The United Progressive Alliance government swears by the public sector. Prime Minister Manmohan Singh defends the hike in prices of petroleum products on grounds that state-owned oil marketing companies can no more suffer the impact of rising international crude prices.
In an interview published in this newspaper a couple of days ago, Dr Singh says his government will not privatise public sector units, but their shares can be allowed to be traded on the stock exchange so that the public sector can face the market test and improve its efficiency.
Economic reformers might see in this approach a contradiction. The UPA government is being touted as a government steered by a dream team of reformers -- Manmohan Singh, Finance Minister P Chidambaram, and Planning Commission Deputy Chairman Montek Singh Ahluwalia.
So, how can this team of formidable reformers discard privatisation and yet be feted as part of a reformist government?
Such questions have surfaced because of the way economic liberalisation in this country has largely been equated with reforms in policies pertaining to taxation, trade, industrial licensing, and the public sector.
The Narasimha Rao government in the nineties focused on reforms in policies on taxation, trade, and industrial licensing. It began some work on the public sector. But this was restricted to the divestment of government equity in the state-owned enterprises.
In the five years that Manmohan Singh functioned as finance minister in the Rao government, not a single public sector undertaking was privatised.
The two United Front governments and the BJP-led coalition government carried forward the reforms on policies on taxation, trade, and industrial licensing. But in the area of public sector reforms, they took a giant step. They started work on privatising the PSUs. And a few PSUs did get privatised during the tenure of the Vajpayee government.
Little did one realise then that Manmohan Singh as finance minister in the reformist Rao government was against the sale of its majority stake in public sector units and might pursue the same line of thinking if he ever came back to power.
Thus, it should cause no surprise at all if Manmohan Singh as prime minister in the UPA government opposes privatisation and endorses dinvestment only to the extent that the government does not lose majority control of the public sector unit.
It is also important that we bear in mind this perspective before examining the UPA government's approach to public sector reforms. There is no contradiction or inconsistency in Manmohan Singh's thinking on what should be done to the public sector.
The public sector, in his and his government's view, should be strengthened and should be allowed to operate in an environment where it is not a monopoly. And why should anyone have any complaint if a public sector unit remains profitable even after facing competition and without any protection?
There is only one major problem in this approach. How does the government make the public sector truly strong? Did the government make the oil PSUs strong by not allowing the marketing companies to raise petroleum product prices for several weeks in spite of the rising international crude prices?
Going by Dr Singh's own admission, the petroleum product prices had to be raised because the state-owned oil marketing companies were in trouble.
So, what path of reforms should the UPA government pursue if it wanted a strong and vibrant public sector? One obvious way would be to make immune the functioning of the public sector units from the influence of the politicians.
This is easier said than done. But an interesting option would be to create a separate ministry for the public sector. All public sector units should be brought under the administrative control of this ministry. And this ministry should be attached to the Prime Minister's Office.
Let the public sector ministry be looked after by the prime minister himself. This will mean prompt decisions and will also ensure that ruling party politicians think twice before trying to misuse the public sector units to gain political mileage.
Secondly, the policy of giving greater financial and operational autonomy to large profit-making public sector companies (the navaratnas) should be revived. It is there on the government's files.
But in practice most ministers in charge of even the navaratna public sector units try to rob them of their autonomy. If there is a separate ministry for the public sector, attached to the PMO, the enforcement of the navaratna policy will also become easier.
Finally, the UPA government should recognise that there are a large number of highly successful public sector undertakings operating in different infrastructure areas. All of them should be told to tap all possible sources of funds and focus on investing in fresh infrastructure capacity creation.
The prime minister talked about the need for mobilising $150 billion for infrastructure investment in the next 15 years. The public sector can be trusted to meet at least a part of this investment requirement.
It has shown in the past that it has performed efficiently in the infrastructure sector. There is no reason why in an environment, where it is being encouraged to face the market test, the public sector will not rise to the occasion.
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