The 1991 Project: India's Reform Journey Revisited - Suyash Rai, Carnegie India

What is one reform that was overlooked in 1991?

One of the key aspects of the 1991 movement and the few years that followed after that was that we tried to redefine the role that the government plays in the economy and what are the things that the private sector and the markets can do. That included changes in the industrial policy, trade policy, in many ways. When the 1991 reforms were happening, in that year, there were about 236 central public sector enterprises.

These enterprises were owned by the government but were doing some kind of business activity in different sectors. Many of them were in sectors in which through the '90s, we did the reforms to make it more market-oriented, to allow more private sector activity to happen in those sectors, but we didn't have a clear policy that we could make and implement on what is to be done with these public sector enterprises. Out of the 236, arguably maybe 100, 150 were doing activities in the sectors in which the government no longer needed to play a direct operational role.

That was the one big missing decision or policy in that decade. I wouldn't say it was only in '91. It could have been done through the '90s as these sectors opened up, as more private sector activities started taking place, as market grew and expanded in these sectors. There were some consequences that came out of it. One was that in many of these sectors, the presence of one or two public sector enterprises changed the incentive and the working of the markets. In some sectors like telecom, airlines, civil aviation, there was one entity or two entities which didn't have to make money. All of them were following different objectives, which were political and administrative objectives, because of which others in that market were also affected. That was one consequence.

The other was that many of these were loss-making enterprises, which over the years, the government had to make significant budgetary contributions to. This made up a big public finance commitment on the part of government over the years, and some of it is still continuing. This was, I think, what I would call the unfinished agenda of the 1991 movement when we changed the role that the government was supposed to play in the economy, but we didn't follow through with sufficiently clear policy and implementation of the policy on what is to be done with the public sector enterprises set up before the '91 movement.

What is one reform that India needs today?

On this also, I will stay on the same theme. The issues continue to be with us. Now, there are more than 300 public sector enterprises. If you look at government's own statements of what it should be doing, at different times, in the late '90s, there was a disinvestment commission. More recently, a few years ago, there were committees to make recommendations on what the government should be doing, what sector it should operate in, what sector it should privatize or close public sector enterprises.

There are quite a few public sector enterprises that would meet those tests, that the government should not be running them. We should make a policy and implement it over the years on either prioritizing those enterprises or closing them if they are not good candidates for privatization. If we do that, then there can be benefits across the sectors in which these enterprises are there.

There can also be some kind of a non-debt capital receipt that the government can make, which can be used for other purposes, for building infrastructure or whatever else it wants to do. There can be some kind of public finance benefit out of it as well. Also, the more important thing is the consequence for private investment and growth that can flow from this.