Consider the plight of the SEBs, which have to purchase power at very high rates from IPPs, while more and more industries put up their own sources of captive power. Or consider the threat posed to the public-sector oil pipeline by privater refiners wanting to set up their own distribution system. These are indications that public-sector enterprises (PSEs) will soon have to compete on terms where the private sector has the advantage of political backing. To be fair, manyinstances so far indicate the opposite--the war in the skies has been waged with an umbrella over Indian Airlines, MTNL starts off with many advantages, as do the public-sector refineries. But change is in the air. In India, public funds were used to build industrial infrastructure at a time when the private sector did not have the wherewithal for investment.

One interpretation of the liberalisation process is that the private sector has come of age, and can now move into the core sector, and into infrastructure. Hence, the pressures for privatisation. It can be argued that there is no need to privatise public-sector firms which earn more than their cost of capital. But that argument ignores the decisive influence of political pressures. From the politician's point of view, the choice is between the clout of the new private-sector entrant and the opportunity for patronage from the PSE. Trying to create an "autonomous" public sector, therefore, is doomed to fail. The experiment was tried in New Zealand inthe 80s, where the state-owned Enterprises Act tried to create an autonomous public sector. It was found impossible to replicate the conditions prevailing in the private sector, and the industries were privatised.

Under these circumstances, it may be in the best interests of the PSEs and the country to privatise. This will enable the public sector to become competitive, while also ensure that a conterweight is provided to the new private-sector players. Handled rightly, many privatised PSEs have the potential to become efficient, widely owned, professionally-managed companies. Public-sector companies like BHEL, NTPC, and Engineers India have proved themselves to be comparable to the best in the world. All they need is the freedom to compete.