Here Is Pernicious Monopoly

It is gratifying to note that Mr S. K. Datta, Chairman of the Indian Engineering Association, is an opponent of Permit-Licence-Raj, of Government-(mis) managed industries and ill thought out plans, and last but not least of the monopoly sought to be built for them. He is definitely of the opinion that these are impeding our economic growth. He dealt with this matter in a recent public address. His conclusion is not founded on political bias but on sheer economic grounds.

 Mr Datta pointed out that the problems arising from the combination in the Government’s hands of political with great economic power have not been squarely faced:

The exercise of great economic power by the State in addition to its political power is a source of danger to individual freedom and in particular to the operation of a liberal or free market economy. We have heard a great deal about the so-called evils, of monopoly and the concentration of economic power, but the criticism has been directed almost exclusively towards private industry.

 Mr Datta said that on the 31st March 1965 there were 26,653 companies in the corporate sector in India of which 183 were Government-owned. The paid-up capital of the entire corporate sector was estimated to be Rs 2,636 crores of whigh Rs 1,067 crores were held by the Government-owned companies. This is a staggering comparison. More than 40 per cent of the capital is Government’s and is concentrated in less than one per cent of the companies.

 There are in fact several ways in which the Government’s controls and political-­plus-economic power are being used seeking to develop the public sector industry at the expense of the private industry. These methods are broadly classified by Mr Datta in the following four categories:

(i)    Controls under the Industries (Development and Regulation) Act empowering the Government to ban all entry or further expansion in particular industries and to delay or deny altogether individual licence applications for other industries.

(ii)   Preference for Government units in the grant of licences and permits to import equipment and maintenance supplies (raw materials, spare parts and components) and also to import foreign technical knowhow through foreign collaboration agreements.

(iii)  Preferential treatment for Governments units in the supply of land, credit at low interest rates, exemption from labour laws, and so on.

(iv)  Use of the Government’s commanding position as a major purchaser to divert business to its own units, even where public tenders are invited and the tenders submitted by Government units are not competitive.

 Mr Datta did not in his address stop with arguments. He illustrated the pernicious consequences with actual examples:

ILLUSTRATIVE CASE (i)

Compressors: Here is a clear case where Government policy is holding back industrial growth and production and is wasting the country’s resources of capital, know-how and foreign exchange with the totally misconceived object of protecting a future giant undertaking in the public sector.

 Read the following extract from a Government letter addressed to the Indian Engineering Association on 17th May 1966:

……..applications from the private sector for the manufacture of compressors and pumps included in the programme of the proposed public sector unit at Naini cannot be considered for the present. It is the intention that until the proposed public sector unit has been established, the expansion of the existing units in the private sector for the manufacture of pumps and compressors of larger sizes included in the programme of this project should not be entertained. Only after the new project at Naini has been set up and if it is found that there are still certain gaps in capacity which have to be filled up, through the licensing of additional capacity, either in the existing units (both public and private sectors) or through the establishment of new units, the question of further expansion of the then existing units (both public and private sectors) would arise.

 It will be seen, apart from the high and mighty tone of the communication, that the Government is not only proposing to ban all competition with its own unit but that this present ban applies to all items which this future undertaking at Naini might manufacture, for it is evident from the quotation that the Government does not yet know what the unit is actually going to produce.

 This ban on the manufacture of large compressors has been imposed by the Government for the past seven years after the original agreement with Russia to set up a unit of large pumps and compressors was signed in 1959. This Government unit, which is now estimated to cost Rs 13.5 crores with a foreign component of Rs. 6.32 crores, has yet to make its appearance.

 On the other hand, Mr Datta points out, there are several companies in India which already have the capacity and the know-how to make large compressors. One company in Western India is in fact producing compressors of 1,000 cfm capacity and so far no action has been taken against them. Another company in Western India, however, which wishes to make compressors of 1,500 cfm, and can do so with its sanctioned capacity, has been told by the Government to keep its manufacturing range below 700 cfm. Another company in Eastern India has the installed capacity and know-how to make compressors of 2,000 cfm capacity and above, but has been instructed not to do so.

 It should be noted that these large compressors can be produced here and now without any requirement of foreign exchange for materials or components. They are also an essential item required for many of our industries and for our armed services. These large compressors are still being imported costing as much as Rs 2 lakhs each in foreign exchange. Last year alone, during the nine months from April to December 1965, when licences for maintenance imports for private industry as a whole were completely suspended, the country still imported air and gas compressors to the value of Rs 1 crores 11 lakhs.

CASE (ii)

Instruments: There are several known instances where the Government has refused to permit private industry to develop manufacture of industrial process and control instruments, ostensibly to protect two large Government units which are to be set up with Russian collaboration.

 One particular company, a pioneer in instrument manufacture in India, has been trying for years to obtain permission to expand its range of manufacture, but permission has been refused on the grounds that its expanded production would ‘duplicate’ the future manufacturing programme of one of the Government units. This company today has 40 per cent idle capacity in the works, it requires no foreign exchange for the proposed expansion by way of capital equipment, and all the jigs and tools required could be made in India.

 Here again, the first of the Government units (at Kotah in Rajasthan) is still not completed, although the agreement with Russia was signed in May 1959, full seven years ago. The other unit (at Palghat in Kerala) is still little more than a paper plan.

 Here also we have the peculiar phenomenon of the Government, in the midst of a most critical foreign exchange crisis, holding back indigenous production and permitting large scale imports of instruments presumably to avoid criticism from users of the slow development of instrument manufacture in the public sector. During 1965 the State Trading Corporation imported from East European countries alone no less than Rs 1 1/2 crores of measuring and control instruments, mostly through dealers with little or no facilities for installation and after-sales service. At the same time imports have been permitted from the general currency area of instruments which can be made locally at one quarter to one-tenth of the foreign exchange cost.

 The present restrictive policy of the Government is harmful not only to the Instrumentation industry itself, but to all the many other industries which depend on instrumentation.

 CASE (iii)

Ophthalmic glass: Production of ophthalmic glass which is used in making spectacles, goggles, cameras, microscopes and other optical instruments. Here is another case where the Government has refused to issue industrial licences to private industry. The object is to reserve the business for a Government unit at Durgapur which is scheduled to produce 300 tonnes of ophthalmic glass per annum. The lndo-Russian Agreement to set up this plant was concluded in 1957, but owing to various delays the unit is still not completed. According to a recent report, it may be commissioned in mid-1967.

 Over this period India has been obliged to import her minimum requirements of ophthalmic glass at the rate of about Rs 20 lakhs per annum. The continued dependence on imports has also restricted the development of other industries which depend on supplies of this material.

 Another tragic aspect is that the public sector glass, when it is eventually available, will undoubtedly be very costly. The capital invested in the Durgapur unit is reported to be in the region of Rs 3,121 crores. Compare this with the project of a private sector company, whose licence application was sponsored unsuccessfully by the IEA three years ago, which provides for the same output (i.e., 300 tonnes a year) of ophthalmic glass, using the most modern technology, for an investment of only Rs 60 lakhs. Moreover, the gestation period for this project, from the date of Government approval, is less than 15 months, as compared with no less than ten years in practice for the Government project.

 The rolled plate glass industry in India, consisting of four separate units, is at present heavily under-utilized for lack of demand. Production is now less than 25 per cent of the installed capacity and at least two units are completely shut down. In these circumstances an industry might reasonably ask for the maximum freedom to diversify, but unfortunately the Government has so far closed the door to a promising line of diversification—namely, the production of ophthalmic glass.

CASE (iv)

Transformers and turbines: The next case is heavy electrical equipment, the manufacture of which by private industry was originally banned by the Government but has later been relaxed to some extent. Nevertheless it appears to be the Government’s intention to discourage or prevent any competition with its own heavy electrical plants at Bhopal, Hardwar, Hyderabad and Tiruchirapalli.

 In one particular case a private sector company is able to supply turbo-alternator sets which are required by sugar factories or other factories generating steam in the manufacturing process. The only foreign exchange required is Rs 50,000 for each 1,500 KW set to cover the import of raw materials such as copper and nickel alloys. The company can make the steam turbines from its existing plant and would incorporate alternators and gear boxes made locally by other companies.

 Despite this the Government has instructed the company not to produce steam turbines, presumably to reserve the market for the future output of its own units under construction. Meanwhile the turboalternator sets continue to be imported at a cost of As 5 lakhs each in foreign exchange, ten times more than is required by private industry to produce them in the country.

 There is also the case of another private sector company which has the installed capacity as well as the technical know-how to make 220 KV transformers. Although they wish to manufacture, the Government has advised them not to do so. Here again the object is clearly to protect a Government unit from competition even before the unit is able to produce the particular item. Meanwhile each 220 KV trans former must be imported at a c.i.f. value ranging from Rs 5 lakhs to As 20 lakhs each. It is also worth noting that during the past two years the total imports of transformers into India have been averaging approximately Rs 8 crores per annum.

 The only real guarantee that the consumer will be properly served by a Government unit is to expose the unit to competition, to place it on a strict profit-making basis and, most important of all, to give it due notice that if it does not prove its economic worth, it must eventually take the consequences like any private industrial unit and go out of business.

 If any State-undertaking cannot support itself for a reasonable period and give a proper return on the investment, it becomes a running liability to the nation. The correct thing to do, says the Chairman of the Indian Engineering Association, is to off load this liability by measures of denationalization or by simply winding up the unit and selling off the assets.

 Mr S. K. Datta has concretely and convincingly shown, what great harm is being done by this addition of monopoly to inefficiency in the State sector of what ought to be left entirely to profit-and-efficiency-centred private management. The barbed wire entanglements in which all enterprise, industry and trade are held by the Congress Government must be removed. Our national genius and endeavour must be emancipated from bondage to an incompetent, arrogant and corrupt administration and allowed to grow freely to its full size and strength. The only way out is to show the door to the Congress Government.