How private is private investment?

Globalisation is premised on free movement and expansion of products, technology, information, and jobs across nations. It implies the free-trade environment, liberalisation, and promotion of private enterprise and investment. An independent regulatory framework is envisaged in this paradigm of growth.

As a socio-cultural, political, and legal phenomenon, globalisation encourages greater interaction among populations; and facilitates the exchange of ideas and values among diverse cultures. Multinational organisations such as the United Nations (UN), Organisation for Economic Co-operation and Development (OECD), and the World Trade Organisation (WTO) have become more active, and international laws and rules have been reframed for ease of doing business globally.

In India, globalisation has been accepted as a force of economic growth across the sociopolitical spectrum with a minuscule exception. Since 1992, the country has achieved substantial economic growth. The global value chain (GVC) trade as a percentage of GDP was 11.297% in 1960, which gradually increased to 53.368% in 2008; and 55.624% in 2019.

Public sector ensured socio-economic stability

The public sector encouraged an ecosystem that abhorred private entrepreneurship. It had, however, ensured socio-economic stability in the country. The socialists still see it as an appropriate public policy for India. They continue to harp on investments in the public sector without caring for losses incurred by the central public sector enterprises (CPSEs) and state public sector enterprises (SPESs). Except for navratna companies such as ONGC, OIL, NBCC, SCI, PFC, and HAL, most other public sector companies have either made financial losses or become unviable.

The heightened public spending is believed to have inculcated an unimpeachable sense of nationalism. Economists termed it as protectionism. Apart from the nationalisation of banks, insurance, water and surface transportation, and telecommunication, public spending was also increased for agriculture, realising the need for food nationalism. The country achieved food self-sufficiency and did not fall prey to the knavery of the world economic powers.

The development of core infrastructure, industries, and services was the main thrust of public investment. However, the trickle-down theory did not work. Economic growth remained stunted with an inadequate increase in private investments and foreign direct investment (FDI). Slower growth of education, literacy and skills, inadequate health care, and fewer jobs for unskilled populations were the other pain areas.

Real privatisation remains a myth

The high public expenditure has also created a mentality of dependence on governments. The common man considers the private trade, business, and industry as exploitative and an avoidable vice. In the political arena, some have survived for too long by procrastinating on this pathology. As a result, private investments were abhorred, compelling governments to indulge in activities that should not be their concern.

Those who have inculcated a mentality of public spending should ponder whether the private investment is really private. A real private investment should mean putting personal money at risk in anticipation of making profits later. Public investment means taking and spending someone else’s money to support your enterprise, which should help society with economic activities that create more jobs. Personal wealth is risked very sparingly by anyone. The real privatisation remains a myth.

In fact, most of the private investment in India is public wealth. It is either drawn from the taxpayers or the banks, maybe in small amounts to create a big-money pool. Such a private investment is normally made of bank loans, equity share capital, and market borrowings.

Governments incentivise the common man to keep their small savings in shares, debentures, bonds, mutual funds, and other instruments that could be traded in financial markets. And, private enterprises pick up this money from the financial markets or institutions. It is the money of the common public, which is availed or traded upon by private entrepreneurs. The basic, but not fully grasped, fact remains that the much-dreaded private investment is mostly the money of our taxpayers; it is the national capital and, not the personal wealth of any select or favoured few.

Public intent of private enterprises

Unfortunately, the private entrepreneurs in India have also not been able to gain the confidence of the common man. They seem to have failed to realise and address the real-life miseries of the poor and vulnerable sections of society.

Some ideologues blame it on divisive and competitive politics, while others consider it an outcome of a capitalist mindset. The neo-liberals claim the governments have not created an appropriate policy ecosystem to make private investments public friendly. The public intent of private enterprises has, in fact, not been promoted and highlighted through a credible ecosystem. Corporate social responsibility is a recent phenomenon, the benefits of which have not yet percolated to those who deserve it.

The relationship between government spending and aggregates such as output, employment, and prices have been the subject of many theoretical and empirical studies. Recently, however, interest has shifted to government spending on the provision of public capital and infrastructures. Government spending is now recognised to extend beyond the traditional view of strictly purchasing goods and services to provide for public infrastructure and an ecosystem that allows free trade.

As private investment activity enhances future growth of real income, studies indicate that public policy has permanent effects on real output. These findings suggest that public infrastructure has an overall stimulating effect on private investment activity both in developed and developing countries.

Govt should invest in policy framework

The public utility of private investments largely depends upon the policies and vistas that are opened or encouraged for private enterprises. It deserves to be enhanced to achieve a better life for citizens through more jobs and not subsidies. The regulatory legislation should, however, be redesigned to make them more focused.

Private investment should increase without losing its public essence because private is not all that private. The government should invest more in creating a stimulating policy framework for building trade, business, and service infrastructure and entrepreneurial skills, leaving the production, purchase, and sale of goods and services to private entrepreneurs. They should focus on creating the systems and structures that enable people to earn their livelihood for quality living. Public spending should also aim to provide an effective safety net for the poor and vulnerable sections.

MOST OF THE PRIVATE INVESTMENT IN INDIA IS PUBLIC WEALTH, EITHER DRAWN FROM TAXPAYERS OR BANKS TO CREATE A BIG MONEY POOL. SUCH A PRIVATE INVESTMENT IS NORMALLY MADE OF BANK LOANS, EQUITY SHARE CAPITAL, AND MARKET BORROWINGS