Privatisation as an affront to the Indian Constitution: How a recent people’s report shatters several myths about India’s neoliberal State

The first interim report of the People’s Commission on Public Sector and Services lifts the veil behind the Government’s renewed push towards privatisation, using the cover of COVID, and emphasises the unique role which the judiciary can play to redress structural imbalances, writes SURAJIT MAZUMDAR.

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THE explicit promotion of privatisation has been one of the defining features of the economic policy of the Indian State that clearly distinguish the post-1991 regime from the one adopted immediately after the country’s independence. Indeed, it was always the middle term in the popular expression, LPG, used to describe this policy regime.

Through its history of the last three decades, the process of privatisation has been dogged by controversy. On the economic merits of privatisation itself, there has never been a consensus among economists and a significant dissenting view has always been articulated.

The legality of individual acts of privatisation or the process by which they have been done or attempted have also often come before the courts for adjudication. The question that, however, has never really come to occupy centre stage is whether the totality of the process called privatisation is consistent with the provisions of India’s Constitution. This is a more fundamental question but also one on which we may never get a clear judicial decision.

The Peoples’ Commission on Public Sector and Services (PCPSS) has, however, delivered its verdict declaring privatisation to be “an affront to the Indian Constitution”. On the face of it, this might be seen to be one particular opinion and some may disagree with this interpretation. However, an opinion about the merits or demerits of privatisation is different from whether it is constitutional or not, just as would be the case with an opinion on reservations. The former position on privatisation is normally based on some interpretation of the working of the economy while the latter has as its reference point what has been put down in the Constitution as its inviolable principles.

The PCPSS, whose members include academics, jurists, former bureaucrats, trade unionists and social activists, was constituted in the background of the renewed Government push towards privatisation in the midst of the COVID-related crisis. This push was first expressed as part of the Atmanirbhar Bharat package, in the decision to cut down the public sector to a limited presence in a few ‘strategic’ sectors. The latest is the announcement in September 2021 of the creation of a National Monetization Pipeline.

Also read: Union government will continue with ‘conglomerate capitalist’ policies till electoral bonds scheme is struck down

The first Interim Report of the PCPSS specifically examined the Constitutional aspects of this privatisation process, and on this matter the conclusion it arrived at is quite definitive. In the process it brings to the fore what could be called an internal tension within the Indian Constitution.

Privatisation in context of Indian economy

The term privatesation is typically used in a narrow but specific sense wherein it describes the handing over of enterprises or assets that are legally government-owned to private managements that already control their own business enterprises. The transfer of IPCL to the Reliance Group and Balco to the Sterlite/Vedanta group are prominent examples from an earlier period. A particularly important recent instance is the handing over of Air India to the Tatas, a case scrutinized to an extent in the report. In terms of this particular conception, privatisation in India potentially can still go a fair distance before it can be said to have exhausted its scope.

It is a myth that privatisation increases the fiscal resources available to the government to expand public expenditures. It is no different from borrowing the same amount and spending, as privatisation of an asset involves surrendering the entitlement to the stream of future receipts that it would generate and which are the basis for its current value. Instead, the inbuilt bias in privatisation is towards undervaluing of the assets during transfer to private hands through sale – which means that it invariably ends up being a losing proposition.

Enterprises with majority government share-ownership continue to have a prominent presence in several sectors like banking and insurance, oil, iron and steel, coal mining, power generation, and so on. The vast Indian Railways is still a government owned entity. The public sector still accounts for over 28 percent of the net capital stock of the Indian economy, though this is much less than its share in 1991. Private corporations – the category to which these assets would belong in case of their privatisation – have, on the other hand, a share of just over 35 percent, with households accounting for the balance.

Privatisation can, however, be also used in a wider sense in which it encompasses all processes that facilitate profit-oriented private corporations increasing their share in the nation’s assets and to occupy the ‘commanding heights’ of the economy. Seen in this way, privatisation has already gone very far in India the last three decades. Its consequences are therefore not prospective and there is a mountain of evidence on its consequences.

Does privatisation militate against the Indian Constitution?

The report draws attention, among other things, to the fundamental conflict between redistribution of the ownership pattern of assets through privatisation and specific provisions in the Directive Principles of State Policy. These provisions are those which require the State to ensure that the distribution of such ownership is consistent with the common good and that the concentration of economic power is prevented. This is because the privatisation one is talking about is not a mere change in the nature of ownership of assets, which is something that could also, for example, characterize transferring small parcels of government owned land to landless farmers or to the homeless.  Instead, privatisation of public enterprises transfers assets to those who already control and command a disproportionately large share of the nation’s wealth and its productive assets, and includes the possibility of their transfer to foreign ownership.

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Privatisation simultaneously emaciates the ability of the State to act as a countervailing force to such private power, and to influence the course of the economy. As the report points out, it is a myth that privatisation increases the fiscal resources available to the government to expand public expenditures. It is, in fact, no different from borrowing the same amount and spending, as privatisation of an asset involves surrendering the entitlement to the stream of future receipts that it would generate and which are the basis for its current value. Instead, the inbuilt bias in privatisation is towards undervaluing of the assets during transfer to private hands through sale – which means that it invariably ends up being a losing proposition. As such, in more than one way, privatisation can be said to erode the capacity of the State to fulfil its constitutional obligations that are spelt out in not only the Directive Principles but are also implicit in the Preamble of the Constitution and in the provisions on fundamental rights.

It seems, therefore, that there is a possibility that privatisation as such is a ‘violation’ of the Constitution of India but that very Constitution may also be the source from which it derives its legal legitimacy, in part by default because of the absence of any judicial mechanism for rectifying such a violation.

Thus, as illustrated in the report, privatisation shrinks the sphere of employment to which reservations apply by converting public sector jobs to private sector ones. It changes the nature of rights that labour can thus enjoy, and also narrows the scope for securing justice by taking recourse to the mechanism of challenging actions of the State in a Constitutional court. The report also highlights the likelihood that transfer of assets like land to private hands may be additionally characterized by an illegality if their original acquisition was for a “public purpose” that is not transferable to a private entity.

Of course, it may be argued that determination of things like ‘public purpose’ and ‘common good’ are subject to interpretation and the Constitutional scheme vests the responsibility and power of such interpretation in the elected Executive and the Legislature. Further, the Constitution also explicitly states that while they are fundamental, the Directive Principles are not enforceable by a court.

The Report does note that the Supreme Court has on more than one occasion reaffirmed that economic policy cannot be interfered with by courts. It, however, asserts that this is more a question of whether courts can be considered competent for adjudication on the merits of economic policy, and does not imply that the State is at liberty to ignore the Directive Principles. The report thus also points to the Supreme Court declaring the Directive Principles as part of the “soul of the Constitution” and several judgements upholding the legal validity of social welfare legislations by placing reliance on these Principles.

It seems, therefore, that there is a possibility that privatisation as such is a ‘violation’ of the Constitution of India but that very Constitution may also be the source from which it derives its legal legitimacy, in part by default because of the absence of any judicial mechanism for rectifying such a violation. There is, of course, in principle, a scope for remedy through the political sphere, and it may be argued that the Constitution also guarantees a democratic political process which ensures that the State expresses the will of the citizens.

Other than the need of governments to get elected, the recent repeal of the farm laws could be cited as an example of how democracy makes the government do what the people desire. This, however, presumes that the working of the political processes of Indian democracy and the outcomes it generates are entirely independent of, and unaffected in any substantive way, by the reality of inequality and concentration of economic power that provides their setting. In fact, it amounts to arguing that this setting itself reflects the real choice of the vast majority despite that majority being trapped on the wrong side of it.

Also read: Why civilian employees’ national strike against reckless privatisation of defence production is a milestone in Indian labour movement

Rising inequality in India

It is worthwhile noting that the reality being talked about is one in which, according to the latest version of the World Inequality Report, the top 10 percent of the population controls 65 percent of the household wealth and receives 57 percent of the income. A further level of concentration of this wealth takes place through the corporate sector – where a small number of business families control vast empires and barely 350 odd companies account for over 55 percent of the profits generated by over eight lakh registered companies. These profits and other surplus incomes like interest and rent together also corner two thirds of the value addition in the corporate sector, while employees get only a third.

The top 10 percent of the population controls 65 percent of the household wealth and receives 57 percent of the income. A further level of concentration of this wealth takes place through the corporate sector. It would be patently absurd to assert that this continuing and growing ‘violation’ after 70 years of the journey of the economy since the adoption of the Constitution reflects mass opinion on what constitutes the ‘general good’. Instead, causality runs the other way around – it is inequality and concentrated economic power that come into play in multiple ways to turn the conception of the general good on its head.

The gap between the top ten or the top one percent and the rest has also increased immensely in the last three decades. The shrinking of the scale of employment opportunities relative to the working age population, and the associated parallel situation of stagnation in wages and other kinds of earnings from labouring activity income, have resulted in a continuous decline in the share of 90 percent of the population in income and wealth. It doesn’t need great expertise and training in economics to appreciate that this reality and the direction it has been moving in are completely at odds with the vision of a relatively egalitarian socio-economic order that the Constitution set as at least the destination for the then newly independent Indian nation.

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It similarly would be patently absurd to assert that this continuing and growing ‘violation’ after 70 years of the journey of the economy since the adoption of the Constitution reflects mass opinion on what constitutes the ‘general good’. Instead, the truth that stares us in the face through this is that causality runs the other way around – it is inequality and concentrated economic power that come into play in multiple ways to turn the conception of the general good on its head. The increasing degree of this inequality in the last three decades has reinforced itself through an increasing undermining of India’s democracy and a push towards plutocracy. Privatisation is simply one expression of such a process.

One cannot expect, of course, or even desire, that the judiciary will take over decision making on economic policy, sidestepping the political process. That is scarcely a solution to the problem. It is certainly, however, within the judiciary’s powers and its constitutional responsibility to take into account the underlying asymmetry while interpreting the legality of executive decisions, actions and laws, including those which impinge on democratic rights, and also while adjudicating on or defining the boundaries within which democratic rights are to be exercised. The historic success of the farmers’ struggle, the limits to that success, and the enormous effort and cost this exacted from them – all point to the need for the judiciary doing more to interpret the Indian Constitution in a manner that redresses some of the structural imbalances that plague Indian society and its democracy. Hopefully, the PCPSS Report would contribute to that end.

Click here to view the Peoples’ Commission on Public Sector and Services’ first interim report titled Privatisation: An Affront to the Indian Constitution.

(Surajit Mazumdar is Professor of Economics at the Centre for Economic Studies & Planning, Jawaharlal Nehru University with 28 years of experience in teaching and research. The views expressed are personal.)

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