The Congress government in Andhra Pradesh under Y.S. Rajasekhara Reddy issued a GO-5 on 18th July, 06 pertaining to Phase-3 of the reforms process in the public sector enterprises (PSEs), phase-1 and 2 having been completed under the previous TDP dispensation. This GO-5, aimed at completing the reforms programme in the remaining PSEs, evoked wide condemnation and protest from trade unions and political parties as well that lead to the government finally rescinding the said GO. Though, for the time being the government was forced to put on hold the implementation of the World Bank sponsored reforms in the PSEs in the state, the agenda set in motion by the World Bank is not dead and therefore it is necessary to understand the process and character of the reforms  responsible for the gradual dismantling of the PSEs in the state. Out of the 130 PSEs, already 87 enterprises have been closed/privatized/restructured under phase 1 and 2 of the reforms process and what the present Congress government attempted to do by issuing a GO was to complete the process under phase 3.

The Reforms Process

“The Bank’s “Country Assistance Strategy” identifies focus states on the basis of demonstrated commitment to broad based reforms in areas of fiscal management, power sector and governance. One of India’s leading reforming states, Andhra Pradesh, is a focus state for the Bank.” “AP is the first Indian state to articulate a far-reaching vision of its economic and social development through the vision 2020 Document in 1999…. The process to attain this vision has been laid out in a series of strategy papers and implementation of these strategies is ongoing. Moving forward on its development agenda, the Govt. of AP has made progress on a number of fronts.”

The state of Andhra Pradesh, indeed, is a focus state for the World Bank as is evident from the above assessment made by it in its confidential document eight years ago. In other words, AP for the WB has become a happy hunting ground for experimentation of its reform agenda. In the Public Information Document (PID) for the Second AP Economic Reforms Loan, the World Bank talks of the rationale behind its flirtation with a state like Andhra Pradesh. “Assisting these states which have: 1. chosen to embark on a comprehensive programme of reforms, 2. express interest in entering into a partnership with the Bank, and, 3. have a relatively high incidence of poverty.”  The state of  AP fulfils all the three criteria and it does not make any significant difference if it is ruled by the TDP or the Congress governments. The Economic Reforms agenda of the World Bank, projected as the development agenda, was unabashedly implemented by the earlier TDP regime for which the then Chief Minister Chandra Babu Naidu earned the name of  “CEO” of the World Bank  and had to bite the dust in the elections held in May, 04. One of the essential features of the reforms package is privatization/restructuring of PSEs and the present Congress government is trying to complete this process in the remaining PSEs.

The Backdrop

The reforms initiated in the PSEs in AP are those that have roots in the developments that have occurred in the last thirty years globally. In the beginning of the eighties, the international financial agencies like the WB and IMF, were trying to bail out the capitalist world from an unprecedented crisis-ridden situation. The US-dominated Bretton Woods institutions were the chief instruments in helping them out of the situation for which unrestricted mobility of capital was a necessary prerequisite. Crucial to this was the internal and external structural adjustments in the economies. It was in this context, the WB was pushing forth the Structural Adjustment Programme (SAP) in every nook and corner of the world. Prising open the markets of countries like India for the free flow of capital, deregulation, privatization of PSUs, cuts in state expenditure on social infrastructure etc. were some of the measures prescribed in the SAP.

What happened in the late eighties and nineties in the state of AP in regard to the PSEs cannot be delinked from the above as the policies that were implemented in this period in the state are direct prescriptions of the WB. It could be said that privatization of PSEs in the state was the starting point in the SAP which subsequently engulfed all other spheres of economic activity. The first component of SAP was rolling with the privatization of some PSEs in the state. The state-owned Allwyn Nissan was handed over to Mahindras in 1989 and in a span of  five years, the profit-making refrigerators unit of the Allwyn was sold off to the Voltas for a song in 1994. Thus SAP was beginning to take shape and in 1996 the WB published its assessment in the form of a report under the title, “Andhra Pradesh: Agenda for Economic Reforms”. The ball of privatization of PSEs thus started rolling and the state government in 1995 constituted the Subramaniam Committee to go into the functioning of the PSEs in the state. “Keeping in view the changed perspective for the public enterprises in the promotion of industry and economic development in AP, the government decided to review the performance of PSEs, their relevance and utility to the general public.” (Document of PED, Govt. of AP). Subsequently, a cabinet subcommittee was formed to examine the Subramaniam Committee’s recommendations to privatize, close or restructure PSEs. It was in this scenario that the WB, on the basis of its assessment in its “Agenda for Economic Reforms” got the AP Economic Restructuring Project (APERP) into play via the agency of the Chandrababu Naidu government.

The APERP and the PSEs

The Project Appraisal Document of the World Bank dated May 28, 1998 referring to the difficult fiscal scenario in which AP was placed in the first part of the nineties stated thus: “The new government which took office in December 1995, has taken several difficult decisions to reverse these trends including reductions in rice subsidy and public sector employment, partial relaxation of prohibition on the sale of alcoholic beverages, introduction of public enterprises reform which has so far achieved privatization of 2 enterprises and closure of 4 unviable companies…..enactment of power sector reform Bill which would trigger a series of reforms in the sector.” Appreciating the steps taken by the Chandrababu govt, the World Bank further said, “They were a sharp break from the earlier populist policies and a significant step towards redefining the role of the government- reducing it where it can be effectively replaced by the private sector”. The WB was making an important point pertaining to a policy when referring to the role of the government when it says that the government needs to reduce itself where it can be effectively replaced by the private sector. One of the key elements in the SAP of the WB is privatization and the aforementioned statement of the WB is essentially an articulation of its ideological and political underpinnings. This articulation was parroted by Chandrababu and now, with caution, by Rajasekhara Reddy, who before coming to power in 2004 criticised the former of being an agent of the World Bank.

The first phase of reforms under the APERP began with an investment of US$ 830 million which covered 6 segments of the economy, including PSE reforms for which US$ 26.2 million was allocated. The Public Appraisal Document (PAD) of the WB in regard to the key reforms says “APERP would support: implementation of Phase 1 Action Plan which includes privatization or closure of 12 enterprises and preparation for Phase 2 Action Plan for additional enterprises and cooperatives”. The GO-5 issued by the Congress government and later rescinded stated in regard to the status of reforms in PSEs that “Out of the total number of 130 enterprises in the corporate, cooperative and joint sectors in the state, 117 PSEs have to be covered under PE reforms. Out of these 117 enterprises, 87 enterprises have already been covered under Phase 1 and Phase II of PE Reform Programme. Therefore, the remaining 30 enterprises in corporate and cooperative sectors will be covered in Phase III of the Action Plan”. Thus what was intended by the present Congress government through the GO-5 was to complete the process of reforms in the remaining 30 PSEs which included the Road Transport Corporation (RTC) and the Singareni Collieries, the largest state-owned units.

The WB suggested the formation of an Implementation Unit to serve as a technical secretariat of the Cabinet subcommittee which is what is called as the Implementation Secretariat. The Implementation Secretariat, which came into existence during the previous regime, brings out a “newsletter” detailing the implementation of PE reforms. The January 2003 Newsletter carried a front page write up by the Chairman of the IS which is some kind of jubilant expression of the victories achieved in year 2002 in carrying forth the PE reforms. Jubilation over the carefully organized demise of some PSEs!! The Chairman writes “As part of the Second Phase of Reforms which began in 2002-2003, reform process in the targeted 21 PSEs has been completed. In another 14, the implementation process is in the final stages”.

The Public Information Document of 30th Sept. ’03 of the WB for the Second Economic Reforms Loan to GOAP for US$ 250 million states that “AP’s PE reform program has matured. Phase 1 of the program which started in 1999 is drawing to a close. Of the 19 units included in Phase 1 actions for 16 were completed….. Phase 2 reform program covers 68 enterprises and will be implemented over a four year period, 2002-2005 with a target of an average of 15 units to be completed each year. ….Phase 2 enterprises include:

1)  16 corporations ranging in size and covering a variety of sectors

2)  43 cooperatives in sugar, spinning, dairy, oil seeds and rural electricity, and,

3)  9 enterprises where the government holds minority shareholdings,

The target of completing 15 units for 2002-2003 has been achieved. Another 10 are slated to be privatized/closed/restructured in 2003-2004 and the process for all 68 enterprises is likely to be completed by 2005-2006”.

The above was an expression of satisfaction by the World Bank for getting its programme of destroying the public enterprises implemented through the agency of the state government.

What are the arguments/lies against PSEs and for privatization?

The Implementation Secretariat, PED published a brochure titled “Frequently Asked Questions” in regard to the privatization of PSEs. It makes an attempt at justifying the ongoing reforms process of PSEs in the form of questions and answers some of which are comical and some lies. To a question as to why PSEs are privatized the response goes thus: “Because there is no other solution. Government cannot afford to keep subsidizing losses. Even where SLPEs are profitable, government cannot invest money for them to expend….it is pointless to argue that government should simply do a better job managing these SLPEs….”

It is evident from such a response by the government that there is no alternative to privatization of ailing PSEs. The answer makes it clear that it is pointless to argue for better government management. Having completely closed the doors for a debate on alternatives, the government goes a step further by saying that profit-making PSEs should also be privatized. We all know that while the government earlier said that PSEs that were running losses and have become unviable would be privatized/closed, profit-making units also came under the axe. Why was a profit-making unit like the Allwyn Refrigerators sold off to Voltas? According to the above, it was simply on the basis that governments should not get engaged in such activity that, after all, is the domain solely of the private sector. This means the question of privatisation or closure is not based on loss or profit ratings of the PSEs. Then what else could be the reason? The answer is not too difficult. It is the philosophy, a political policy framework that sets private profit as the driving force in the development of any economy that is the overarching principle of the rulers. Look how well these votaries talk of privatization. “Privatization is the great economic success story of the past twenty years, over which thousands of crores in government assets have been transferred to the private sector in more than 150 countries around the world. Experts from every continent, credit privatization with reducing government debt and rebuilding both large and small industries turning them from loss-makers into profitable tax paying enterprises.”

What profound lies! Privatisation in many countries and more particularly in countries like India have not yielded positive results in terms of spurring industrial activity, of generating employment etc. and at best it has led to the growth of monopolies instead. Many of the Latin American, Asian and African countries faced such a fate consequent to privatisation of the public sector. In what is quoted above, there is only one truth and that is, the transfer of thousands of crores of government assets to the private sector.

“World Bank experts have studied privatisation around the world and found that in the vast majority, employment increased – not decreased”. Another lie routed through the World Bank! Privatisation has led to the displacement from jobs of thousands of workers and employees adding to the already existing reserve army of unemployed. It has resulted in some being forced to work as low-paid workers in the informal sector. Should we ask as to where have those over-1000 skilled hands of Allwyn gone? Where are those hands that spun yarn in the Guntakal spinning mills? A large majority of those displaced as a result of privatisation or closure live on the fringes and it has been a downward mobility for them. Privatization also entails the elimination of the regular work force and creates contractual workforce cutting into earlier benefits.

It is interesting to note that this Implementation Secretariat was aided by the UK – based Adam Smith Institute as consultant appointed by DFID, the British Government agency. This institute had an office in Hyderabad and worked in close conjunction with the Implementation Secretariat. The World Bank, the DFID, the Adam Smith Institute through the state government and the Implementation Secretariat successfully presided over the dismantling process of 87 PSEs in the state and intend to complete the set agenda of doing away with the rest of the existing PSEs. 

State-owned Enterprises – Reforms, Job-losses

Historically, the rise of state-owned enterprises or the public sector in the country was linked to the demand of the people for social services on the one hand and the unwillingness of capitalists to invest in infrastructure and sectors like transportation and energy. Public sector units emerged in areas vital to economic growth. In India and in the state, public enterprises also arose as a consequence of nationalization or takeover of private industries, because of the failure of capitalists or private entrepreneurs to run the industries. If today, we are talking of state-owned profit-making Allwyn turned into a private sector unit, the same company faced a converse situation and that is, it was taken over by the state earlier from the private sector. The failure of the private sector to provide better services in utilities also gave rise to take over of such utilities by the State. It was also in the key and strategic sectors of industry that the public sector emerged generating large employment. The votaries of privatization and market economy, today, forget the fact that the private sector grew on public sector, that is, it was the public sector that provided the necessary condition for the growth of the private sector in the country and in the state. And, it is such a public sector that the ruling class governments at the centre and in the states  are  handing over on a platter to the foreign capital and to domestic big business. A very planned propaganda is launched on this by the government to create public opinion preceding the actual act of privatisation or closure of PSEs. Budgetary supports to PSEs are withdrawn, disinvestments take place resulting in the crisis of the PSEs and  then the notion that ‘there is no alternative’ is dinned into everyone, thus laying the requisite basis for dismantling them. We should bear in mind that if some PSEs were not functioning efficiently it was primarily the responsibility of the government in not properly managing such units. Bureaucratic, hierarchic and not accountable to public are some of the factors that have led some of the PSEs into a state of crisis. But, the solution does not lie in privatization as experience in many countries has shown.

Privatization not only entails displacement from jobs of workers but also adversely impacts on society at large. Imagine a situation where all the basic utilities are under the private sector. Private sector anywhere and everywhere thrives on profit and in order to realize profit charges for services would be high. It will not provide low cost services. Don’t we see the difference, for example, between private transport and state-owned transport? The activities of the state-owned Girijan Cooperative Corporation were diluted, apart from reduction of workforce in it, and to a large extent the activities were handed over to NGOs. Whatever little benefit the tribals used to get from this corporation are denied to them as a consequence of diluting its activities. The APSIDC has been nominalised. This corporation used to assist farmers in dry and drought areas by advancing loans for digging bore wells which was to some extent beneficial to marginal farmers. Now with reforms even this facility is denied to these farmers. The restructuring of APCO has led to starvation deaths of weavers, because the little assistance given to the weavers is not there anymore.

If the private sector alone was so sacrosanct and efficient, why is it that in the state of Andhra Pradesh some thousands of medium scale private units and some 35,000 small scale units are shut down resulting in the uprooting of lakhs of workers? Closed private units dot the industrial areas around the twin cities with displaced workers having nowhere to go to eke out livelihood.

In conclusion, the process of World Bank sponsored reforms operating as they are through the agency of the State Government go, essentially, against the interests not only of the employees and workers of the public enterprises but against the interests of the people at large. This World Bank model, aimed at cornering public assets for private profit needs to be rejected and fought and this entails the struggle against the carrier of the model – the state government and for that matter any government that toes the reforms agenda of the World Bank.