Public sector is on defensive, but almost sure to grow

With India's political pendulum swinging once again toward private enterprise and a more open economy, the public sector, which covers literally everything from bread and butter to guns, is coming under pressure to deliver, or else.

The public sector has always been a controversial issue in this country. It is very large and also, by nearly every yardstick, very inefficient. Nearly 200 national corporations are owned by the central government and more than twice as many by individual states. Between them, they monopolize most basic industries, such as petroleum (100 percent), steel (85 percent), coal (100 percent), electricity (95 percent), nonferrous metals (80 percent), banks (the top 20), and a large number of heavy-engineering units.

In addition, railroads and defense-based industries, along with telephones and telegraphs, are operated directly by individual ministries as departmental units.

At a rough guess, total investment in the public sector is about 500 billion rupees (some $50 billion). That may not be large by American standards, but represents a fair slice - about two-thirds - of the assets of India's entire industrial sector.

As conceived by India's first prime minister, Jawaharlal Nehru, a socialist who borrowed most of his ideas about socialism from the Fabian Society of Britain, the public sector was meant to keep private industry in check by attaining a commanding position in the economy. Over the years, however, the government sector has expanded into nearly every business line, from bread and fruit juices to bicycles, scooters, buses, textiles, footwear, and hotels. In most such lines it has to compete with the more-enterprising private sector, and invariably comes out a poor second. But it still keeps going.

Total investment in the 150-odd main national corporations as of last year amounted to some 211 billion rupees (about $21 billion), these firms employed 2 million people. However, on a turnover of 280 billion rupees, nearly four times the combined turnover of the top 10 private business houses, they made a profit of only 4 billion rupees, yielding a rate of return of less than 1.5 percent on sales.

Among the country's top 10 state-owned concerns are Indian Oil Corporation, Bharat Heavy Electricals (BHEL), Central Coalfields, the Minerals and Metals Trading Corporation, the State Trading Corporation, and the Oil and Natural Gas Commission, all of which are monopoly businesses, with very little competition and tremendous political and commercial clout.

''If Tatas and Birlas (top industrial houses) had this kind of monopoly,'' says a government official who recently retired from the Industry Ministry, ''our industries would really go places.'' The top 10 private business houses are also estimated to have made a profit of 4 billion rupees last year - but on assets that were only about a quarter of those of the public sector.

The main reason for low returns on public-sector investment, says Raj Krishna , a former member of the planning commission, is inefficiency, not so much of the managers but of the system as a whole.

''Your public-sector boys are as good as boys anywhere else,'' says an executive who has been negotiating with some of them about a new steel plant at Paradip in Orissa State. ''I don't mind hiring some of them myself.''

Indian business groups are also eager to hire managers from state units, partly for their connections, but also because they can deliver as well as anyone else. But surprisingly few executives want to make the change.

''I know I would get twice and maybe thrice as much salary in the private sector, but I have more freedom here,'' says T. V. Mansukhani, managing director of Hindustan Machine Tools, a fast-moving engineering company that makes machine tools, tractors, and quartz watches, an unusual but profitable combination. ''With government finance behind me, I can take a longer-term view, and need not worry about immediate returns,'' he says.

Mr. Mansukhani, who started off as a management trainee in his company and has never worked for a private company, is not an exception. There are two reasons that the public sector has such a quasi-romantic appeal to Indians, particularly to politicians. First, there is the general belief that the private sector is an exploiter - of people as well as resources - while the public sector is a kind of benevolent provider and benefactor. The latter is therefore equated with social justice. The second argument is that without a vast public sector under its control, the government would be almost totally powerless and virtually at the mercy of private industry.

''How on earth do we rule this country without a public sector?'' asked Morarji Desai, prime minister in 1977-79, apparently horrified at the very idea of having to dismantle the vast state-controlled apparatus. Although the state units are theoretically autonomous, with their own boards of directors, they are for all practical purposes adjuncts of the ministries in New Delhi.

They are also subject to rigid control by a public-enterprise bureau that lays down detailed policy guidelines on everything from personnel recruitment and wages to the choice of colors for company cars.

But the guidelines are not clear enough - there is a fuzziness between the financial and so-called social objectives. And there is a constant tug of war between the bureau in New Delhi and the commercial units.

The political dimension of the public sector is as important in its economic aspects, and one that tends to be ignored in most calculations.