RETHINKING ON PUBLIC SECTOR

Summary

Rethinking on Public Sector is a 1970 Forum of Free Enterprise booklet — issued by the Bombay-based classical-liberal organisation founded by A. D. Shroff — that gathers the main historical, statistical and editorial materials needed to evaluate how India’s expanding state-owned sector had performed since Independence. The unsigned Introduction recalls the Forum’s 1956 ‘Manifesto’ position, that monopoly of any kind, public or private, is undesirable, and frames the moment as one in which ‘even those committed to the ideology of socialism’ have begun to rethink the proper role of the Public Sector.

The main essay, ‘Public Sector in India’, traces the journey from the 1948 Industrial Policy Resolution (which placed both sectors on a complementary footing) through Mr. Nehru’s 1954 visit to Communist China and the Avadi declaration to the 1956 Resolution that gave the Public Sector preponderance. It documents how Central public-sector investment rose from Rs. 29 crores (5 undertakings in 1950-51) to over Rs. 3,500 crores (86 undertakings) by 1968-69, before sequentially presenting and rebutting four standard arguments for the Public Sector: capital mobilisation, the ‘commanding heights’ doctrine, the breaking up of private economic concentrations, and the social-welfare motive. The rebuttal draws on Mahalanobis’s own job-creation figures (which favour agriculture over heavy industry), on Christopher Mayhew’s disillusionment with British nationalisation, on a ‘Nationalisation in France and Italy’ study of bureaucratic ‘private empires’, and on the gradual shift back towards markets in Sweden, Soviet Russia, and even Maoist China. The Forum’s pragmatic prescription: insist on at least a 10 per cent minimum return, consolidate before expanding, follow Andhra Pradesh’s Rajamundhry paper-mill model of selling controlling stakes to private operators, list shares publicly, grant complete autonomy, and reject the idea of a ‘committed bureaucracy’.

The second half reproduces editorial and reportorial materials that corroborate the case. Dr. Raj K. Nigam’s valedictory editorial in Lok Udyog — the Bureau of Public Enterprises’ own journal — concedes that the failures were ‘not inevitable’ and that ‘socialism is on trial’ in these enterprises. Press dispatches from the Times of India, Economic Times, Hindustan Times and Gujarat Herald document the Parliamentary Committee on Public Undertakings’ alarm at sub-15-per-cent capacity utilisation in Bharat Heavy Electricals, Hindustan Machine Tools, the Fertiliser Corporation and other flagships; Dr. M. Chenna Reddy’s call for a statutory set-up; Morarji Desai’s verdict that the LIC had ‘belied hopes’; and a Bhubaneswar expert team’s finding that none of Orissa’s state-owned undertakings had produced results commensurate with investment. Throughout, the booklet draws a sharp line between the loss-making industrial Public Sector and the ‘real’ Public Sector — defence, law and order, judiciary, infrastructure, education, sanitation — whose neglect, the Forum argues, is the true cost of statist ambition.

Key points

• Forum’s 1956 Manifesto position is restated as the booklet’s frame: monopoly of any kind, whether State or private, is undesirable, and the State-owned sector must not continuously expand until it dominates the national economy.

• The 1948 Industrial Policy Resolution treated State and private enterprise as complementary; the 1956 Resolution, drafted after Nehru’s 1954 China visit and the Avadi session, gave the Public Sector preponderance and was the basis of the Second Five-Year Plan.

• Central Public Sector investment grew from Rs. 29 crores across 5 undertakings (1950-51) to over Rs. 3,500 crores across 86 undertakings (1968-69), with Rs. 6,400 crores projected by the end of the Fourth Plan (1973-74).

• The booklet lays out four arguments for the Public Sector — capital mobilisation in vicious-circle economies, the ‘commanding heights’ doctrine, breaking up private concentrations, and a social-good rather than profit motive — and rebuts each by reference to evolving socialist practice in Britain, Sweden, the USSR and China.

• Mahalanobis’s own figures are turned against the heavy-industry strategy: a crore invested in steel creates 500 jobs, in consumer goods 1,500, in agriculture 4,000 — alongside far larger additional resources generated.

• Audit Report data show Central public-sector enterprises swinging from a Rs. 6.34 crore profit in 1961 to a Rs. 42.79 crore loss in 1968, with state-level units (Kerala, Mysore, State Transport) and Orissa’s corporations performing worse still.

• Pragmatic remedies recommended: a 10 per cent minimum return target, consolidation before new ventures, partial divestiture on the Andhra Pradesh Rajamundhry paper-mill model, complete autonomy for enterprises, and rejection of a ‘committed bureaucracy’.

• Dr. Raj K. Nigam’s Lok Udyog editorial concedes that the unsatisfactory performance was ‘not inevitable’ and that ‘socialism is on trial’ in these enterprises, while press cuttings (Parliamentary Committee findings, LIC, Orissa, Punjab) corroborate the diagnosis with concrete data.

• A closing distinction is drawn between the ‘real’ Public Sector — defence, law and order, judiciary, infrastructure, education, drinking water, sanitation — and the industrial Public Sector that is crowding it out.

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