Saturday, July 30, 2016

Countercyclical Investment in PSUs in Manufacturing and Services - Option for Indian Government

A recent report on investment in India by HSBC pointed out that there is 21% increase in Government investment and -1.4% decrease in pvt. sector investment in India.  Private sector is shying away from investing. Even through government has increased investment, it has not started any public sector units. Government is totally against public sector investment in manufacturing and service sector businesses. But such a stance need not be taken  by the government. No doubt Indian society and polity moved away from the earlier economic policy that wanted public sector to have the commanding heights of the economy in India. Now such a stance is not needed. But Government can take up investment in Public sector units as countercyclic measure. When private sector is not investing and governments project planners have profitable projects, government can come forward and invest in PSUs. When economy is in boom and private sector is investing with enthusiasm government need not provide additional funds out of its budget to public sector for further investment. Only PSU units, who have surplus funds and good investment projects can be allowed to invest. Or they may be asked to pay dividends to government during good times. Government thus gets into investment in PSUs only as countercyclic investment policy.

Now, Government should investment Rs. 25,000 crores in new public sector units and start one PSU with Rs. 1000 crore equity in each state. This may employment to people at the rate of 4000 persons in every public sector unit in every state. This will create new townships having 6000 people on average and this may give rise employment to many more people to serve this size of population. This will kickstart economy in 25 places and many small scale units will come up. Government will earn goodwill from the people.

Government should not shy away from PSUs. Government involvement in economic activities is an age old practice in India. Chanakya wrote elaborately on King's economic activities in Artha Shastra.

Government will be able to know the likely malpractices that businessmen can resort to and also know the difficulties of businessmen by having its own PSUs. While we have moved away the old thinking of commanding heights of the economy being in the hands of PSUs, we still have to develop the competency to run our PSUs with adequate effectiveness and efficiency.

Rational public sector investment is needed.

If public sectors units cannot be planned and managed by Government to the extent they are required for a meaningful involvement in economic activity of the country, it is a failure of political and administrative wings of the Government.

Can Public Sectors Units be Closed?

Yes. When economic organizations are started there is a big risk of failure. If the failure materializes, the government is free to close the unit. Failure of business organizations is part of competitive business economy and government units also fail. Failure should not held against government. The specific errors committed can be identified and rectified in the future.

Failure of certain units should not mean Government has to run away from PSU investment. Every body needs to know that Tatas and Birlas have many failed businesses in the groups and many of them are closed. The arguments for reducing the size of PSU investment has won the day and served its useful purpose. Now the argument has to be in favour of Government reigniting growth  by finding investment opportunities and in manufacturing sector and investing in it to a minimum threshold level in depressed economy conditions.

Rational public sector investment is needed.

Closure of failed PSUs ok. But start new PSUs.

Start one PSU in every state each year with investment of Rs. 1000 cr in each.

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