Do it yourself

I have received several responses to my post regarding investment in the public sector enterprises (see here).

A majority of respondents do not agree with my hypothesis. Their argument is that any business venture cannot be sustainable if it is not run for profit. For decades, PSEs have incurred losses and have been supported with public money. In the past one decade the policy towards PSEs has witnessed a paradigm shift. The focus has shifted to make PSEs profitable rather than privatize them. It is in the public interest that PSEs make good money and pay dividends and capital gains (on sale of minority interests) to the government, which can be used to finance public services. A majority therefore believes that strong profitability of PSEs is in the interest of the economy in particular, and the broader nation interest in general.

Some agree with my hypothesis that presently the government does not have the constitutional mandate to indulge in “for profit” businesses. They agree that if the government wants PSEs to be run “for profit”, these should better be privatized. The money realized from their sale may be utilized to reduce public debt; build infrastructure; support development of new technologies for futuristic businesses; and most importantly fund agriculture initiatives for enhancing productivity and reforming crop mix.

A few have expressed alternative views. One respondent suggested that profitability of public institutions like IRCTC, CDSL, SEBI, NSE, etc. (which have been essentially created using public money and at public risk) is akin to unduly taxing the common people for availing public services. It is like state electricity boards and municipalities earning profits from supply of electricity, water and other civil services. This is unacceptable, even if the constitutional mandate of pursuing socialist policies is ignored.

I respect all three views. But, I would still maintain that (i) the Government of India has no business to be in business; (ii) the constitutional mandate of socialism prohibits the government from operating “for profit” businesses; and (iii) the objective of PSEs is public service not profiteering.

I may change my view, if the constitutional mandate is changed; these businesses are run on a level playing field with the private enterprise; minority shareholders get the same rights as they have in the private enterprise; and politicians are prohibited from enjoying free perquisites from these enterprises at the expense of the public.

The debate with the readers reminds me of an old bedtime story my grandfather used to narrate.

In a village, there lived a widow with her two sons. Both the sons were lazy and hated studying or working. Once when the annual village fair was going on, the mother prepared some sweets and told her sons to go and sell those sweets in the fair and earn some money. She also gave one rupee each to both the boys for buying food for themselves. Both the sons reluctantly went to the fair, found a shaded place under a big tree and dozed off only to wake up at lunch time. Feeling hungry, the younger boy bought sweets from his elder brother and gave him one rupee the mother had given him. In return, the elder brother bought sweets worth two rupee from the younger one. In one hour, they had sold all their sweets, had satiated their hunger and had also saved the two rupees their mother had given them. Happy and satisfied, they returned home by late afternoon. Of course, to the dismay of their mother.

Relating this story to the present market narrative, I get this.

A public sector company makes ammunition for the Indian defense forces. The Government of India funds the entire budget of the defense forces. Indirectly, the people of India pay for the entire sale of this public company, which is quintessentially owned by them.

Now imagine,

·         The public sector fertilizers companies make profits from selling fertilizer to farmers at profit, who cannot repay their debt and default on loans from public sector banks.

·         A public sector heavy engineering company selling turbines to another public sector company generating electricity and supplying to state electricity boards at profit. The state electricity boards sell this electricity to the public at a loss, which are funded by the government and public financial institutions, run by the taxes paid by the public.

·         A public sector company mining coal and selling to public sector electricity and steel producers at profit. The public, which buys the electricity and steel produced by using this steel is expected to pay for this profit.

Ain’t this the family affair, brothers selling sweets to each other, with zero net output.