1. Art and Diseño

PUBLIC SECTOR
Can the Public Sector Revive the Economy?
Review of the Evidence and a Policy Suggestion
R Nagaraj
The public sector’s share in domestic output has
stagnated since the late 1980s, its share in capital stock
has fallen since 1990, and employment has contracted
by 10% from the mid-1990s. Why has it fared so poorly
even as its financial performance has improved?
This paper argues that fiscal orthodoxy has throttled
government borrowing for investment, and competitive
politics has disallowed rational pricing by public utilities
and recovery of user charges. If these constraints are
relaxed by suitably adjusting fiscal deficit targets to
accommodate the rise in input costs, and the prices
of public utility services are adjusted for inflation, the
public sector can revive the economy. Growing public
sector enterprises with financial surpluses could also
accommodate some political-economic demands.
R Nagaraj ([email protected]) teaches at the Indira Gandhi Institute of
Development Research, Mumbai.
Economic & Political Weekly
EPW
JANUARY 31, 2015
vol l no 5
I
n 1990-91, just before liberal economic reforms were initiated, the public sector accounted for a quarter of India’s
gross domestic product (GDP), employing 19 million workers. Administrative departments constituted about 40% of it,
the rest came from goods and services produced by department and non-department enterprises (nDes) (following the
National Accounts Statistics classification). Though the public
sector’s contribution to national development is well acknowledged, inadequate financial return is its widely accepted
drawback. The public sector’s burgeoning financial losses
were said to be responsible for the rising fiscal deficit on the
road to the economic crisis of 1991. The industrial policy statement tabled in Parliament in July 1991 seeking to initiate the
structural adjustment programme said as much.
India’s severely constrained budgetary circumstances create both the
need and opportunity for rationalising the scope of public sector activity, and for placing greater reliance on the private sector for resource
mobilisation and investment. Public enterprises have absorbed large
amounts of budgetary support for their expansion or operations, but
in many cases they have failed to generate adequate returns on the
investment of public money and contributed significantly to the public sector saving gap and fiscal deficit (RBI Bulletin, April 1992: 789; emphasis
added).
Expectedly, imposition of fiscal deficit targets – that is,
restricting government borrowing regardless of its purpose –
led to a contraction of public investment; disinvestments and
privatisation have gradually eroded public ownership and
control.1 With industrial deregulation, private (including foreign) firms have entered most sectors – including defence –
undermining the strategic role of many public sector enterprises (PSEs) in charting a self-reliant development path. The
Fiscal Responsibility and Budget Management (FRBM) Act,
2003 has legally binding restrictions on fiscal deficit – to
restrain democratically elected representatives from resorting to fiscal irresponsibility. Notwithstanding the increased
managerial freedom granted to many financially well-run
central PSEs (designated Maharatna and Navratna enterprises), they have become hostage to short-term budgetary
management tactics, as exemplified by the demand of many
finance ministers for a “special dividend” from profit-making
PSEs to meet the fiscal deficit. This has made a mockery of
PSEs’ financial freedom.2
Was the statement placed in Parliament on public sector
performance factually correct? No, it was not. Using a widely
accepted methodology, Nagaraj (1993) shows how PSEs’ financial losses were a small and declining proportion of the fiscal
41
PUBLIC SECTOR
1 The Trends
Output, Employment and Capital Stock
In 1960-61, the earliest year for which official estimates are
available, the public sector’s share in GDP was about 10%
(Figure 1). In less than two decades, the share rose by two and
half times, while domestic output grew annually at 3.7%.3 In
the two decades after 1990-91, the relative proportions of
public administration, and production of goods and services
42
(consisting of department and nDes) have roughly remained
constant (Figure 2). It means the stagnation in output share
has affected both segments of public sector output equally.
Figure 1: Public Sector’s Share in GDP (1960-61 to 2012-13)
Per cent of GDP
30
20
10
2012
2009
2009
2003
2006
2007
1997
2000
2005
1991
1994
1988
1982
1985
1976
1979
1970
1973
1967
1961
1964
0
Year ending
Source: National Accounts Statistics, various issues.
Figure 2: Composition of Public Sector Output (1981-2013)
70
Goods and services
60
50
%
Public administration
40
30
20
2013
2011
2003
2001
1997
1999
1995
1991
1993
1989
1987
1985
0
1981
10
1983
deficit – suggesting that most of the fiscal deficit was on account of the government itself. Further, budgetary support for
public enterprises was declining, while the productivity of
public investment was improving. Examining long-term trends
in the public sector, Nagaraj (2006) demonstrates a steady improvement in its financial performance over the last three
decades, which holds true even excluding the contribution of
financial enterprises (mostly banks). However, despite a steady
improvement in the physical indicators of performance, public
utilities – electricity, railways, and road transport – are making losses mainly on account of underpricing their output, and
the government’s inability (or unwillingness) to collect user
charges for the services rendered.
The economic boom in the last decade (2003-08) witnessed
a fresh assault on the public sector. Contraction in public investment (to meet the fiscal target set by the FRBM Act) went
hand in hand with unqualified support for public-private partnerships (PPPs), allowing them easy bank credit and abundant
foreign capital to take advantage of lower international interest rates – ignoring their potential currency and maturity mismatch. The public sector’s share in GDP, therefore, plummeted
to 20% by 2008-09, an unprecedented decline of 5 percentage
points in five years. However, as the boom went bust after the
global financial crisis, the private corporate sector floundered,
contracting investment demand, and affecting the banking
sector with burgeoning bad debts (Nagaraj 2013). However,
stepping up public spending as a stimulus to overcome the crisis turned around the output share of the public sector.
Thus, after more than two decades of economic reforms, in
2012-13, the public sector’s share in GDP stood at 23% (2 percentage points less than in 1991), employing 17 million workers (two million less than in 1991). The share of department
and non-department enterprises in total public sector output
has roughly remained the same, though the public sector’s
share in the national capital stock has perceptibly declined.
Mired in deep debt, the private corporate sector is now in no
position to boost investment, and this paper asks if the public
sector can step in to revive the economy and overcome industrial stagnation.
To answer the question, Section 1 summarises the main
trends in public sector output and financial performance,
mainly using National Accounts Statistics data. Section 2 offers
an explanation for contradictory movements in the public
sector’s physical and financial performance, and Section 3
concludes by offering suggestions on how resources can be
secured for stepping up public investment.
Year ending
Source: National Accounts Statistics, various issues.
In the economic reforms literature, the public sector’s role in
traded goods is widely criticised as they do not claim to serve
any particular social purpose. This can be better served by private agents. Governments are often advised to use their limited resources for providing services that the private sector cannot adequately supply, provide goods and services with a public goods character (such as infrastructure), or concentrate on
activities that the state alone provides, such as universal primary education and public health.
Did the economic reforms manage to alter the sectoral composition of public sector output in the desired direction? The
manufacturing sector’s share went down from 45% of the public sector’s output in 1995-96 to 25% in 2011-12. No increase in
the share of infrastructure is discernible – it has also declined.
Further, there is ample evidence to show that the reforms
failed to increase public expenditure (as a proportion of GDP)
in education and health (Vijay Shankar and Shah 2012). Therefore, what the reforms have managed to accomplish is shrink
the public sector’s role in the economy, rather than reorient it
on the lines expected in the analytical discourse.
Public employment rose from seven million in 1960 to 20
million in 1997; public administration (combined for all levels
of the government) accounted for about two-thirds of it, and
quasi-government organisations for the rest of it (as per the
Directorate General of Employment and Training classification). By 2011, however, employment fell by two million workers or 10%, most of it in the central and quasi-government
segments (Table 1, p 43). Yet, the composition of public sector
employment has remained roughly the same during the last
three decades, implying that the decline in employment is
JANUARY 31, 2015
vol l no 5
EPW
Economic & Political Weekly
PUBLIC SECTOR
equally shared between the government and its enterprises
(Figures 3 and 4).
Table 1: Public Sector Employment, 1997-2011 (00,000 people)
1997
2011
Decline
%
Total
Central Govt
State+Local Govt
Quasi Govt
195.59
175.48
20.11
–10.3
32.95
24.63
8.32
–25.3
97.29
92.69
4.6
–4.7
65.35
58.14
7.21
–11.00
Financial Performance
Source: Economic Survey, various issues.
Figure 3: Public Sector’s Share in Industry and Infrastructure
50
Industry
30
Infrastructure
20
10
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
0
Year ending
Source: National Accounts Statistics, various issues.
Figure 4: Public Sector Employment (1991-2011)
100
State and local government
Figure 6: Public Sector Savings
Quasi government
6
4
Central government
40
20
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
Source: Economic Survey, various issues.
0
-2
Public authorities
-6
What about capital stock? As the public sector was initially
made responsible for most capital-intensive activities – be it
multipurpose dams or power generation – it accounted for a
growing share of the nation’s capital stock. In 1980-81, at constant prices, the earliest year for which official estimates are
available, the public sector constituted 41% of the economy’s
capital stock. The share went up to 53% in 1988-89, but declined thereafter to just 30% by 2011-12 – a clear reflection of
the state’s withdrawal from production of goods and services
after the reforms (Figure 5). This did not, however, mean a fall
Figure 5: Public Sector’s Share in Net Fixed Capital Stock
60
2
-4
Year ending
Total public sector
Year ending
Source: National Accounts Statistics, various issues.
NDEs consist of financial enterprises and non-financial enterprises. Non-department financial enterprises (NDFEs) include public sector banks and financial institutions, including
the Reserve Bank of India (RBI). However, the bulk of public
investments were under non-department and non-financial
enterprises (NDNFEs). A disaggregation of NDEs’ savings into its
constituent parts shows that it is financial enterprises that
have steady savings as a proportion of GDP. Non-financial enterprises’ savings declined to 1% of GDP by 2012-13 from a high
of 2.5% reached during the economic boom (Figure 7).
Figure 7: Public Sector Savings – Disaggregated
3
EPW
JANUARY 31, 2015
2013
2012
2011
2010
2009
2008
2007
0
2006
2011
2009
0.5
Year ending
Source: National Accounts Statistics, various issues.
Year ending
Source: National Accounts Statistics, various issues.
Economic & Political Weekly
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
0
NDFEs saving
1
2005
Public admin
10
2004
20
2
1.5
2002
30
NDNFEs saving
2.5
2001
Per cent of GDP mp
Enterprises
2000
40
2003
50
%
Public sector saving
Non-dept enterprises
60
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Persons in lakhs
80
Is this account of the public sector warranted by its financial
performance? Figure 6 plots public sector saving-to-GDP ratio
since 1990-91, disaggregated by administrative departments
(ADs) and NDEs. ADs repre- Table 2: Growth in Real Capital Stock
sent saving in the revenue in the Economy and in the Public
Sector, 1981-2012 (% per year)
account of the budget (com- Years
Total
Public Sector
bined for the centre and 1981-2012
6.2
4.2
states), and NDEs constitute 1991-2012
7.0
3.9
the enterprises. Evidently, 1999-2012
8.2
4.9
the public sector’s dissaving Source: National Accounts Statistics, various
issues.
came down in the last decade, as the fiscal balance improved, but deteriorated after the
financial crisis as a fiscal stimulus, as a countercyclical measure, was induced to prevent further deterioration of economic
performance. However, NDEs have maintained a modest and
reasonably steady positive saving rate since 1991 at between
3% and 4% of GDP.
Per cent of GDP mp
Per cent of GDP
40
in the growth of the economy’s capital stock as private investment increased. Capital stock growth has accelerated over the
decades (with a rising fixed investment to GDP ratio), though
the public sector’s share in it has declined (Table 2).4
vol l no 5
43
PUBLIC SECTOR
As the NDNFEs include PSEs owned and managed by the central government, as well as utilities such as electricity boards
and road transport corporations, we try to make a further disaggregation to identify the sources of poor financial performance.
Profitability of central PSEs (simply PSEs hereafter), defined as
the ratio of gross profits to gross capital employed, has gradually moved higher (Figure 8). This is true even after netting out
petroleum sector enterprises, whose administered prices include a sizeable element of taxation. If the foregoing disaggregation of public sector performance is correct, then it can be
inferred that public utilities have performed poorly. Though
not a startling finding, it is perhaps definitive evidence of
where exactly the problem of poor financial performance lies.
Figure 8: CPE’s Profitability
25
20
CPE’s profitability
%
15
10
CPE’s profitability net of petroleum firms
5
2010
2007
2004
2001
1998
1995
1992
1989
1986
1983
1980
1974
1977
0
Year ending
Source: Survey of Public Enterprises, various issues.
These losses are widely discussed in public and academic
discourse as evidence of the inefficiency of public ownership,
which requires urgent reforms. But what is not adequately appreciated is that the prices charged by the government for
these services (administered prices) do not cover the costs.
Figure 9 plots the ratio of public sector deflator to GDP deflator; the electricity deflator to GDP deflator; and the railway deflator to GDP deflator over the last two decades. Evidently, all
the three relative prices (or real prices) have steadily declined
since 1990-91, implying that the prices of these services have
risen at a slower pace than the general price rise. In other
words, the output prices of electricity and railways, in particular, have fallen relative to the general price rise. In principle, if
such a decline represents improvements in output growth (after meeting all costs), it would signal a productivity boost. But,
alas, the shortfall reported in the graph represents poor revenue growth, on account of underpricing and non-recovery of
dues from users.
140
Elec deflator/GDP deflator
120
PS deflator/GDP deflator
Ratio
80
Railway deflator/GDP deflator
60
40
20
44
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
0
Year ending
Source: National Accounts Statistics, various issues.
2 What Explains Public Policy?
The analysis demonstrates that an unhelpful, if not adverse,
policy environment has dented the public sector’s financial
performance, damaging public investment and technical
progress. Why have policymakers undermined the sector despite its steadily improving financial performance? A widely
held view attributes this to embracing neo-liberal reforms,
which keeps the fiscal deficit very low to please the financial
markets (and rating agencies) on which India increasingly
depends for financing its current account deficit.
While the argument merits attention, can it be the sole or
primary explanation for the observed declined in relative prices of public sector output? Probably not, for the simple reason
that increasingly competitive electoral politics have compelled
policymakers to resort to market-based solutions even while
knowing their limitations and long-term adverse consequences. Once again, the railways seem to be emblematic of how the
competitive politics of patronage has decimated the world’s
largest rail network. The urban population, often mobilised by
political parties regardless of their ideology, has violently opposed hikes in railway fares. Sensing the electoral mood, in
coalition politics, political executives have resisted unpopular
decisions. In other words, it is the short-termism of politicians
that has ruined the railways. Bureaucracy, as often is the case,
plays along with its political masters by window dressing accounts, the reality of which will come to light (if at all) only
years later. Populist ministers have probably damaged the railways for more than the ideology of neo-liberalism.
So, one has to seek a political economic explanation for the
deterioration of the public sector. K N Raj was perhaps prescient when he observed in 1985 that no political group has
emerged that will defend the public sector in the interests of
the future. To quote him,
While there has been much verbal support for public enterprises (on
conventional as well as radical grounds), perhaps the most important reason why they have not been able to grow, in the manner once
hoped and expected, was simply that there has not emerged any political force in the country generally interested in making such enterprises yield adequate profits and savings on their own. Irrespective
of the labels displayed they have been in effect coalitions of various
kinds treating public sector as a milch cow for serving narrow sectarian interests.
Figure 9: Ratio of Price Deflators
100
The problem is perhaps best illustrated by the railways,
whose prices declined by as much as 39% since 1990-91 (relative to general prices) as the administered prices did not keep
pace with inflation. This starved it of much-needed revenues,
compelling it to seek budgetary support. A simple computation
suggests that if railway fares had kept pace with the wholesale
price index (WPI), in 2011-12, the additional revenue would
have not only covered its financial losses, but also more than
met the budgetary support provided for capital investment.
Why have the “intermediate classes”, which, according to
Raj, were the primary force behind the growth of the public
sector given up on it as a means of self-advancement? Urban
professionals, the salaried class, and the rural rich, who
gained the most from the expansion of the public sector in the
JANUARY 31, 2015
vol l no 5
EPW
Economic & Political Weekly
PUBLIC SECTOR
early post-Independence period, do not seem to need it as a
crutch after liberalisation. Having acquired the necessary capital and skills to become “global Indians,” they have joined the
world elite to secure better returns for their human capital (acquired by highly subsidised higher education) across continents, currencies, and markets, leveraging their mobile factors
of production (Freeland 2011).
But large masses of Indians who lay just below the globalised “intermediate classes”, who should, in principle, be the
potential defenders of their class interest, also do not seem to
find the public sector useful any more as they seem to be
caught in a game of competitive politics, organised on the lines
of caste, region, ethnic loyalty, and patronage. They hope to
secure individualised gains from a plethora of sub-optimal
government welfare programmes, however meagre they
might be.
And what about the large landowners and regional elites?
The time horizons of their political calculations seem to have
shortened, and their pragmatic use of the public sector seems
to be almost entirely driven by electoral calculations. This can
perhaps be well illustrated with an example from Uttar
Pradesh. All political formations during the last two decades
have privatised state-level public enterprises, apparently at a
considerable loss to the exchequer (Bajaj 1994). Yet they have
all opposed privatisation of the loss-making Scooters India, a
central government enterprise in Unnao, near Lucknow, on
ideological grounds. They have argued that the plant should
be revived with further investment – evidently to extract
financial largesse from the central government (without any
consideration for the potential economic viability of such
public investment).
It only goes to substantiate what Pranab Bardhan observed
in an expanded edition of his monograph, Political Economy of
India, where he said,
Along with political power drifting from the centre to the regions,
there is an associated drift towards the backward and lower castes.
This is clearly a sign of democratic progress in an unequal society.
The numerical strength and increased assertiveness of some of the
historically subordinated groups have compelled the upper classes
and castes to form downward alliances and brought to the fore political actors from backward communities and regions. These players
may be uninitiated in the etiquette of parliamentary democracy and
in the social graces of modernity, but are quite astute in pursuing the
interest of their constituencies (and, of course, their own self-interest)
(1998: 132).
In the light of this, one is compelled to believe that the undermining of the public sector is not merely or principally the
outcome of liberal ideology. Competitive politics is equally responsible. Therefore, is the decline of the public sector “as we
know it” inevitable? Probably not, if one can discern the pulls
and pressures of demands for development at the micro level
across the country.
The very fact that the public sector’s share in domestic output has broadly held up even after two decades of reforms
(contrary to many dire predictions) seems to suggest some
deeper forces are at work, which can be hypothesised as follows. Given the abysmal material conditions of the masses, the
Economic & Political Weekly
EPW
JANUARY 31, 2015
vol l no 5
public sector is likely to remain a vital agency of state policy
for many pragmatic reasons. For instance, the recent, muchacclaimed Bihar growth story is mainly a tale of success of
public investment in roads and bridges spearheaded by statelevel construction companies after devastating floods in the
middle of the last decade. Economic development of the northeast region is perhaps almost entirely the result of public sector efforts, which have taken on the risks and uncertainties of
initiating large investment projects in a politically hostile territory with the help of substantial fiscal transfers.
If the ideologically inclined elites seem bent on shrinking
the public sector, the poor material conditions of the masses,
in a deepening democracy, seem to necessitate its expansion
(or at least to thwart its quick decimation) to deliver developmental needs even in an imperfect manner.
But the critical factor in this balance of forces is the constraint imposed by the FRBM Act. These budgetary rules have
effectively shut the government’s (more so at the state level)
ability to expand public investment, and instead seek private
and foreign investment – at least to be seen to be doing something. Escrow accounts have guaranteed priority payment for
private investors, overriding the interests of all other stakeholders.
Perhaps public sector finances can be retrieved by modifying the budgetary rules to provide for a near automatic adjustment for rises in input prices of principal inputs such as diesel
for road transport corporations, or coal, gas, or wages for electricity (say, up to 90%). In other words, fiscal deficit targets
should be made contingent on an adjustment for a rise in input
costs, or the PSEs should be granted the financial freedom to
borrow an equivalent amount over and above the fiscal deficit.
Thus, we contend that if there is one reform that can mute a lot
of criticism against the public sector and dispel the popular
perception of it “surviving on subsidies”, it is pricing reform.
Just like oil refineries were last year allowed to pass higher
crude prices on to consumers, the prices of domestic PSEs using
oil, such as the railways and road transport operators, should
be indexed to diesel prices. As a matter of principle, public sector prices should be linked to the WPI and real GDP growth.
Indexation of public sector prices could also be linked to withdrawal of budgetary support after adjusting for the cost of
meeting social responsibilities.
However, complete indexation will bring in (and bring back)
the “cost plus” pricing principle with all its adverse consequences. For instance, Indian Telephone Industries, Bengaluru, the captive telecom equipment manufacturer, was sheltered by cost plus pricing and had no incentive to develop technical competency. It lost out when it was faced with competition after deregulation in the 1990s. So there is also a need to
build in suitable incentives for an increase in productivity.5
3 Conclusions
This study has sought to trace the principal trends in public
sector performance, mainly using National Accounts Statistics; explain the divergence in the physical and financial
performance of the sector; and suggest ways to expand it,
45
PUBLIC SECTOR
which is the way to revive growth and overcome industrial
stagnation.
The public sector’s share in domestic output has largely remained stagnant since the late 1980s; its share in the economy’s capital stock has declined steeply, and the absolute
number of workers employed in it has fallen by 10% since 1997.
The public sector no longer commands the heights of the economy, with unfettered private and foreign-owned firms gradually overtaking it after entry barriers were removed. Yet the
public sector has not disappeared – at least not yet – as many
feared or hoped (depending on one’s viewpoint). While its
share in manufacturing has declined sharply, its share in infrastructure has also suffered (contrary to expectations given the
public goods nature of many services). The much advocated
(and hoped for) rise in the provision of public services has
failed to materialise as the ratio of public expenditure to GDP
in health and education has not improved. The liberal reforms
have, therefore, managed to undermine the development state
without replacing it with anything resembling a social democratic alternative.
Public sector investment has contracted after the reforms in
spite of an improvement in PSEs’ financial performance (contrary to popular and official perceptions). A steady level of savings by NDE s as a proportion of domestic output is clearly discernible. The genesis of public sector reform, it is worth recalling, was its poor return on capital employed. But, ironically,
the sector has shrunk, not for lack of improvement of finances,
but in spite of it – as evidence gathered in this study demonstrates. With hindsight, it seems reasonable to infer that the
reasons for rolling back the public sector were a barely disguised attack on the state-led development strategy. The
financial arguments were perhaps mere camouflage. It is hard
to deny that the public sector has also been a victim of competitive politics in a deepening democracy.
But the development aspirations of those left behind and the
need for national cohesion have been compelling reasons for
the state to extend its ambit, however reluctantly and unsatisfactorily. Hard budget constraints imposed by fiscal deficit targets and the FRBM Act have succeeded in restricting the public
sector, and have failed to compensate it for underpricing utilities and not collecting adequate user charges.
Given the constraints, is there a hope of the public sector
promoting national development objectives? As we have shown,
underpricing of public sector output has had a crippling effect
on PSEs, forcing them to seek (much derided) public subsidies.
In other words, PSEs have to seek budgetary support as their
output is underpriced and dues go uncollected for political
reasons. The best way to make PSEs stand on their feet, this
study contends, is to peg their output prices to their input prices, say, up to 90%, nudging them to make up the remaining by
increasing productivity, and relaxing the fiscal deficit rules to
allow more borrowing to offset increased input costs.
Given the acute development backlog, there is little option
but to depend on the instrumentality of the public sector to
meet growing aspirations. Moreover, the current macroeconomic situation increasingly calls for stable, autonomous,
public investment to revive output growth. Fiscal rules may be
desirable to restrain the political economy from running
amok, yet it needs to ensure that the services rendered by the
public sector are paid for. Only then will the sector have the
economic and political legitimacy, and resources, to further
the cause of development.
Notes
References
1
Bajaj, J L (1994): “Divesting State Ownership: A
Tale of Two Companies”, Economic & Political
Weekly, Vol 29, No 35.
Bardhan, Pranab (1998): Political Economy of India
(revised edition), Oxford University Press, Delhi.
Freeland, Chrystia (2011): “The Rise of the New
Global Elite”, Atlantic Monthly, January/February.
Nagaraj, R (2013): “The Dream Run: 2003-08: Understanding the Recent Boom and Its Aftermath”,
Economic & Political Weekly, Vol 48, No 20.
– (2006): “Public Sector Performance since 1950:
A Closer Look”, Economic & Political Weekly,
Vol 41, No 25.
2
3
4
5
46
Until then, budgetary deficit – defined as, net
RBI credit to central government – was the operational tool. Analytically, it implied that public sector borrowing from the central bank was
to be restricted, but the borrowing from the
banking sector was not.
More realistically, perhaps, PSEs have remained
instruments of macroeconomic policy; but its
goals have changed with the policy regime.
Growth rates reported in the paper, unless otherwise mentioned, are at constant prices.
The sharp fall in the share of public capital
stock is more severe than what is evident from
the reduction in fiscal deficit for the simple reason that revenue deficit (that is, in simple
terms, borrowing for current consumption) has
remained stubbornly high, between 3% and
4% of GDP. In other words, growth in capital
formation falls to the extent that the fiscal deficit is used for current consumption (or meeting
the revenue deficit). So the growth in capital
stock gets reduced correspondingly.
It seems worth mentioning the discussion on
public sector pricing in the UK after the
Margaret Thatcher regime. It came up with a
well-known formula, (RPI-x), that is, the prices of public utilities should be tagged to the
retail price index, minus “x”, which should
represent the productivity increase. Though
the pricing rule was widely criticised, the
public discussion apparently helped evolve
more rational pricing, reducing budgetary
support for enterprises.
– (1993): “Macroeconomic Impact of Public
Sector Enterprises: Some Further Results”,
Economic & Political Weekly, Vol 28, Nos 3-4,
16-23 January.
Raj, K N (1985): “New Economic Policy”, V T
Krishnamachari Memorial Lecture, Institute of
Economic Growth, Delhi.
Vijay Shankar, P S and Mihir Shah (2012): “Rethinking Reforms: A New Vision for the Social
Sector in India” in R Nagaraj (ed.), Growth,
Inequality and Social Development in India: Is
Inclusive Growth Possible?, Palgrave Macmillan, for the United Nations Research Institute
for Social Development, Geneva.
ODISHA
April 5, 2014
Persisting Dominance: Crisis of Democracy in a Resource-rich Region
– Manoranjan Mohanty
Shift from Syncretism to Communalism
– Pralay Kanungo
Mining and Industrialisation: Dangerous Portents
– Banikanta Mishra, Sagarika Mishra
Confronting Extractive Capital: Social and Environmental Movements in Odisha
– Kundan Kumar
Who Does the Media Serve in Odisha?
– Sudhir Pattnaik
For copies write to: Circulation Manager,
Economic and Political Weekly,
320-321, A to Z Industrial Estate, Ganpatrao Kadam Marg, Lower Parel, Mumbai 400 013.
email: [email protected]
JANUARY 31, 2015
vol l no 5
EPW
Economic & Political Weekly