Remedy to the sickness in public enterprisePublic enterprises are important in certain spheres but are mostly a drain on resources
In the recent budget speech, the government announced plans to revitalise sick industries by tying the private sector, cooperatives and itself in partnerships in order to achieve an ambitious 8.5 percent economic growth in the next fiscal year. For all its words, the government has largely failed until now in creating a coherent plan to help business and industry—especially the ones not functioning optimally—improve.
In his white paper on the economy, presented on March 30, 2018, Finance Minister Yubaraj Khatiwada had criticised the support for privatisation that successive governments in the past had given. He had pointed out a change in policy, wherein the government would privatise only those enterprises that could compete in the market and would continue to support public enterprises in areas where the government’s presence is deemed necessary and where the state has to provide basic services to guarantee fundamental rights.
In some ways, Khatiwada’s assessment of privatisation is accurate. Of the 30 public enterprises that have been privatised since 1990, only 11 continue to function, with only 5 of these actually being profitable. The ones that continue to remain profitable are mostly in the energy and telecommunications sector, while the poorest performers come in manufacturing. However, public enterprises have not fared much better.
In the last year, one-third of all public enterprises have posted net losses. Profits are not always a good measure by which to judge public enterprises—given that their professed function is to add value to the economy in providing services to the public that the private sector cannot. However, the Rs164.42 billion that the government has injected in these non-performing enterprises in the previous fiscal year could have been applied to sectors where the government is actually failing to fulfil basic services and rights. One such sector that could have benefitted from a diversion of funds is the education sector, where the government’s pledged budget for the last two years has fallen short of ensuring the constitutionally mandated right of ensuring free education for every citizen until grade 12.
Moreover, contrary to the government’s policy, the enterprises that are failing to turn a profit—some for the past five years consecutively—are mostly in sectors that have a strong and competitive private sector presence, or in sectors that the state should in no way be involved in promoting.
Examples of the former are manufacturing businesses such as the Dairy Development Corporation and Hetauda Cement Industries. The cement industry has many competitive private players, such that the government’s continued presence in it is unnecessary. The dairy industry also has a strong private presence and is one sector where the government’s plan of involving cooperatives makes sense over continuing to fund a large and unprofitable corporation, given the success of Amul in India. However, the most surprising part of the government’s portfolio of failing public enterprises is the Janakpur Cigarette Factory. The government cannot, in good conscience, continue to fund an industry that manufactures a major health hazard—while also operating at a major loss. It is high time that the government considered shuttering some sick public enterprises so that the drained resources may be used in other activities. It should instead focus on retraining the employees of such sick enterprises so that they may find jobs in other sectors; and rather, reapply the resources in strengthening other enterprises that have actually added value to the economy and to people’s lives.