The public sector has failed but private sector is hardly an inspiration

Though private sector now creates more jobs than public sector, the scale of operations of even the giants in Indian biz has not been big enough to alter employment dynamics the way China has managed

In her Budget speech, Finance Minister Nirmala Sitharaman had implied that the public sector would vacate the traditional Nehruvian commanding heights of the economy with the private sector stepping in to take up the slack.

This is the basic interpretation of Ms Sitharaman’s statement that the government would minimise the presence of the central government public sector enterprises and create “new investment space for the private sector”. Central to the policy would be classifying sectors as strategic and non-strategic and ensuring a “bare minimum” public sector presence in the former.

If this policy is followed through, it implies an unprecedented transfer of assets and national wealth to the private sector. Ms Sitharaman later swatted away the opposition charge that the government was selling the “family silver” by insisting that the policy was actually strengthening it.

The “family silver” argument is a tired one to be sure, but doubts about the galvanic properties of the Indian private sector are valid. Though the public sector’s command did not exactly make India an economic powerhouse, the question is whether the private sector can do the trick now.  

On the reckoning of the immediate past, the prognosis is not that great. For all the excitement at the prospect of being “world class in India” — the hopeful title of book written by three management doyens in 2001 — it is fair to say that the early corporate promise of liberalisation has remained largely unfulfilled, more so when judged on three parameters: Innovation, employment and governance.  

The IT and ITeS revolution that put India on the world map was powered by the provision of low-value services. Don’t knock that — it is thrilling to see, say, the name of Infosys emblazoned at stadiums as the IT services provider for Grand Slam tennis tournaments or World Cup Football. But these small triumphs do not disguise the fact that the domestic IT industry is scarcely the epicentre of game-changing innovation.

This innovation-lite descriptor applies to the many Unicorns that have emerged during the pandemic too. Attracting large PE investments for building businesses built on purveying, say, education services or payments online is more a testimony to the operational capabilities of these entrepreneurs — no small achievement in India’s chaotic business environment — than their innovative capacities.  

As for the innovation competences of the rest of industry, here is a small com­parison. Japan gave to the world concepts such as Just-in-Time and  Kaizen, which have become standard for every large global manufacturer. India has so far bequeathed jugaad, a concept that yielded many admiring books but few emulators.  

Nor can the Indian private sector be considered a major job creator. The IT and ITeS industry accounts for about 8 per cent of India’s GDP but employs a little over four million professionals — less than a drop in the ocean of 400 million-plus workers. So the hoopla surrounding this sector may be overdone even accounting for the multiplier effect.

Though the private sector has overtaken the public sector in terms of job creation, the scale of operations of even the giants in Indian business has not been large enough to alter employment dynamics the way China has managed. Their owners don’t schmooze at industry association meets or grace prime ministerial advisory bodies, but small and medium companies form the numerical bulk of Indian enterprise still.

Anyway, if private entrepreneurs get their hands on more public sector companies, expect a massive downsizing of bloated workforces (a fate that awaits Air India, for example). And given the chronic problems of dealing with large workforces (which new laws are unlikely to change), a visit to any modern shop-floor immediately reveals how large enterprises are increasingly demonstrating a marked preference for robots.

That leaves governance, and it’s hard to know where to begin the litany of shortcomings, most of which stem from the domination of family-managed corporations. This form of ownership should not, prima facie, make a difference to the quality of governance. But somehow, it has. In India, at least, it has reduced the accountability of professional management and, most of all, narrowed the ambit of talent and employment. The pitfalls of speaking truth to promoter power has been spectacularly on display in the Tata-Mistry imbroglio these past few years.

Nor has the private sector been a beacon of social change. A quick look at the top- and second-rung management reveals the upper caste, religious and gender biases of India Inc’s hiring . It is not as though the public sector has been a model of affirmative action but the private sector has even less to boast about. For instance, Muslims account for just 6 per cent of the private sector workforce and less than 3 per cent of senior management — a situation that obtained well before the advent of a Hindu majoritarian regime at the Centre. Companies ingenuously ascribe their hiring preferences to a lack of adequately qualified scheduled castes, Muslims and women. This may hold for the first two categories but is patently untrue for the women.

Perhaps the government’s ostensible intention to direct its energies to public education and health once it exits the business of business will make a difference to the employability of those communities that have been left behind in the socio-economic stakes all these years. But we’ve heard all these resolutions before — in the last decade of the last century, in fact — so don’t hold your breath.