These are serious questions that deserve serious answers. The first is that businessman have to raise money on commercial terms, while the public sector can rely on government hand-outs. This makes an absolutely enormous difference in the private sector inefficient companies will not be able to expand since they would have no profit to do so. Only companies with the proven track record will have the surpluses to invests in new projects and will be able to attract substantial new funds from the public. Hence there is an in-built tendency in the private sector to channel the bulk of fresh investments into good companies and cut out bad ones.

Public sector procedures simply do not permit such good management. Because questions are asked in Parliament because so many parliamentary committees scrutinize the public sector undertakings, the focus is constantly on individual decisions and not on overall performance. Any faulty decision is equated with mismanagement. There is no understanding at all of the basic management principle that an enterprising manager is found to make certain number of mistakes and if he makes one at all he is guilty of risk aversion to the point of being a bad manager.

The reaction of the public sector is to retreat into procedures which make it impossible to pin the responsibility for any decision on one individual. Every decision will be taken by the committees co-opting as many ministries possible. Long inquiries will be held into alternatives to every bad decision. The emphasis will be on as much insulation as possible as from the most rat-picking parliamentary criticism. So managers are simply not allowed to exercise their managerial skills, and the undertaking suffers.

In sum, while the Indian private unquestionably riddled with inefficiencies, it has inherent advantages. Above all the public sector is a play thing for politicians who wish to use it for patronage and money-making. The 1989 committee on black money estimated that 25% of the public investment disappeared in kickbacks. Public sector firms are deliberately overmanned to provide jobs for the nominees of the politicians, are often sited at wrong locations to suit political interests and are often forced to buy goods from undesirable supplies.

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