MB Rajesh’s Viral Post Brings Defence Privatisation to the Spotlight

A viral post by MB Rajesh, the Loksabha MP from Palakkad, Kerala on the central government’s move to sell the shares of a public sector undertaking (PSU) which manufactures defence, mining and railway equipment has brought the issue of privatisation, particularly the privatisation of defence production to the limelight.

In his post, the MP lashed out against the central government’s move to sell 26% shares of Bharat Earth Movers Limited (BEML). The Ministry of Defence, in its reply to the questions posed by MB Rajesh, Joyce George and PK Sreemathy (all Loksabha MPs from Kerala), had conveyed the government’s decision to grant in-principle approval for “strategic disinvestment” of BEML. The disinvestment would entail the sale of 26% of government shareholding with the transfer of management control to a “strategic buyer”.

Rajesh said that the market value of the assets of BEML would be at least Rs 50,000 crore. BEML had paid Rs. 6409.89 crore as taxes to the government in the last ten years, and made Rs. 1141.36 crore in profits over the same period. He urged all patriots to unite against the sale of BEML, which he terms a “robbery, deceit and crime against the nation”.

The post has been shared more than 16,000 times as on Thursday, 27 July.

As usual, hordes of right wing trolls arrived to attack Rajesh. Nevertheless, the heat and fury generated by the debate may bring the substantive issues raised by the MP to the spotlight.

There are at least three questions that can be raised in this regard.

First, why are prized, often strategic, national assets being sold off to private interests for a song?

There have been several instances in the past when PSUs have been sold at throw-away prices, overriding vociferous opposition. The reports of the Comptroller and Auditor General (CAG) of India had revealed that several PSUs which were disinvested had been severely undervalued. These included Bharat Aluminium Company Limited (BALCO), CMC Limited, Indian Petrochemicals Corporation Limited (IPCL), Hindustan Zinc Ltd, Modern Food Industries Ltd, and the cash-rich telecom behemoth Videsh Sanchar Nigam Ltd (VSNL).

Instances of serious undervaluation of PSUs had also come to light in equity sales of the Gas Authority of India Ltd (GAIL) and a number of hotels under the Hotel Corporation of India situated in prime locations.

The sale of the Centaur Airport Hotel in Mumbai was a particularly notorious episode, where four months after the government sold the hotel to AL Batra for Rs 83 crore, Batra resold it to the Sahara India group for Rs. 115 crore, which clearly showed that the hotel had been undersold.

MB Rajesh’s post foregrounds the apprehension that the disinvestment of BEML would also be another instance of such undervaluation and corruption.

That brings us to the second question: why are profit-making PSUs sold at all?

The public sector ought to exist and thrive for a number of reasons. These include the provision of essential goods and services like food, education and healthcare, ensuring access to certain goods and services at appropriate prices, counteracting the growth of private monopolies, ensuring investment in sectors where returns are too uncertain, and employment generation.

Making profits which would contribute to the governments’ non-tax revenues the sole raison d'être for the existence of PSUs is erroneous. (Nor is it correct to equate profitability with “efficiency” – both are entirely different concepts, but that need not detain us here.) Unfortunately the supposed unprofitability of PSUs is the reason which is most often cited to make the spurious claim that the public sector is inherently “inefficient”.

Even if we go by the narrow consideration of profitability, Kerala’s experience of Left governments managing to turn around loss-making PSUs shows that public sector enterprises need not always be loss-making either, if the governments exercise the necessary political will. This means that the claims made by successive central governments regarding the necessity of privatisation amount to an implicit admission of their own failure. As CP Chandrasekhar and Jayati Ghosh point out in their book ‘The Market That Failed’, if the government finds itself incapable of managing the assets of PSUs as effectively as would be done by private players who gain control of those assets, that should be taken as an indictment of the government’s incompetence and not as a vindication of privatisation itself. “This reflects a failure of management, in which case the correct thing to do would be to change the management, not the ownership which is an entirely different issue”, the authors say.

Again, if PSUs being allegedly a “drain” on the exchequer because they are loss-making is the argument for disinvestment, why should profit-making PSUs be sold? After the initial talk of disinvesting loss-making PSUs, the focus of successive central governments has been on selling off profit-making PSUs because the sale of loss-making PSUs turned out to be far less “successful”! Till date no government has been able to put forward a convincing reason why profit-making PSUs have to be sold off.

(‘The Market That Failed’ also exposed as false the claim that the privatisation has helped retire government debt. It turns out that returns foregone as a result of privatisation far exceed the interest expenditure that could be saved.)

Thirdly, returning to BEML, why is a PSU which manufactures defence equipment being sold off? Many Hindutva trolls commenting on MB Rajesh’s post tried to justify the government’s move to sell BEML claiming that “only” 26% shares are being sold, completely ignoring the fact that management control will be ceded to the “strategic buyer” who buys those shares.

The dangers of privatisation in defence are well-known. Perhaps the most crucial point of all is that the incentive for private players in the defence sector is menacingly perverse. Private players make more profits when there are more wars. The United States provides the best example of the close relationship between the weapons manufacturing industry and those in government – with bribes and commissions oiling lucrative deals and assured government orders – resulting in private weapons industry playing a crucial role in dictating the foreign policy of the country.

The entry of big corporates into defence production will pave the way for the emergence of a similar alliance of powerful interests – often termed as the military-industrial complex – in India as well. Is that what we want? Do we want the private corporates to influence India’s foreign policy and dictate our defence requirements?

Steps to privatise defence production are proceeding at an accelerated pace. As Gautam Navlakha outlined in a recent article, the BJP government has identified four segments for “strategic partners” – submarines, fighter jets, helicopters, and armoured vehicles & tanks. The Defence Public Sector Undertakings (DPSUs) have been barred from bidding for fighter jets and helicopters, and there is no certainty that they would be selected for bidding for the other two segments.

The Indian private companies engaging in defence production are marginal players compared to the foreign Original Equipment Manufacturers, and far less qualified than the DPSUs. In this context, the increased importance of the private sector would mean an enhanced prominence for foreign companies in defence production. Such dependence on foreign companies certainly cannot be in the interest of national self-reliance.

For all the chest-thumping regarding “nationalism” that the BJP has been indulging in, the government led by it has shown no qualms in endangering national security.

Apart from placing restrictions on DPSUs, the Ministry of Defence has issued an order to completely outsource the production of 143 types of defence equipment currently manufactured by Ordnance Factories! These include military vehicles, ammunition, ammunition boxes, guns, rifles, tanks and troop comfort items.

The All India Defence Employees Federation, which represents 4 lakh employees working in 41 Ordnance Factories, 52 DRDO labs, and various other defence-related public establishments including those under Army, Navy and Air Force, are on relay hunger strike from 3 July at Jantar Mantar, New Delhi against the government’s order.

The employees of BEML, meanwhile, have also been protesting the move to privatise the DPSU.

They and other opponents of privatisation might be hoping that the debates surrounding MB Rajesh’s post would help garner some public opinion in support of the public sector.

Disclaimer: The views expressed here are the author's personal views, and do not necessarily represent the views of Newsclick.