(Commonwealth_India) The evolution of India’s industrial policy has been marked by key transitions, from the days of public sector enterprises to the high point of privatization, each of which has shaped the country’s economic landscape. However, ideological perspectives, often leading to polarized views, heavily influence much of the discourse around this transformation, including academic debates. Discussions have typically focused on the dichotomy between socialism and capitalism, or between the efficacy of public sector enterprises versus that of private ones. Unfortunately, rhetoric has often overshadowed impartial analysis of facts.
This book is significant because it strives to avoid such partisan rhetoric. Written by an author who taught economics and commerce at Delhi University, it provides a clear and objective overview of the successes, missed opportunities, and major policy shifts in India’s industrial journey. The author carefully outlines the key milestones, from Nehru’s era to the tenure of Atal Bihari Vajpayee, analyzing the most significant policy elements introduced under each prime minister. Based on lessons learned, she suggests potential ways forward. The book also stands out for its evaluation of privatization’s impact on the financial performance of divested companies, based on various research studies, a topic that is often underexplored in public discourse.
The author highlights that the inefficiencies of the public sector, such as low productivity and high costs, became evident during the later years of Nehru’s leadership. At the time, Nehru’s ideological commitment to socialism, along with his skepticism toward the capitalist class, led to policies that prioritized the public sector. Along with economist PC Mahalanobis, Nehru laid the foundation for a policy where the public sector dominated the economy. In 1956, Nehru famously stated that the private sector would play a role in the economy, but it would eventually fade away. Indira Gandhi, inheriting her father’s view, continued this policy, opting for nationalization to consolidate power and maintain political control.
The shortcomings of this approach became increasingly apparent over time, and the departure from this narrative began in 1987 during Rajiv Gandhi’s tenure, when he questioned whether India could afford a socialist model that allowed the public sector to drain national wealth rather than generate it. Criticism of the public sector’s inefficiencies gained momentum, with the Seventh Plan document pointing out its failure to generate the resources needed for growth, forcing the government to undertake large borrowing programs. Rajiv Gandhi’s efforts to reverse course by introducing greater private sector participation have not received the credit they deserve, according to the author.
Privatization gained more traction during Vajpayee’s administration, but the process was far from smooth. Opposing political forces and court challenges made bold privatization measures difficult to implement. The author aptly quotes Machiavelli, who observed that introducing a new order of things is fraught with difficulties, as it faces opposition from those who benefit from the old system and lukewarm support from those who may benefit from the new order. Political challenges, particularly the constraints of coalition governments, meant that subsequent administrations were unable to continue pushing forward with the privatization agenda, leading to a stagnation in privatization efforts. Over the past decade, the only significant privatization was the sale of Air India.
In examining the role of public sector enterprises, the author discusses the problems they face as instruments of the state. In today’s fast-paced, interconnected world, businesses need the freedom to act and the flexibility to make quick decisions. However, public sector enterprises often struggle with conflicting goals—such as fulfilling the government’s affirmative action policies—and face constant oversight by multiple agencies, including the Comptroller and Auditor General (CAG), the Central Vigilance Commission (CVC), and the Central Bureau of Investigation (CBI), as well as frequent judicial scrutiny. Such constant oversight and bureaucratic control hinder decision-making and effectiveness, making it difficult for public sector enterprises to operate efficiently.
A crucial chapter in the book focuses on the impact of privatization on the financial performance of companies that were divested. The author draws on research studies, including those by Nandini Gupta and by Ajay Chibber and Swati Gupta, which provide compelling evidence of privatization’s positive effects. These studies show that privatization does not lead to a decline in employment, as some critics have suggested. Privatized companies have often experienced significant improvements in sales, profits, and employment. On average, privatized firms have seen a 23% increase in sales, a 21% increase in profits, and a 28% increase in employment. Research by Chibber and Swati Gupta further supports the conclusion that disinvestment leads to improved efficiency and labor productivity.
The book gives useful information about the financial and operational effects of privatization. However, it also makes me think about the bigger economic costs of courts getting involved, politicians not being able to make decisions, and bureaucrats not moving fast enough when it comes to making India’s industrial policies. Unfortunately, the book does not delve deeply into these aspects, which could have further enriched the analysis.
This book contributes to the literature on India’s industrial policy. It provides an informative, contextual, and analytical perspective that continues to spark debate, offering a dispassionate and objective examination of the successes, failures, and lessons learned along the way. Despite its limitations, the book is an important addition to the ongoing discourse on India’s economic development.
