Privatisation, the 13-letter politically combustible phrase, the Jimmy Amarnath of India’s unfinished reforms agenda, has made yet another comeback into popular discourse. Typically, through history, the phrase and the idea of privatisation waxed and waned with political expediency. Derived from the German word ‘privatiserung’, used in 19th Century Austria, the construct acquired currency during the Thatcher era. Privatisation arrived in India’s political economy along with the 1991 bailout conditionalities, and has since yo-yoed in and out of favour.
What makes its appearance in 2021 significant is that the idea has moved beyond mere jaw-boning. It finds mention in the Budget speech and, more importantly, has acquired political heft following the explicit articulation by Prime Minister Narendra Modi last Wednesday when he declared ‘government has no business being in business.’
It is not the first time Modi has uttered the Thatcherism. In a 2012 interview, the then Gujarat Chief Minister, speaking on the role of government, had said exactly that and wooed middle-class imagination. Indeed, a few months after taking over, Modi reiterated the mantra to CEOs at the USIBC meet in Washington.
The words didn’t quite translate into privatisation. Indeed, for the 34 entities identified by the Niti Aayog, the phrase used was strategic disinvestment. The number of operating CPSEs has gone up from 236 in 2014 to 249 in 2019 — and since 2016 the only big tag disinvestment of a public sector unit has been that of HPCL to the government-owned ONGC.
So as the Americans would say ‘what gives’, what accounts for the shift in language and strategy, the re-convening of the idea? The answer to why now is illustrated by the politics of economics. Economic policy under Modi is not anchored in any particular ideology but is rather entrepreneurial — it rests on the linear coefficient of possibilities and political dividends.
After the setback in Bihar and Delhi polls, following the jibe of suit-boot ki sarkar, Modi expanded welfare economics and wrapped it in Hindutva politics. In 2021, the BJP is better placed in the Rajya Sabha and the opposition is emasculated. The conversion of the 2014 popular mandate into popular authorisation allows political entrepreneurship.
The shift is driven by economic realities. Why privatisation matters now is embedded in the detailing of Budget 2021 documents. The gap between the government’s income and expenditure shot up from Rs 7.96 lakh crore to Rs 18.48 lakh crore and is expected to be capped at Rs 15.06 lakh crore. To bridge the deficit, the government will borrow Rs 12 lakh crore this year — that is, around Rs 3,287 crore a day or `136 crore an hour every day.
Worsening the picture is the skew in the revenue model — one item, taxes on petro products, which has caused justifiable outrage, is the single biggest source of revenue accounting for collections of over `5 lakh crore. The inflationary consequences were spelt out by RBI Governor Shaktikanta Das.
And although the economy is ostensibly on a path of recovery — assuming there are no socio-economic disasters ahead — the level of borrowings and deficit will hurt cost competitiveness and economic growth. To pave a path towards a low-cost high-growth economy, the government must cut its borrowings and shrink debt and deficit levels. And the moolah mantra is obviously privatisation. It affords the monetisation of assets, caps erosion of public wealth, frees resources for human and physical infrastructure and promises the upside of enhanced growth as enterprise productivity improves.
It is instructive to know how China migrated from abject poverty to prosperity. It sequenced its reforms for growth — it first modernised its agriculture, opened FDI into real sector and captured global trade. When India attained Independence, it liberated political rights but shackled economic liberties. Post 1991, it opened up the financial sector but constrained FDI in manufacturing. It joined GATT and then WTO without acquiring the bandwidth to meet competition. And till recently, it kept farming, its largest private sector, under fetters. The consequences are manifest in the data on income and inequality.
Context is critical for policy — particularly, the interplay of global finance and geopolitics. Global interest rates are hovering between zero and one per cent. Money is chasing returns — evident from portfolio flows to emerging economies. A McKinsey study estimates a fifth of $ 4 trillion of goods exports is expected to shift supply base in five years. It is, therefore, critical to view the paradigm shift in policy — whether it is farm laws, productivity-linked schemes, opening up of FDI, new code for labour laws and privatisation — through the prism of India’s necessities and global opportunities.
The confluence of policy reforms represents systemic risk. It calls for shepherding of politics past competing compulsions and contradictions. My book ‘Accidental India’ proved India’s transformation from penury to potential of prosperity was propelled by crises. As it comes out of the health and economic crisis, the world will find itself in the cusp of mega disruptions. The emerging challenge is also an opportunity and affords India a shot at shifting orbits.
Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India