Reimagining India's Public Sector

The purpose of economic progress must be to improve the lives of human beings while preserving the sustainability of the natural environment that nurtures all life. India’s GDP has been growing well for many years; and may be growing faster than other countries now. However, the pattern of India’s higher growth since 1991 has not served its citizens as well as other countries’ growth has. A comparison reveals that not only have per capita incomes increased less, but, worse, India is a laggard in human development.

China and Vietnam did not abandon their ‘socialist’ strategies for development, while India’s policymakers were persuaded to change course to adopt a more ‘liberal capitalist’ model in 1991. The contrast between India and China’s and Vietnam’s progress is stark. China, equally poor 25 years ago, is far ahead of India now. Even very poor Vietnam has surpassed India. 

(*CLASSIFIED AS ‘MEDIUM DEVELOPMENT’ BY UN;
**CLASSIFIED AS ‘HIGH DEVELOPMENT’)

Human development is the foundation for economic growth. Contrary to Ronald Regan’s dictum that “government is the problem, not the solution”, human development needs more government to provide equitable and affordable public services, in health, education, and essential utilities such as water, sanitation, electricity, public transportation, and basic financial services. China and Vietnam’s human foundations have been built by government enterprises, which they have not abandoned much to the chagrin of Western economic ideologues.

The societal value created by public enterprises cannot be gauged by the financial value they create for investors. Private sector banks may produce more value for financial investors (including the government as an investor). The value they create for society must be gauged by how much they improve the well-being of the poorest citizens. By this measure, the State Bank of India and Life Insurance Corporation of India are better performers than India’s best private banks.

A private enterprise’s concern is its own profit and survival: A government’s concern should be all citizens’ survival. Private sector enterprises are not designed to serve citizens who cannot afford good education, health, and other essential needs. They will abandon their lofty ESG (environmental, social, and governance) and DEI (diversity, equity, and inclusion) commitments when pressured by stock markets. Witness the recent hasty retreat, and sighs of reliefs by US corporate leaders who can now get on with their principal function of increasing their companies’ stock market valuations (and their own compensations). An ideology that worships private wealth will bail out “too big to fail” institutions and abandon “too small to survive” citizens in a crisis.

India’s policies since 1991 have been to get government out of business’ way, and expand private businesses in all sectors, including health and education. This has resulted in unsatisfactory progress on the human development index and incomes compared with China and Vietnam, and even Bangladesh. A robust public sector is necessary for providing basic needs equitably to all citizens. India’s policymakers must reimagine the role and scope of the public sector. Here is a blueprint.

• Essential public services—education, health, and utilities (water, energy distribution, public transport, basic banking)—should be provided by public sector enterprises.

• Whether these enterprises are government- or privately-owned, their performance should be measured by their contribution towards improving the inclusion of citizens with lower incomes in their baskets of products and services, the quality of services provided to them, and their impacts on the environment.

• The compensations of their CEOs and boards must be tied to robust measures of inclusion and sustainability, not to stock market performance.

• The ‘cost to companies’ of their CEOs should be compared to the cost to companies of their own employees, not to compensations of CEOs in the private sector, which have become vulgar compared to salaries of their own employees. Variable compensation, if any, of CEOs in public sector enterprises should be tied to performance on social inclusion and sustainability.

• Management schools should teach a new curriculum on public sector management. They should be ranked by how many of their graduates join the public sector and how well their alumni perform there, rather than by the high salaries their graduates earn in the private sector and stock market valuations of enterprises they create.

The private sector builds private capital. India needs a public sector to build its public capital.

In my decades of consulting for enterprises both in the private and public sectors, I found an inverse correlation between compensations of their CEOs and the long-term, public-minded performance of their companies. Selfish companies extract financial capital from society and the environment, but public spirited leaders build social capital.

The author is Arun Maira, Former Chairman, BCG India, and Former Member, Planning Commission. Views are personal