Is Privatization The Need Of The Hour?

We may begin with a simple question; whether expansion of any kind is possible without efficient operational flexibility? I think this is the crux of the issue. When we talk of globalization, it simply implies the fact that competition of any sort should not be confined to a particular territory.

Competition should be allowed to expand itself beyond traditional frontiers. In other words, all possible quantitative restrictions should be removed to prepare a new atmosphere of free interplay and free movement of creative ideas, goods and services for which a new pattern and structure of the economy is called for. Well, how can you expect benefit for the larger production without ever enlarging the extent of the market. Hence a time has come for all of us to think globally and act locally.

Global interaction has thus become a new reality. It is a process associated with increasing economic openness, growing interdependence and deepening economic integration. In fact isolation in the long run, becomes a breeding ground for underdevelopment and poverty. The world trade has perceptibly increased from 12 per cent of World Gross Domestic Product in seventies to 13 per cent in 1990s. Global foreign exchange transactions have soared from $ 60 billion per day in 1983 to $ 1200 billion per day in 1996. There is also a surge in the international investment flows. Between 1980 and 1996 foreign direct investment as a proportion of world output rose from 4.8 percent to 10.6 per cent. The change is clear.

The flow of international finance, international knowledge, international technology and international information has really gained a new momentum. The so-called information revolution, technological revolution and scientific revolution has opened up new opportunities and new advantages.

Now a new culture of larger interaction and larger production has come to stay. The reach of the electronic media is enormous. So is the power of television as a medium. The culture of the youth in metros is globalized jeans, T-shirts, jogging suits, fast food, pop music, Hollywood movies, satellite TV and so on. Consumerism is global. Even corruption and crime have become similar everywhere. What we see today is really exciting and equally challenging.

Thus the emergence of a global village has necessarily given rise to a new pattern of liberalization. What is liberalization? In a plain language liberalization means free entry and free exit within the framework of greater competitive efficiency. The new article of competitive coexistence further implies a new social and economic order where the article of faith is bound to be competitive efficiency. Who can give you competitive efficiency more? This is a fundamental question. Remember where there is greater competition, there is strength. And where there is strength, there is growth. This is a simple message of liberalization and privatization.

If we want to accelerate the pace of competition, we have to prepare a new environment for better participation of private initiatives. Look at the balance sheets of the Birla, Tata, Malavia and Mafatlal companies whose performance is really amazing.

The high degree of efficiency and outstanding commercial achievement is really convincing. Can you expect development without innovative management? By and large private enterprises do better because they are operating in a free environment where they can act swiftly in response to market signals. They hardly act on established lines for long. Innovation is their religion. Risk taking is part of their commercial life. They can tune their operational pattern to the needs of time. They can take their investment decision based on their own commercial perception.

On the other hand, the government owned-units are very slow and normally go along the age-old established tracks – and thus invite acute disadvantages of time-overrun and cost overrun. Ultimately the state-owned units are caught in the rut of loss and stagnation. Why should we allow the scarce resources to be misused in the government sector while there are many better organizations in the private sector able to make best use of scarce resources? Look at the dismal performance of the Manipur State Road Transport Corporation and so on. We have incurred a cumulative loss of Rs 50 crores on these sick units. A poor state like Manipur cannot and should not afford this loss when the fate of Manipur depends on the repeated overdrafts and market borrowings.

One of the important factors for the dismal performance of state-owned industries in Manipur is obviously lack of entrepreneurial spirit, a spirit that is so rare and vital. One fact is quite clear that the government of Manipur cannot personally and directly act as entrepreneur. At most the government can act as facilitator.

The commercial enterprises demand a serious attention of daily character, a continuous process of monitoring, evaluation and planning: that also in this age of cutthroat competition. Lack of high degree of specialization, professionalization and innovation becomes a comfortable breeding ground for retardation. In fact in the commercial world one has to be alert and prompt to change the track to take fuller advantage of market opportunities. We cannot expect this frame of mind in the government sector.

Secondly the public sector units are plagued with corruption, fraud and waste; mainly because there is less financial discipline and also the sense of belongingness and loyalty is fairly low. Even a thief does not steal his own money and property. Theft, pilferage and corruption take place in the atmosphere of mutual suspicion and absence of loyalty and discipline.

In the private sector the vision and mission of the organization is shared and made transparent. The sense of partnership is very high. In fact the psychological foundation is high. The rising performance of the Shija Hospital Private Ltd. is a telling example.

The picture is very different in the government sector where one experiences the multiplying issues of monopoly, concentration, domination, subordination, secrecy, avoidance of responsibility and lack of transparency. These inherent issues remain unsolved and may continue to frustrate any attempt in future also. They have become part of the established system. Hence we have to change the outdated system of license, permit and quota. We have to decontrol gradually if we hope to revitalize and strengthen our economy.

Yashwant Sinha, finance minister of India has gone ahead with reform process by privatizing 27 companies. Rs 12,000 crores expected from these disinvestments would be hopefully used for restructuring public sector units, safety nets and reduction of fiscal burden. The rationale is very convincing. Why should the whole economy suffer for the gross weakness of a handful few?

The government of West Bengal is also going ahead with the process of privatization of 67 ailing state owned/state-run companies. Because the government of West Bengal knows fairly well that efficiency goes with privatization and also that the state run enterprises distort market relations and ultimately invite economic slow-down, the new economic strategy is really private sector friendly.

But caution is the need of the hour. When we uphold the rising imperative for progressive privatization in central areas, the enforcement of a sound domestic policy for a high operational standard is not ruled out. What the government should do is to review, revise and set a new operational standard from time to time keeping in view the challenges and threats.

Thus to take fuller advantage of global opportunities the process of liberalization and privatization needs to be meticulously planned and stepped up. The role of the government is equally important particularly in policy planning, policy direction and policy coordination at all levels i.e. before privatization, during privatization and after privatization. In other words, the roles of the government and private sectors are not mutually contradictory – but very much complimentary.

It is thus increasingly clear that a sound policy of privatization should be an integral part of development strategy.

*The article is written by Prof N Mohendro Singh

(Courtesy: The Imphal Free Press).

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