The preamble to the Constitution of India declares India to be a sovereign socialist (emphasis added) secular democratic republic. The Supreme Court of India has held in Kesavananda Bharati vs State of Kerala Case (1973) and S R Bommai vs Union of India (1994), that the Preamble is an integral part of the Constitution. The Court held that the Preamble is not the supreme power or source of any restriction or prohibition but it plays an important role in the interpretation of statutes and provisions of the Constitution.
The question is “whether, in the normal course, every legislation, policy, programs and practices framed and pursued by the Parliament and Executive ought to be congruent with the Preamble, to be constitutionally legitimate? Is it unreasonable to expect that the legislature and policymakers put all legislation, policies, programs and practices framed by them through the test of this declaration, before these are implemented? To clarify, these questions need to be examined considering the present status of the Constitutional mandate, without going into to the merits of this declaration in the Preamble.
As an investor, I find it relevant to examine the suitability of investments in public sector enterprises in light of the constitutional mandate for the government to be ‘socialist”.
From various sources, I gather the following three objectives of setting up commercial public sector enterprises in India.
· Provide basic goods and services to the citizens; provide employment opportunities; and promote economic development.
· Play a key role in the development of infrastructure; promote exports and encourage private investment.
· Protect the interests of weaker sections of society.
Profiteering is definitely not one of the key objectives of the public sector enterprises. So, when we read the following headlines in newspapers, questions about sustainability, desirability and constitutional ethics are natural to arise.
“At Rs 16,884 crore, SBI posts highest quarterly profit”
“Minimum Balance Penalties: Public Sector Banks Collect Around Rs 8,500 Crore in Five Years”
“Railways earned ₹1,230 crore from cancelled waiting list tickets in span of 3 years”
The objective of the nationalization of banks in 1970 was “to control the heights of the economy and to meet progressively, and serve better, the needs of development of the economy in conformity with national policy and objectives”. To my knowledge it has not been changed so far. Making profit from poor depositors who are unable to maintain minimum deposit is ultra vires the primary objective of bank nationalization. Similarly, charging a fee on automatic cancellation of waitlisted rail tickets is untenable.
If the government wants the public sector enterprises to be as profitable as their private sector counterparts, it should either privatize these enterprises or make necessary changes in the constitution and other related legislations clearly outlining the change in the legislative intent. Till this happens, I shall continue to avoid investing in PSEs.
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