PSUs HAVE OUTLIVED THEIR NECESSITY AND SHULD BE DISINVESTED??

When India became a republic on 26^th January, 1950, the first Prime Minister of India, Pandit Jawahar lal Nehru had a vision for the Indian economy which later came to be known as Nehruvian Socialism. After 200 years of suffering at the hands of a foreign power, who came to the country masquerading as businessmen, he envisaged a socialist economy in which there will be barriers for the entry of foreign firms, the government will do most of the production with public money, and the benefit will go back to the people. It looks good on paper. But as the years went on, it became increasingly clear that the economic paradigm of Nehruvian Socialism had problems. No competition for the PSUs, less job creation, underutilization of resources and faulty allocation of taxpayer money came to be associated with it. But the public sector grew organically. By 1970s it was about one fifth of the total GDP and by 2004 one fourth of the total GDP. The number of PSUs has now increased to 242, with a massive total investment of Rs. 2,74,114 crore.

As time went on it became clear that there were a lot of businesses in which the government had no social goal to fulfil and it should exit those businesses. A lot of PSUs have been privatised since. But a lot of other PSUs have not been privatised. There are a lot of factors which may work against the logic of privatisation. There are social goals which a PSU can fulfil. One of those is keeping the prices in check. A PSU in any sector would ensure that if the other private companies form cartels and try to sell at higher prices, there will be at least one company to go to. There are a lot of sectors like banking, steel, coal in which the government operates not with the motive of making profit, but with the motive of fulfilling social goals. The government wants banks to set up branches in rural areas where the profitability might not be high enough to attract private players. There it needs PSU banks. Government needs guaranteed coal for the power plants even at the cost of making less profit. Thus it needs PSUs like CIL, which it can control by issuing presidential directives! It needs financially disciplined insurance companies to serve the needs of the people. Thus it needs insurance companies in both life and general insurance segment.

Given these social goals, the government will not want to exit from some of the sectors. But given the inefficiencies and non competitive environment which some of these PSUs operate in, is the resource and factor allocation really optimal? Should a private company, which operates more efficiently, is very competitive, gets more work done with less labour and capital, not get preference for the allocation of labour and capital? The truth is that a lot of PSUs survive on  bailouts which the government keeps providing them time and again. Air India is a case in point. A 30,000 crore bailout has been doled out to the erstwhile Maharaja last year, with no guarantee that the airline will operate efficiently. PSU banks are recapitalized time and again by the government. All this also creates a distortion in the sector where the private players are disadvantaged vis-a-vis their PSU counterparts.

The government had set a target of 30,000 crore to be raised through divestment this fiscal. So far it has been able to raise about 6,900 crore. In 2011-2012 fiscal year in order to complete its disinvestment targets the government tried a share auction of ONGC. Since during the whole day of the auction there was not much buying in the auction, the government had to summon LIC to pump in Rs. 11,426 crore and pick up a 4.4% stake in the company. Now one could easily make out that this is transfer of money from one hand of the government to the other. This fiscal too the government is going to set a target of 30,000 crore. It may achieve higher than the previous year because of the market rally. But still a lot of companies which the government has put up for disinvestment are not expected to attract too much attention from the investors. In such a situation what the government is left with is clever manoeuvring like the ONGC fiasco. Just recently 3 coal mines have been returned to NTPC ahead of its 12,000 crore disinvestment plan. How much these manoeuvres yield results remains to be seen. In September 2012, disinvestment has been approved in four PSUs; MMTC, Hindustan Copper, Nalco and Oil India.

So that brings us to the question. Is disinvestment such a big urgency that it has to be done irrespective of the prices expected? Well possibly no. Although it may so happen that in the next 20-25 years we may feel the need to privatise all the PSUs because they would not be able to compete with the private firms in their industry, but now is not the time for that. Also, the process of disinvestment has to be carefully planned. The PSUs have some social goals to fulfil. But when these huge behemoths are divested, conflicts of interest may arise between the interest of the shareholders and the purported social goals. The CIL v/s TCI spat is a case in point.

To sum up, disinvestment of PSUs can bring more efficiency into their functioning, but there are social goals which a government has to fulfil. So, the disinvestment process has to be done strategically by carefully selecting the sectors and the impact of the disinvestment on these sectors in terms of the conflicts of interest that might arise. Also, these huge behemoths hold a lot of resources and capital. If managed efficiently, these can actually earn a lot more revenue for our fiscally starved government.

OUR EDUCATION SYSTEM IS KILLING CREATIVITY AND INNOVATION

The purpose of education in a person’s life is to empower him, enable him and make him somebody who can contribute to the society. An education system which focuses on just facts and figures and ignores the creative instinct of the people would result in a world that is static in terms of progress and which lacks the resources the ever increasing population will need. In a country like India where providing even the basic primary education to all children is a challenge, the RTE (Right to education) act has come as a ray of hope. But given the size and scale of our country and the numbers of kids to be educated, the real challenge would be to establish an education system which not only provides literacy and knowledge, but also fosters creative and critical thinking among the students.

Even after growing at close to 9% for so many years, India has still not been able to create a system in which it is possible to provide free and compulsory education to all children. By World Bank figures United States of America spent 5.4% of its GDP on primary education in 2009 while India spent 3.4%. Given this huge difference in spending on education, it is not surprising that India lags behind in terms of innovation and technology. If the students are not given the basic primary education in the first place, they can never dream of becoming innovators. Not only is the primary education a problem, but the education that is given is also too focussed on facts and figures. Students are trained to pass exams, not to become innovators. The blame goes to the parents too. From an early age there is an enormous amount of pressure put on a child to score good marks and to outscore his peers. This puts an enormous pressure on the child to study for passing the exam and for scoring well. Even the laboratory infrastructure in most government schools is so dismal that the students hardly attend laboratory sessions. If India has to become a technological powerhouse, the change has to occur at the level of government schools. 70 % of the schooling in India happens in government schools, while the number is as high as 84% for rural areas. The RTE mandates all private schools to enter 25% students from families making less than Rs. 100,000 an year. But the real change has to happen at public schools which are plagued by teacher absences, poor infrastructure and lack of facilities.

Given the first condition of a good primary education is fulfilled, a student would need a good higher education. There is no dearth of engineering colleges in India. A lot of private engineering colleges are being opened with the intention of making profits, but a lot of them lack in terms of infrastructure and laboratory facilities. Even for those students who are interested in research and do pursue research, 40% have to go abroad for the dearth of facilities and research environment in our country.  Along with that, India does not enable its scientists to make revenue through intellectual property rights. Another indicator which shows our dismal record is the number of scientists in our country. While India has 7.8 scientists / 1000 of the population, the number is 180.66 for Canada, 53.13 for South Korea and 21.15 for the US. This shows that there is an urgent need for fostering a thriving research and development climate in our country.

The bulk of the spending for research and development has to come from the government. While R&D spending as a % of GDP is a dismal 1.25% for India, the figure is 3.1% for the United States. And the United States is a 16 trillion dollar economy in comparison to a 1.5 trillion Indian economy. So the amount of deficit that R&D in India faces is a big handicap and it is only natural that the bright minds would have to move to places where their efforts would bear more fruit. A Thomas Reuters study has shown that only 3.5 % of the global research output in 2010 came from India. According to the study, India ranks abysmally low in key sectors such as mathematics, engineering, computer sciences and agriculture. This is despite the fact that India has been an argi-based economy for too long, and now when it is supposed to be a service based economy, it is supposed to score better on computer sciences.

So the million dollar question is: Has the time come for our government to invest heavily in our innovators? Given the facts the answer can hardly be in the negative. Given the demographic dividend of our country, it is imperative to spend in education , R&D and vocational training very heavily. It is high time the government stopped doling out unproductive subsidies to people who do not need, and redirect that money for creating real assets in our country.

Our country needs a robust educational system at the school and university level, and to complement that it needs a strong research infrastructure to retain the minds within the country. Industry too has a big role to play. It can be involved at various level with the universities: in setting the curriculum, providing scholarships, investing in research infrastructure in top universities to name a few. Special zones can be created where Industry and relevant research facilities can be created along with incentives from the government in terms of tax exemptions and subsidies. Thus our industry expertise in areas like agriculture, computer science and technology can be successfully harnessed.

To sum up, a developing country can become a developed country only if it enables and empowers its citizens to learn, innovate and create, uses that innovation for real progress. Although we may lag behind some other countries right now in those areas, but with will and resolve we can overcome all hurdles and become a truly great nation of truly creative and innovative people.

GIVE AGGRESSION A CHANCE....

India was born on 15th of August, 1947 with the tag of a pacifist and peace loving nation. We had the values of Gandhi and the idealism of Nehru in our veins. A little bit of aggression was also there in our body in the form of Mr. Patel, but it was completely smothered under the "white" blood cells of pacifism. Given this tag we were always the ones who would respond in a war. Barring one 1971 when Indira Gandhi went all guns blazing, we were never the ones to start a war. We wanted to annex Kashmir and we did do that in the end, but not because of our own aggression but because of the aggression of our bete noire, which tried to do the same and provoked us. We have always needed that provocation and brinkmanship of our pugnacious partner to shake us out of our slumber.
Do we have that provovation now? Recently two Indian soldiers were killed in the Poonch area in Kashmir when a unit of the Pakistan army crossed the LOC, killed two of our soldiers, decapitated one of them, and took his head as trophy for themselves. Are we provoked?
Well we surely are. We are very provoked. How dare they come inside our country and do such a thing. We would never do such a thing. What should we do now? Well let's do what everybody says we should. Let's stop talking with them. We are very very angry. And well. Who talks with bad people? They are bad bad people.
So... can stopping the dialogue process be the only form of aggression we think of? Or wait. I thought of another one. Let's not play cricket with them. Bulls eye. This should work. It has always worked. Or has it?

We have at so many times in the history not been talking with Pakistan, not been playing cricket with them, sending them dossiers, condemning them for not acting against the perpetrators of acts of terrorism in our country and doing all sorts of pacifist stuff and what?  Here we are. One terror attack. A few years of no cricket and no talks. A resumed dialogue. And two soldiers killed. One dead and the other dead and beheaded. And what nationalists are suggesting us to right now? "Stop the dialogue process". surprise surprise.
So what do we do now? May be this is the time we started thinking out of the box with Pakistan. I was just reading some article in "The Hindu" which talks about giving some disincentives to Pakistan from comminting such acts. Something which would make them regret later that they did such a thing. For one we can rescind the "MFN" (most favoured nation) status which we gave them 16 years before they reciprocated. And what more? We can divert/ stop the flow of Indus river to Pakistan for a short while and provide them with a very big disincentive in case they attempt such a venture the next time. Well that would be the violation of Indus waters treaty which was signed between the two countries in 1960. But is violation of the ceasefire which was signed in 2003 not a similar thing? Well an eye for an eye does not necessarily mean a head for head. let's make it a violation for another violation.
What else can we do? Let's talk tough. We have been pacifist too long and man we are tired of it. Let our Prime Minister and Home Minister speak some very tough words on the international fora. Let us name and shame Pakistan. Of course one can always argue than we cannot possibly shame that nation anymore, but then still, we have been sick and tired of being conciliatory and diplomatic.
What about denying some of their cricketers/ singers/ artists visa when they want to come to India for playing/ working? Well I am not saying that we must completely ban their entry into India, but it is high time we had become both the employment provider as well as a punching back for Pakistan. Let us make them realize that we provide them with employment and they better fall in line if they want the status quo to continue.
There can be a lot of things which can be done. The same article that I read today in "the hindu" talked about building a "covert tactical armoury". What I have tried to suggest is very much inspired by that and is about my understanding of what a "covery tactical armoury" is. A tough stand with Pakistan is the need of the day. We can hardly sustain decapitated soldiers anymore. But the dialogue must continue and we must not go on a war, but we must also not appease a nation so malignant and sick. What we need is to send strong signals that it better cure itself and fall in line or there will be consequences. Not in the form of retaliation. But probably worse.