The Strategic Public Sector

Context: Privatisation compromises India’s sovereignty and economic freedom, threatening its energy security and strategic posture.

Rising dominance of State-Owned Enterprises (SOEs)

• According to Fortune Global 500 list 2020, 135 are SOEs. 28% of world’s largest and most powerful economic entities are state-owned, dominated largely by Chinese SOEs.
• Chinese large firms overtaken US-based firms: China today has 124 firms in Fortune list, of which 95 are SOEs, compared to 118 from US.

Understanding India’s PSE policy: Evolution from Nehruvian socialism to embracing privatisation

• 1998-2004 – Beginning of reforms: India embarked on public sector enterprises (PSEs) reforms with Navratna Scheme.
  • Large profit-making PSEs were granted autonomy in strategic and operational decisions, including investment, acquisitions, and borrowings.
  • Global expansion: Government encouraged PSEs to become “global” and acquire assets and strategic minerals abroad.
  • Sectoral price reforms: Where PSEs were encouraged to charge full-market prices or even global prices to facilitate private entry.
• 2004-2014 – Phase of deepening reforms: Government deepened Navratna policy by including several more PSEs, and set up the Board for Reconstruction of PSEs (BRPSE) to turn around or shut down loss-making companies.
  • Inherent strength and efficiency of PSEs became apparent: They had long attracted the best engineering and management talent in the country.
  • The profits of Central PSEs by 2018 stood at Rs 1,75,000 crore.
  • Rise in investments: As Indian economy accelerated under UPA-I, with its total domestic investment rising to 40% of GDP by 2010 from 26 per cent in 2002-03, PSEs played a major role in increasing capital formation and accelerating growth.
• 2020-21 – Embracing privatisation: According to Budget 2021-22, Government will maintain a bare minimum presence in only four strategic sectors (atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; and banking, insurance and financial services), rest all sectors to be privatised.

Issues with privatisation policy

• India’s reforms agenda were limited: As PSEs despite undergoing structural changes, were denied fiscal and strategic support.
  • This led to wide gaps in key industrial capabilities: With the collapse of HMT, India is forced to import 80 per cent of its machine tools, the bedrock of manufacturing.
  • Undermining of pharmaceutical PSEs, makes it dependent on active ingredients from China.
  • Reluctance to support BHEL has flooded Indian power sector with Chinese equipment.
  • In development of civilian aircraft, India has lost a decade due to ideological reservation about spending public money for developing anything outside defence.
• Compromises India’s strategic interests: As government is moving ahead with privatisation, Chinese may be happy to acquire these firms and their assets, through a chain of firms they would control.
  • India stands to lose important strategic assets to confront a rising China. Eg. Bharat Petroleum has assets in 17 countries and holds part of India’s strategic oil reserves.
• Compromises India’s footprint in future technologies: India is largely absent in emerging technologies like solar wafers, computer chips or EV batteries.

Conclusion: At this critical juncture, the sale of giants like BPCL, BEML or SCI would undermine India’s “Atmanirbhar” goal. Privatisation compromises India’s sovereignty and economic freedom, threatening its energy security and strategic posture.