Is India Short-Selling The Family Silver?

To realise optimum value, the Centre must make PSUs such as LIC strong to evoke global interest. It shouldn’t sell out in a hurry

- Bandi Ram Prasad

The public sector in India is a picture of contradictions. Often, it elicits derision and ridicule in market circles. The government is apologetic about it, analysts are baying for its dismantling, and academics are divided over its relevance.

At the same time, when markets are on a free fall, investors look at public sector entities like LIC to bail them out. When Indians are stranded abroad and in distress, people expect Air India to airlift them. And when the government runs short of revenues, often public sector units are put up for sale to raise money.

Despite the privatisation wave across the world, the reach and influence of state-owned enterprises (SOEs) keeps growing.

According to OECD (a September 2017 presentation on size and sectoral distribution of state-owned enterprises), there are about 40 countries in the developed and developing world (excluding China) having SOEs valued at $2.5 trillion and employing nearly 10 million people.

In addition, governments hold minority shareholdings valued at $912 billion, employing 2.8 million people. Finance (26 per cent), electricity and gas (21) and transport (18) are the major sectors in which SOEs have a significant presence in value terms.

The presence of SOEs is strongest in China, India, Brazil, and Eastern Europe.

China’s financial SOEs together hold $34 trillion of assets compared to non-financial SOEs’ $26 trillion. They employ millions and form a large part of global GDP (Asia Society Policy Institute, China Dashboard, Winter 2019).

China has also been extensively using SOEs categorised into key industries (defence, electricity, oil, aviation, rail, shipping, etc), pillar industries (autos, chemicals, construction, electronics) and normal industries (tourism, pharma, investment) for garnering revenues for the government to maintain economic stability.