When India achieved independence, the national consensus was in favour of rapid industrialisation. The first Industrial Policy Resolution announced in 1948 laid down broad contours of the strategy for industrial development. Subsequently, the Planning Commission was formed and the Industrial Act was enacted with the objective of empowering the government to take necessary steps to regulate industrial development.
Prime Minister Jawaharlal Nehru promoted the policy of mixed economy. The second Five-Year Plan (1956–61) and the Industrial Policy Resolution of 1956 emphasised on the development of public sector enterprises.
Accordingly, to overcome red tape and indifference in the functioning of government departments and to serve the citizen better, several public sector undertakings (PSUs) were established across the country. These included State Road Transport Corporations, Bharat Petroleum, Oil and Natural Gas, Indian Oil, BHEL, BEL, National Buildings Construction, NMDC, Oil India Limited, Central Warehousing, HMT, ITDC, Hindustan Cables and Praga Tools. As some of these were not functioning on expected lines and were also incurring losses, public sector reforms were introduced leading to the closure of a sizable number of PSUs.
Thatcher on Public Sector
Thatcherism, named after former British Prime Minister Margaret Thatcher, was critical of the public sector for failing to provide its clients and users a more courteous, efficient and higher quality service. Prime Minister Narendra Modi is often referred to as Indian Thatcher. According to Thatcher, staff employed in the public sector allegedly failed to appreciate that the people they served, were precisely those whose taxes provided a major source of revenue for their units, and, of course, their salaries. Hence, the public sector was often synonymous with shabby, second-rate service.
Thatcherism argued that those employed in public sector services tended to prioritise their own interests over the interests of the public that relied on such services. The alleged attitude of many public sector staff was that those who relied upon such services should simply ’accept what they are given’ and be grateful.
The other argument advanced by Thatcher about the poor quality of service provided by the public sector was that such services are usually monopolies, and so did not face competition. Consequently, professionals in the public sector allegedly assumed that service users could not go elsewhere if they were dissatisfied with the quality or speed of service they received. According to Thatcher, lack of competition compounded another major problem — the power of those trade unions whose members worked in such services.
It was argued that where a particular group of workers are the sole (monopoly) providers of a service, their bargaining or ‘blackmail’ power was enormously enhanced because if they go on a strike, the result will usually be widespread disruption and inconvenience to the millions of people who relied on the service. Recognition of this was deemed to make public sector trade unions much more powerful, and also militant, in selfishly promoting or protecting the interests of their members.
Public sector reform provides a clear example of how the principles, objectives and policies promoted by Thatcher have been readily embraced and extended subsequently, and continue to be implemented today. Thatcherism decreed that competition was crucial to improving performance and thus providing the public with a much better service. Only if a public service is exposed to competition will it be compelled to ‘raise its game’ and become more responsive to what its customers or clients actually want.
About three-and-a-half decades ago, when the Indian economy was opening up and when PSUs failed miserably, several joint ventures were formed in just one year between Indian and foreign companies. Majority of them ended up in breakups within five years as they failed to produce results. Thus, the experience in India revealed that most joint ventures were notoriously difficult to manage.
Gains from PPP
Against this experience, in India, as in other countries, evolved the concept of public-private partnership (PPP), which steadily gained strength. It is assumed that government’s collaboration with the non-profit private sector in the form of PPP would improve equity, efficiency, accountability, quality and accessibility of the system. Advocates argue that PPP can potentially gain from one another in the form of resources, technology, knowledge and skills, management practices, cost efficiency and so on.
Union Finance Minister Nirmala Sitharaman presenting her 2019 Budget made a couple of references to the PPP model. Citing the example of the phenomenal task of the Indian Railways in cities like Mumbai and smaller cities, Sitharaman said the Railways will be encouraged to invest more in suburban railways through special purpose vehicle (SPV)-structures like the Rapid Regional Transport System proposed on the Delhi-Meerut route. Accordingly, she proposed to enhance the Metro railway initiatives by encouraging PPP initiatives and ensuring completion of sanctioned works.
She also proposed that internet connectivity in local bodies in every panchayat in the country will be speeded up with the assistance from Universal Service Obligation Fund under a PPP arrangement. This will bridge the rural-urban digital divide. Sitharaman further proposed to use PPP to unleash faster development and completion of tracks, rolling stock manufacturing and delivery of passenger freight services in respect of Railways. Thus, the PPP model is the way forward for government projects. It is also said that sooner or later Railways too would be run in the PPP mode.
The Finance Minister also proposed setting up of medical colleges as an adjunct to government hospital in every district through PPP. She made a case to construct warehouses and operate Kisan Trains under this model. PPP does not mean privatisation at all. It also does not mean that the responsibility of the government is diminished. It is just one alternative to provide government-related services.
Maybe it is also one of the alternatives to PSUs that failed to provide adequate services to people. In what areas PPP will be brought in, of course, is the discretion of the government.
(The author is Chief Public Relations Officer to the Chief Minister of Telangana)