India has seen tremendous growth post liberalization-privatization-globalization reforms that were initiated in 1991.The emergence of India’s own private sector and relocation of global multinational companies to India have been hallmark of India’s growth story.The impressive show by private sector in information technology, aviation sector, telecommunications , real estate etc have compelled many to think that privatization wherever introduced is likely to bring benefit to the consumers in terms of better quality and cost.However, the reality is very different than what is generally being perceived to be.
Public Sector which consists of state and central governments along with public corporations still have a lion’s share in Indian economy.It still contributes to around 20 percent of India’s share of GDP and 25 percent of India’s gross domestic capital formation.It means that India’s economy is still largely dependent on the state especially in many crucial sectors of social welfare and infrastructure.It is ,therefore, important to realize that any government which wants to deliver high growth cannot do it without improving public sector efficiency.Ruthless pursuit of privatization of public assets has multiple problems attached with it.It is important for us to accept this fact.
Firstly, it is not easy to privatize any public corporation completely.Air India, is a fine example of a public corporation which could never find a buyer despite great willingness of government to sell it.It is facing strong problems of valuations, staff protests and structural problems which no private enterprise will get into when there is always an option to build a greenfield organisation.Any loss making Public Sector Unit will have more or less the same aforementioned problems though their contribution to dwindling fate of the PSU may vary from case to case. In fact, most of the loss making public corporations had to only shut their shops as no one was willing to buy them.Thus , most of the time such an exploratory exercise of selling a Public Sector Unit results into waste of time and energy.
Secondly,sectors like education , health , power and for that matter even mass transportation need state sector efficiency more than privatization.India cannot afford to wait for private education or healthcare to deliver after 15 to 20 years.India’s demographic dividend heavily depends on today’s state of education rather than what will be 20 years from now.Encouraging private investment is important but what is not required is replacing the public institutions with private.India still has around one third of its population under poverty and most of them are heavily dependent on public health care and education.India needs to settle this debate once and for all as it is more a matter of call than any other thing.World over, the experience in these sectors are quite varied and it is better to improve what is already established rather than trying to replace it.
Thirdly,new Human resource policy should sweep the public institutions.Unlike private sector,the Public institutions are having many misplaced priorities and are plagued with many unprofessional decisions.There is clear need to put incentives on the values of efficiency , integrity , innovation and public service.The lack of incentives is one of the most important factors why the public institutions always find themselves at cross roads with their originally designed purpose.In management parlance, Principal-agency problem is for real in our institutions and there is a need to align the interests of the public organisations and its employees.
India needs high growth for next 15 to 20 years and if we are thinking that it can happen only through encouraging private sector and ignoring public sector,I fear our march towards better quality of life may be longer than what we are expecting it to be.Reinvigorating public institutions should remain a part of India’s economic agenda.It does not mean that government must invest in more public corporations or spend more.It simply means government should produce better quality of service at reduced cost by bringing better management practices into its own organisations.An efficient and innovative public sector may not be sufficient for India’s development but it is definitely necessary for it.We can ignore it only at our own peril.