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Needed: Bulls in the PSU shop

N J Jhaveri

The decision to defer divestment at the last moment stands in sharp contrast to the relatively bold decisions to reform the insurance and telecom sectors.

Most commentators attribute this to internal politics. R Jagannathan blames Shourie for this. Shourie made three tactical errors: he 'put the cart before the horse', took on too many people simultaneously and relied on the force of ideas instead of building alliances.

Reducing 'ministerial interference' has been attempted ever since reforms began. But politicians, bureaucrats and large corporations have successfully thwarted all such efforts.

Had Shourie sought to 'subtly' focus on 'slowly delinking' public sector undertakings from the government, the reform process would have gone on interminably without any guarantee of success.

Ideally, any reform process should adopt the persuasion-consensus-action sequence as Jagannathan has recommended.

But he misses the preconditions that are essential for this approach to succeed: an institutionalised and democratic political process with transparency and accountability.

While every political party has liberal and honest politicians, their loyalties are torn between party discipline and allegiance to reforms.

Until there are more such liberals and, cutting across party lines, they all support the reform process, the more effective approach will be to use 'bulls in the PSU shop' who grab opportunities to act swiftly, sheltered as they are by 'leaders' at the top.

In transition economies, reform is seldom the result of an informed debate on the virtues of free markets as compared to a command-and-control economy. Reforms begin when the cumulative burden of bad policies results in a serious economic crisis.

Reforms take off if the 'man on the spot' summons courage and finds a champion who is committed, honest and adept at the 'skills of the trade', and stoutly backs him. After all, the momentum of reform depends on the quality of leadership.

Manmohan Singh demolished various controls at one go when Narasimha Rao shielded him. When Singh received applause domestically and internationally, our Janus-faced politicians jumped on the reform bandwagon. Privately, having lost a major domain for exploiting power for personal gain, they formed alliances to protect what was left of the turf at any cost.

Reforms lost momentum after 1993. Singh took the circuitous route to reduce the political stranglehold on PSUs by opening up 'restricted' areas to the private sector, hoping that peer pressure would catalyse PSU reforms.

He cut their budgetary lifelines and pushed PSUs to solicit commercial funding. This strategy has succeeded in telecommunications but it has failed in the power sector.

Although Shourie has had to face setbacks in pushing for PSU reforms, his aggressive approach has received public endorsement.

Setbacks will be temporary if the prime minister's retreat is strategic. The impact of this somersault will be on foreign capital inflows.

What will, however, do lasting damage will be the increased risk perception emanating from inconsistent policies. Such actions invariably widen the already-wide credibility gap.

By allowing Shourie to be defeated, the PM and his deputy have also lost an opportunity to showcase his open and transparent style.

Indian governments will continue to be weak 'coalitions of convenience'. Unless there emerge leaders who put the national interest above their own and use their charisma to hold these fragile coalitions together, reforms will continue to drift and will remain a hit-and-run process.

We need more Shouries so that there are more hits as well as more occasions for soul-searching.

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