Public-Private Partnership Turn : Vanam Jwala Narasimha Rao

Public-Private Partnership Turn  

Vanam Jwala Narasimha Rao

Telangana Today (10-02-2020)

When India achieved independence the national consensus was in favour of rapid industrialisation. The first Industrial Policy Resolution announced in 1948 laid down broad contours of the strategy of industrial development. Subsequently, the Planning Commission was formed and the Industrial Act was enacted with the objective of empowering the government to take necessary steps to regulate industrial development.

Prime Minister Jawaharlal Nehru promoted policy of mixed economy. India's second five-year plan (1956–60) and the Industrial Policy Resolution of 1956 emphasised the development of public sector enterprises.

Accordingly, in order to overcome the red-tape and indifference in the functioning of Government Departments and to serve the citizen better, several Public Sector Undertakings (PSU) were established all over the country. These include State Road Transport Corporations also among others. Corporations of Bharat Petroleum, Oil and Natural Gas, Indian Oil, BHEL, BEL, National Buildings Construction, NMDC, Oil India Limited, central Warehousing, HMT, ITDC, Hindustan Cables, Praga Tools etc. came up. As some of these were not functioning in expected lines and were also incurring losses public sector reforms were introduced leading to closure of sizable numbers of PSUs.

Thatcher on Public Sector

Thatcherism, named after Margaret Thatcher former British Prime Minister and known as Iron Lady in UK politics, was critical of the public sector for failing to provide its clients and users with a more courteous, efficient and higher quality service. In the recent past Indian Prime Minister Narendra Modi is often referred as Indian Thatcher. According to Thatcher staff employed in the public sector allegedly failed to appreciate that the people they served, were precisely those people whose taxes provided a major source of revenue for the public sector, and, of course, the salaries of those employed within it. Hence, the public sector was often synonymous with a shabby, second-rate service. Thatcherism argued that those employed in public sector services tended to prioritize their own interests over the interests of the public which relied on such services. The alleged attitude of many public sector staff was that those who relied upon such services should simply ’accept what they are given’ and be grateful.

The other argument advanced by Thatcher about poor quality of service provided by the public sector was that such services are usually monopolies, and so did not face competition from others providing a similar service. Consequently, professionals in the public sector allegedly assumed that service users could not go elsewhere if they were dissatisfied with the quality or speed of service they received. According to Thatcher, lack of competition compounded one other major problem concerning the public sector, namely the power of those trade unions whose members worked in such services.

Blackmail Power

It was argued that where a particular group of workers are the sole (monopoly) providers of a service, their bargaining or ’blackmail’ power was enormously enhanced, because if they go on strike, the result will usually be widespread disruption and inconvenience to the millions of people who are totally reliant on the affected service. Recognition of this was deemed to make public sector trade unions much more powerful, and also militant, in selfishly promoting or protecting the interests of their members.

Public sector reform provides a clear example of how the principles, objectives and policies promoted by Margaret Thatcher have been readily embraced and extended subsequently, and continue to be implemented today. Thatcherism decreed that competition was crucial to improving performance and thus providing the public with a much better service. Only if a public service is exposed to competition will it be compelled to ’raise its game’ and becoming more responsive to what its customers or clients actually want.

About three and half decades ago, when the Indian economy was opening up, several joint ventures were formed in just one year between Indian and foreign companies. Majority of them ended up in breaking within five years later as they failed to produce the expected results. Thus, the experience in India revealed that most joint ventures were notoriously difficult to manage.

Gains from PPP

Against this experience, in India, as in other countries evolved the concept of “Public Private Partnership” (PPP) which steadily gaining strength. It is assumed that Government’s collaboration with non-profit private sector in the form of PPP would improve equity, efficiency, accountability, quality and accessibility of the system. Advocates argue that the PPP can potentially gain from one another in the form of resources, technology, knowledge and skills, management practices, cost efficiency and so on.

Union Finance Minister Nirmala Sitharaman presenting her 2019 budget in the Lok Sabha made couple of references to Public Private Partnership. Citing the example of the phenomenal task in cities like Mumbai and smaller cities of Indian Railways, Nirmala Sitharaman said that the Railways will be encouraged to invest more in suburban railways through Special Purpose Vehicle (SPV) structures like Rapid Regional Transport System (RRTS) proposed on the Delhi-Meerut route. Accordingly, she proposed to enhance the metro railway initiatives by encouraging more PPP (Public Private Partnership) initiatives and ensuring completion of sanctioned works.

            She also proposed that internet connectivity in local bodies in every Panchayat in the country will be speeded up with assistance from Universal Service Obligation Fund under a Public Private Partnership arrangement. This will bridge rural-urban digital divide said the Minister. Nirmala Sitharaman further proposed to use Public-Private Partnership to unleash faster development and completion of tracks, rolling stock manufacturing and delivery of passenger freight services in respect of railways. Thus, the PPP is hinted at in taking up government projects. It is also said that sooner or later Railways too would be privatized and run in PPP mode.

         In this year’s budget the Finance Minister made couple of references to PPP in her speech. She proposed setting-up of Medical Colleges as an adjunct to Government Hospital in every district in PPP mode. She also made a case to construct warehouses and operate Kisan Train in PPP mode. In yet another proposal she hinted at privatisation of LIC which probably may be a retrograde step. All these indicate Nirmala’s preference to PPP model.      

PPP does not mean privatization at all. It also does not mean that the responsibility of government is diminished. It is just one alternate to provide government related services. Maybe it is also one of the alternatives to PSUs that failed to provide adequate services to people. In what areas PPP will be brought in, of course, is the discretion of Government.