Public Sector and Nationalization of Industries

The early Indian leaders and industrialists were convinced that the economic development of the country had to be on a planned basis and that the State had a dynamic role to play in industrializing the country and materially raising its standards of living.

The Indian National Congress had passed a resolution at its Karachi session in 1931 on fundamental rights and economic programme which stated that the State should control key industries and services, mineral resources, railways and shipping and other means of public support.

The achievement of independence made it possible for the Congress to give a concrete shape to its ideals and aspirations. The 1948 Indus­trial Policy Resolution clearly recognized that the State had to play a dynamic role in the development of industry and divided industries into those which had to be the exclusive monopoly or responsibility of the Central Government, those which had to be subject to State regulation and control and those which were to be operated by private enterprise under the general control of the State.

The framers of the Constitution did not directly provide for State management of industries but the kind of social order visualized in the Directive Principles of State Policy involves active participation of the State in economic development.

Growth of Public Sector in India

The growth of the public sector undertakings in India during the three Plan periods has been very rapid, so rapid, indeed, that except in the Communist countries, there are no parallels to it. This expansion has been secured in two ways—

• Nationalization of some existing industries and
• Services and by the creation of new ones.

The Central State under­takings are engaged in manufacturing heavy electrical goods, steel, machine tools, fertilizers, chemicals, drugs, newsprint, coaches, wagons, locomotives and ships. So vast, indeed, are the activities of the public sector industries that the Government has acquired through them a predominant position in the national economy.

Role of Public Sector in India

The public sector has greatly helped in strengthening the defense of the country. We are now producing through the public sector equipment for our defense and arms—fighters, Migs, tanks and other sophisticated weapons.

The remarkable growth of the private sector has been made possible by the solid foundations for industrial growth established by the nationalized industries and services.

The present position regarding the spheres of public and private sectors is regulated by the new industrial policy. All industries of basic and strategic importance or in the nature of public utility services are to be in the public sector.

All industries were classified in three categories—

• Those which for future development are to be the exclusive responsibility of the State,
• Those which are to be progressively State-owned and in which the State will generally take the initiative in establishing new undertakings and a
• All other industries which will generally be left to the initiative and enterprise of the private sector.

Since this resolution was adopted, the trend has been more and more towards State parti­cipation in industrial growth.

Bank nationalization is a prelude to bigger role of the State in industrialization. The State may nationa­lize part of the export and import trade, enter the field of consumer goods production and may begin producing scooters and cars. There is no theoretical limit to what the State may or may not do.

Concentration of Wealth

It is the responsibility of the State to restrict the concentration of wealth. The ownership of the means of production should be so so distributed as to sub-serve the common good.

This Directive Principle is not legally enforceable but it is not less morally binding on that account.

How to Reduce Concentration of Wealth and Income

There are various ways of reducing concentration of wealth and income

• An industrial licensing policy designed to encourage newcomers in the industrial field, promotion of cottage and small-scale industries, land reforms including a ceiling on land-holdings, progressive direct taxes and safeguards to protect workers’ share in industrial profits, but none is so effective as nationalization of indus­tries on a large scale.
• Nationalization of banks is one of the most effective ways of reducing concentration. Hitherto, industrial houses had been able to build up their empires largely with funds supplied by big banks because they virtually controlled them. The same was true of life insurance concerns before nationalization.
• Huge budgetary surpluses needed for rapid growth can be built up if the public sector is greatly enlarged. There is no reason why the State cannot operate consumer goods industries and engage itself in profit­able trade.

Advantages

Rapid economic growth depends essentially on investment. Private enterprise in a developing economy can never obtain the resources for the purpose. The State can mobilize savings on a much larger scale than private enterprise through various means, such as taxes, both direct and indirect, profits from State undertakings, the resources of the nationalized banks and insurance, compulsory savings and deficit financing.

Private enterprise too can obtain foreign capital and technical skill, but its collaboration with foreign concerns as a means of securing foreign capital is not without its risks, and the Government is in a position to secure foreign aid of far greater magnitude on a government-to-government basis and on far easier terms of repayment.

Only when the Government is controlling the com­manding heights of the economy and is in possession of the financial resources of the nation can it ensure that economic development proceeds on a planned basis.

The people are prepared to give up immediate satisfactions for the sake of a brighter future when they know that their sacrifices would benefit the nation as a whole and development would not accentuate economic inequalities.

The public sector is a means of achieving national integration by putting an end to regional imbalances and economic backward­ness.

Capitalistic enterprises have hitherto been concentrated only in a few big cities, leaving large parts of the country industrially neglect­ed. One reason why totalitarianism has made some appeal in certain parts of the country and regional agitations have made their appearance is that these parts have remained economically undeveloped and large-scale unemployment in them has caused profound frus­tration. The neglected States lack the resources needed for accele­rating economic growth. Only Centrally-sponsored projects can redress the balance. These projects promote national integration in another way. Their personnel is recruited from all parts of the country.

A public sector project operated by men hailing from various parts of the country is a very edifying spectacle. There are many projects which can only be in the public sector because they involve very heavy investment and their gestation period is so long that private enterprise is not attracted to it. Steel plants, heavy electrical and multi-purpose dams can only be built in the public sector.

Only the Government could negotiate with the foreign Governments for the construction of modern steel mills on a long-­term loan basis.

Besides, where an industry is to enjoy a monopolistic position, there is little point in reserving it for the private sector. The Government can provide through the public sector a model of how employer-employee relations should be organized and how industrial conflicts can be resolved.

No Government which is anxious to quicken economic growth can afford to see fac­tories closing down on account of mismanagement and thousands of workers thrown out of employment. It is bound to take over such factories and reorganize them on efficient lines.

Many industries continue to be run with antiquated machinery and other poor equip­ment. The Government may either take them over or provide funds for their rationalization. In the very nature of things, there can be no rigid division between the public and private sectors. The Government cannot passively look on and see an industry brought to ruin or operating to the detriment of public interest.

The nationalization of existing industries, the reservation of certain industries and services to the State and the assumption by the State of the role of an industrialist are not an end in them but are a means to specific ends.

A State undertaking provides amenities to workers on a much bigger scale than many private undertakings.

Disadvantages

The business community of this country is generally critical of the Government’s policy of continuously expanding the public sector and nationalizing existing industries. It is strongly opposed to what it calls the doctrinaire approach to economic problems and pleads for a more realistic, more pragmatic attitude. The funda­mental assumption underlying opposition to nationalization of indus­tries and trade is that efficiency in industrial management is directly related to material incentives which the public sector managed by salaried officials cannot adequately provide.

According to Indian businessmen, bureaucratic control and management of industries is always devoid of initiative, flexibility, readiness to take risks, experiments with new ideas and innovations. The poor per­formance of so many State undertakings is cited as evidence of their timid and unimaginative management.

Opposition to the participation of the State in industrialization is also based on the charge that the location of State undertakings is determined by political considerations rather than on merit, that politicians interfere too much in their managements and that senior appointments are politi­cally motivated.

If concentration of wealth and incomes in private hands is undesirable, is concentration of wealth in the State, it is asked, less undesirable and less inimical to freedom? State undertakings, it is argued, cannot be economically run because labor is too much pampered in them and the interests of growth are subordinated to the provision of housing for workers and other welfare projects.

It is certainly possible to achieve rapid economic growth through private enterprise as many countries have done.

Nationalization does not by itself resolve the problem of producing and distributing goods and services in an efficient and economical manner so as to serve the public interest in the highest possible degree.

Nationalization of industries takes us into a new world of hope and promise, but that world has its own problems, which although different from those presented by private enterprise are both pressing and diffi­cult. It is not easy to define in categorical terms what the cri­terion of efficiency in the public sector is. Profitability cannot be the sole criterion.

The question how development is to be ensured cannot, however, be answered purely in economic terms. It is more a matter of social policy. Development on capitalistic lines is not possible in India because public opinion is against it and is not prepared to pay the price for it—huge disparities in the distribution of national income and wealth. Socialism, of course, does not mean complete socialization of the means of production and private enterprise has a place in the national economy, but, if the Socialistic pattern of society is to be set up, the Government must be in complete control of the commanding heights of the economy.

Public enterprises do not receive whole-hearted co-operation from their employees. Trade union leaders do not regard it as part of their duty to persuade workers to work harder and increase their productivity.

There is, of course, nothing wrong in offering material incentives to stimu­late higher production, but there must also be a spirit of dedication among workers in all ranks. Unfortunately, this spirit is not much in evidence.

How the spirit to work can be created?

Mere exhortations to workers to give their best to their work and to recognize their responsibility towards the community are not enough. The sense of “belonging” will come to the workers partly if they are associated with the manage­ment and partly if they are allowed a share in the prosperity of their concerns. The public recognition of hard-working and enterpris­ing employees in the Soviet Union and the material advantages to which they are entitled provide the kind of incentives which we can provide to win the co-operation of the employees.

Joint Sector

The Gov­ernment of India is now patronizing the concept of the joint sector and even of the “national sector”, with equity participation. Active pursuance of this concept in a bid to meet the ideological ends and yet combine the good points of private management appears pro­bable, the alarms sounded by the ideology-obsessed group in the ruling party notwithstanding.

Judged by Total Results

Public enterprises have to be judged by their total results, not by the surpluses, because where the State has a mono­poly, surpluses can be easily secured through the manipulation of rates.

Public sector undertakings are part of the countries integrated development plans and are partly to be judged by the extent to which they have contributed to the fulfillment of the Plan targets. The performance of the electricity boards, for example, has to be tested not merely by the surpluses which they have obtained but also by the extent to which they have encouraged by cheap power rates the establishment of tube-wells for agricultural development.

These undertakings must not only be as efficient as the best-managed in­dustries in the private sector, but also more conscious of their obli­gations towards workers, consumers and the community in general. There is widespread doubt in the country about the ability of public sector undertakings to provide efficient and economical service to the people and produce goods of fine quality. This doubt has, to some extent, been deliberately fostered by the vested interests.

Public sector undertakings must provide positive evidence of incor­ruptibility in the administration, purity of the goods produced and efficiency of service.

Conclusion

The nationalized industry must command the services of more public-spirited managers and workers than private enterprise if it is to justify itself and produce satisfactory results.

The old notion that the civil servants recruited through open competition can handle any administrative problem, whatever its nature, is a myth which the sooner it is discarded the better.

In the interests of efficiency, entrepreneurial talent of the private sector must be mobilized for the benefit of State undertakings.

All public sector undertakings have to reconcile autonomy with accountability—a delicate problem. The managers must be assured of protection against genuine mistakes in decision. But safeguards have also to be provided to ensure that extravagance and waste are avoided, corruption and favoritism are stamped out and shady transactions are fully exposed. The need for such safeguards is particularly great in this country because, generally speaking, standards of public conduct are not very high, and there is at present widespread skepticism regarding the ability of the government to manage industrial and commercial concerns efficiently, economically and honestly.

Profits alone, of course, do not provide a reliable yardstick for measuring efficiency of Public Sector Industries. But it is right that as far as possible, surpluses from State undertakings should be large enough to ensure expansion of the public sector at a rapid pace.

Some industries have a long gestation period, and full allowance must be made for this fact when evaluating the achievements of public undertakings. But it cannot be denied that one of the main grounds for public sector under­takings disappears if they do not yield substantial surpluses.

Public sector undertakings must be operated by men with at least three basic qualifications.

• They must be men of unimpeachable integrity and public spirit,
• They must have considerable experience of managing business affairs, and
• They must have the will to make the enterprise a success.