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Faulty solutions

Last Updated 14 February 2012, 18:39 IST

Ownership of majority shareholding with the govt means that key policy decisions will continue to rest with the ministers.

The state was dominant in the economy before the reforms of 1991. Businessmen were treated as thieves. Indira Gandhi had nationalised the banks, insurance and coal mining companies saying that these were exploiting the people. The same units will work for the welfare of the people under the control of government officials, she said. For examples, the public sector banks were to open branches in the rural areas. This pro-people hype was mere talk, however. The common man was as tyrannised by the state as the businessmen before the reforms. He had to pay bribes and run from pillar to post to get a ration card, electricity or gas connection. Ministers and officials were extracting monies both from the businessmen and the common man.

Economic reforms were implemented under the leadership of Manmohan Singh in this situation. The thinking was that businessmen will be released from the chains of the state; the ensuing rapid economic growth will create jobs and also provide cheap goods of good quality; people’s welfare will be secured spontaneously. But what is happening is quite the opposite. This much is correct that big businesses have been released from government control to some extent. But the benefits of this have not reached the people. On the contrary, the ministers, officials and big businesses are now together exploiting the people; as was being done by the ministers and officials before reforms. Three examples will make the point.

First, is that of the Goods and Services Tax (GST). The Central government today collects excise duty and service tax at various rates on different commodities and services. This leads to many disputes between the businessmen and the tax collector. Businessmen contend that a particular commodity should be taxed at, say, 8 per cent; while the tax collector says that tax should be paid at 16 per cent. Such disputes lead to much litigation and diversion of people’s energies from productive works.

Second example is that of welfare state. There was widespread illiteracy and lack of schools at the time of Independence. The government decided to establish schools in distant villages to make education accessible to one and all. Fees were kept low to provide incentive to the poor to send their children to school. Government expenditures were increased on health services similarly. These measures were entirely laudable and had a positive impact on the people. Circumstances have changed dramatically since then, however. People have understood the importance of education. Results of private schools are often twice better than government schools even though salaries of teachers are about one-fourth. Government schools are in tatters. Pass rates are about one-half of private schools because teachers have no incentive to teach.

Good quality education

The straightforward solution to this problem was to disband the government school system except in the remotest villages and distribute the money being spent on government teachers to school-going children through vouchers with which they could pay the fees of school of their choice. Such policy would have provided good quality education to the poor students without imposing additional financial burden on the government. Instead of implementing such a policy, the government has twisted the logic and provided enhanced inducements to the poor to continue to send their children in non-performing government schools.

Third example is of disinvestment on public sector undertakings (PSUs). These were established mostly between the fifties and seventies. Private businesses did not have the capacity and experience to establish these at that time. They did not have the necessary capital, technology and risk taking ability. It was necessary for the government to step in and jumpstart the process of industrialisation. Circumstances have changed since then. Private corporations like those of Tata’s and Reliance can now put up plants as large as those in the public sector. Further, PSUs have been inflicted with the disease of corruption. Officials in the PSUs are appointed and promoted at the pleasure of the ministers. Many PSUs are running under a loss.

Taxes are being imposed on the people to provide monies to the PSUs to meet thier deficit. The government has recently put together a package to bail out Air India, for example. PSUs established for the welfare of the people have become a burden on them.

The best method of overcoming this problem was to privatise the PSUs. Sell the majority shareholding to private businessmen and give up government control over their management as was done with Videsh Sanchar Nigam Limited and Balco during the NDA regime. Monies raised from the sale could be used to reduce the burden of tax on the people. The total tax as a share of GDP had declined at that time.

Manmohan Singh has wholly reversed the process. He is disinvesting minority shareholdings of the PSUs instead of privatising them. This is leading to deepening of government role instead of reducing the same. Ownership of majority shareholding with the government means that control over key policy decisions such as appointment of the managing director will continue to rest with the ministers. The proceeds of disinvestment will provide more money to the government for making whatever expenditures.

It is clear the people’s welfare is as remote today as was before reforms. Difference is that previously the ministers and officials were extracting monies from the businesses and the common man. Now the big businesses have changed sides. The ministers, officials and big businesses are today extracting monies from the small businesses and the common man.

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(Published 14 February 2012, 18:39 IST)

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