Arvind Panagariya writes, for the Cato institute:The response of the economy to the reforms has been an order of magnitude weaker in India than in China… despite considerable growth, the share of industry did not rise in India.So?The necessary steps …

Ravi: I was talking of the specific question of PSU performance. There I say that it is ownership that matters, more than competition. I agree.

And you are right: The Left will oppose product market liberalisation as well. But that certainly deserves more attention than privatisation. According to a McKinsey study, removing product market barriers would add 2.3% to our GDP growth (that is, with product market liberalisation GDP growth rate would be, say 9.3% against 7% without). But privatisation would add only 0.7%. (The report is downloadable from McKinsey site – MGI section)

Interesting debate in the Indian blogs about what matters more for economic performance: private ownership, or competition? Ravikiran Rao thinks that ownership is key. Ramnath thinks competition is more important. I think it’s a false dilemma. A priva…

Ramnath, I was talking of the specific question of PSU performance. There I say that it is ownership that matters, more than competition. I can go through all those points you’ve listed and I am sure I will find that any policy measure that will need to be taken to achieve it will be on the left’s oppose list. Hiring and Firing and Closing a business are easy ones, but the other ones like doing a business, starting business, etc. will have something to do with removal of FDI restrictions which the left opposes. I kind of agree that privatisation is not the most important reform measure. Product market liberalisation (i.e. SSI dereservation) is. Do you think the left will support that?

Sharad Rao does not belong to a left party, by the way, though he is a union leader. But why does that surprise you? What are the Kerala and WB communist parties on the ground? From what I know, they are just a bunch of middlemen. The Kerala CPM runs large industries itself.

this can happen with conglomarates as well. GE does lot of accounting management. HP’s printer division feeds off other divisions in loss.

I am not questioning the wisdom of government getting into all these other businesses. Its definitely wrong. May be its the same with GE and HP. the profitable divisions shouldnt feed other loss-making units. May be we will get better ROI on those investments. But there might be a different company who manages these things well.
The conclusion we can draw is, its difficult to to do a good job because of several reasons which the blogger has mentioned (misaligned incentives, corrput bodies etc.) but blaming ownership would be treating the symptom not the cause.

If you deregulate the market and have a good infrastructure (finance and law and order) then the owenrship issue wont be a problem. Either government would get out of these businesses or would do a great job competing.
Instead if you privatise, and dont have the surrounding infrastructure you can end up with monopolies based on some other shady criteria. The way logistics work in India a private enterprise monopoly might be a abtter idea than government running the show, but it still isnt the best solution absent of competitive markets and infrastructure.

We can debate on whats the best way to get there. May be privatisation is. I don’t know. But blaming that as the cause is something I can’t convince myself of. But then i am no expert.

Ravi, I agree. But, my point really was about priorities. If you were to rank privatisation and competition, which one would be on the top?

Ownership matters, but competition matters more.

And, dont you see too many people talk as if reforms are all about privatisation. I am sure you would have seen these rankings here:
Ease of… Economy rank
Doing Business 116
Starting a Business 90
Dealing with Licenses 124
Hiring and Firing 116
Registering Property 101
Getting Credit 84
Protecting Investors 29
Paying Taxes 103
Trading Across Borders 130
Enforcing Contracts 138
Closing a Business 118

Not all of these are priorities for the Left. And, I would like to know what Manmohan Singh and P Chidambaram have to say about these (the other issues)? But most of the time, most of us talk only about privatisation.

And yes, it’s only my hope that Left would join in efforts to make things easier for people at large. I didnt know about Mr Sharad Rao earlier. Are you sure he is not an exception?