Cloud over private players barrier to growth

India has significantly reduced the number of public sector undertakings by privatisation

Arvind Subramanian, Chief Economic Adviser (CEA) at a Press Conference at National Media Centre in New Delhi after laying of Economic Survey 2016-17 in Parliament (Photo: PTI)

Last Updated : Feb 01 2017 | 3:32 AM IST

An environment of suspicion towards the private sector, mainly due to political compulsion, has held back the Indian economic sector for a decade. That seems to be the message from Chief Economic Advisor Arvind Subramanian.

Such an unfavourable perception towards the private sector has led to problems such as an unprofitable airline, twin balance sheet problems for banks and the exit of government from loss-making fertiliser plants.

Citing civil aviation as an example, the Economic Survey on Tuesday said privatisation of public enterprises remains difficult even for firms with a strong case to be privatised, though the reform talks in the sector is animated by discussions of as much “an interventionist as liberalising spirit”, as reflected in restrictions on pricing.

The Survey used the example of state-owned Air India to point out that there was difficulty in privatising public enterprises, even for firms that economists have argued should belong in the private sector. But the commitment to make the perennially unprofitable public sector airline “world-class” remained.

Air India is functioning on a government stimulus of Rs 33,000 crore. The carrier was back in the red in 2014-15 after making an operational profit of Rs 105 crore last financial year, for the first time in a decade.

The Survey said over the past decade, India has significantly reduced the number of public sector undertakings by privatisation.

The Survey also pointed out that regulation has hindered the prospect of private players. This is similar to the situation in the agriculture sector, where regulations such as mandatory selling to middlemen under the APMC Act are used to increase problems in some states.

“The agriculture sector is entwined in regulation, a living legacy of the era of socialism.”

The government had promised to not act retroactively on tax and other issues. “But the legacy issues of retroactive taxation remain mired in litigation, with uncertain prospects for early resolution."