisations that state/government need not exit the economy and a kind of slow down towards privatisation moves of the PSUs across the world (the world in a sense is pushing the ‘pause’ button on neo-liberalism) is under process.

India pursued a less ambitious disinvestment policy from 2003–04 to 2015–16 (the government has decided to own controlling shares among the divested PSUs). Since 2016–17 financial year, the government has decided to restart the process of ‘strategic disinvestment’ (in which the ownership of the PSUs may also be transferred to the private sector). Such a policy of disinvestment was launched by the government in 2000 which was paused by the UPA-I in 2003–04). The government has also decided in favour of selling increased shares of the PSUs to the foreign institutions, at par with the domestic financial institutions. Such policy moves of the recent times should be seen in the light of certain important contemporary realities—need of promoting investment in the economy; need of the government to quit undesirable areas of economic activities and expanding in the areas of need and where private sector will not enter (welfare actions); revenue generation by stake sale and enhanced profit from the PSUs (by selling majority stakes in the PSUs at one hand the government will de-burden itself from the owner’s responsibility, while on the other hand its share of revenue from the divested PSUs will increase as the new owner will run the enterprise on market principles); etc.

1. Bipan Chandra, Mridula Mukherjee and Aditya Mukherjee, India After Independence, Penguin Books, New Delhi, p. 341.

2 . Bipan Chandra, ‘The Colonial Legacy’ in Bimal Jalan (ed.) The Indian Economy: Problems and Prospects, Penguin Books, New Delhi, Revised Edition, 2004, p. 5.

3 . B. R. Tomlinson, The Economy of Modern India 1860–1970, Cambridge University Press, Cambridge, 1993, p. 7.

4 . Angus Maddison, The World Economy: A Millennial Perspective, OECD, Paris, 2001, p. 116.

5 . A. Vaidyanathan, ‘The Indian Economy Since Independence (1947–90)’, in Dharma Kumar (ed.), The Cambridge Economic History of India, Vol.II, Cambridge University Press, Cambridge, England, Expanded Edition, 2005, p. 947.

6 . Angus Maddison, The World Economy, p. 116.

7 . The respective data of Digby and Atkinson have been quoted by Sumit Sarkar,

Modern India 1885–1947, Macmillan, New Delhi, 1983, p. 42.

8 . Recounted vividly by Mike Davis in his Late Victorian Holocaust: EI Nino Famines and the Making of the Third World (Verso, London & New York, 2001, p. 162), where he links the monsoon failures in India to El Nino—Southern Oscillation (ENSO) climate fluctuations in the western Pacific. The monsoon failure leading to drought and hunger one year and then to a severe malaria epidemic the next when the rains reappeared and a burst of mosquito abundance afflicted a weakened population.

9 . Bipan Chandra et. al., India’s Struggle for Independence, p. 15.

10 . The Government of India had shown such an intention in two regular Union Budgets (i.e., the fiscals 2000–01 and 2001–02) but has not announced the shift officially.

11 . Planning Commission, Tenth Five Year Plan (2002–07), Government of India, New Delhi, 2002.

12 . It has been argued by economists time and again that India is a typical example of ‘market failure’. Market failure is a situation when there are goods and services in an economy and its requirement too, but due to lack of purchasing power the requirements of the people are not translated into demand. Whatever industrial goods and services India had been able to produce they had stagnated or stunted sales in the market as the largest section of the consumers earned their livelihood from the agriculture sector, which is unable to create a purchasing power to the levels required by the market. As agricultural activities will become more gainful and profitable, the masses depending on it will have the level of purchasing capacity to purchase the industrial goods and services

from the market. Thus, the Indian market won’t fail. The view has been articulated by Amartya Sen and Jean Dreze in their monograph titled India: Economic Development and Social Opportunity, United Nations University, 1996.

13. Ministry of Finance, Economic Survey 2015–16, Government of India, Vol. 2, p. 98.

14 . National Planning Committee, GoI, N. Delhi, 1949.

15 . Bimal Jalan, India’s Economic Policy, Penguin Books, New Delhi, 1993, p. 2.

16 . C. Rangarajan, Perspectives on Indian Economy, UBSPD, New Delhi, 2004, p. 96.

17 . Rakesh Mohan, ‘Industrial Policy and Control’ in Bimal Jalan (ed.), The Indian Economy: Problems and Prospects, p. 101.

18 . Planning Commission, The First Five Year Plan: A Draft Outline, GoI, New Delhi, 1951.

19 . The East Asian Miracle, World Bank, Washington D.C, 1993.

20 . We see the process of evolution specially in the industrial policies, India pursued since 1948 to 1956.

21 . ‘Infrastructure sector’ and ‘infrastructure industries’ are quite different things.

22. Sumit Bose and Sharat Kumar, ‘Public-sector Enterprises’, in Kaushik Basu and Annemie Maertens (eds.), The New Oxford Companion to Economics in India, Vol. II, Oxford University Press, New Delhi, 2012, p. 578–83.