Why India must strengthen its public sector

Synopsis: 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 postion.

Introduction

Today, 28% of the world’s largest and most powerful economic entities are state-owned, dominated largely by the Chinese State-Owned Enterprises (SOEs).

China today has 124 firms in the Fortune list, of which 95 are SOEs, compared to 118 from the US. Many so-called private Chinese firms like ZTE and Lenovo are known to be controlled by SOEs.

The next group of 26 SOEs are from the OECD countries, while emerging market countries like Brazil, India, Mexico add another 17 to make a total of 135 SOEs in the list.

How China’s state-owned industry is performing globally?

The last two decades have witnessed Chinese SOEs acquiring several American and European technology companies, from IT to oil fields, coal to strategic minerals, telecom to mobile phones and solar wafer to computer chips.

The rise of Chinese SOEs has far-reaching consequences for global competition and control over strategic technologies and resources.

How China was able to create a dominant state-owned industry?

The rise of Chinese SOEs in the global economy can be traced to the strategic vision and plan articulated in 1998 at the 15th Congress of the Communist Party of China (CPC).

The reforms launched by the15th Congress were to restructure larger SOEs, “corporatise” them and list several on the stock market, making them profitable and competitive in global markets. Simultaneously, China set up 37 new SOEs in new emerging industries and technologies.

Also, China quickly let go of the small and shut down or privatised 90,000 enterprises, with little impact on the share of SOEs in total output.

What are the implications of privatizing India’s significant PSEs?

Reduces India’s potential in acquiring assets and resources abroad: For instance, Bharat Petroleum has assets in 17 countries and holds part of India’s strategic oil reserves.

Impact on Shipping industry: Declining support to SCI and Indian shipping has meant that the share of India’s maritime trade carried by Indian ships is today a minuscule 6%, down from 40% in 1989.

Impact on key industrial capabilities: The government’s refusal to support PSEs at critical moments has left wide gaps in key industrial capabilities. With the collapse of HMT, India is forced to import 80% of its machine tools, the bedrock of manufacturing.

Affects India’s self-sufficiency: The undermining of the pharmaceutical PSEs like IDPL and HAL, once India’s pride, makes it dependent on active ingredients from China.

Affects India’s leading role in future technologies: The government’s reluctance to support BHEL has flooded the Indian power sector with Chinese equipment. Moreover, India is largely absent in emerging technologies like solar wafers, computer chips or EV batteries.

Impact on Aviation: In the development of a civilian aircraft, India has lost a decade due to the ideological reservation about spending public money for developing anything outside defence.

What is the way forward?

India needs to imitate China in establishing new PSEs in strategic and emerging industries, which require patient capital and greater risk.

PSEs are important strategic assets to confront a rising China, more valuable than Rafale jets or leased Russian submarines.

Source: This post is based on the article “Why India must strengthen its public sector” published in Indian Express on 25^th September 2021.