Reinventing state capitalism in India: a view from the energy sector

Abstract

Despite three decades of liberalization, the public sector’s contribution to the Indian economy remains crucial but underappreciated. Particularly striking is the resilience of central public sector enterprises. The best of these have been reinvented: retrofitted for the market era, exposed to competition and endowed with at least the trappings of corporate governance. Elsewhere in the world, such state-market hybrids have been seen as characteristic of a powerful new model: ‘state capitalism 2.0’. How, then, do these reinvented central enterprises fit within India’s contemporary liberalization process? From the vantage point of the energy sector, in which India’s largest state-owned enterprises (SOEs) predominantly lie, this article seeks to shed light on key continuities and changes in India’s underlying regime of state capitalism. It argues that the most successful central SOEs institutionalize a pragmatic variant of liberalization, in which public versus private ownership matters less than ideas of managerial efficiency and market discipline. Yet this does not amount to a coherent alternative to deregulation or first-generation state capitalism. Instead these enterprises are treated with an admixture of neglect and short-term exploitation, milked for resources to fund a wide system of subsidies. India’s second-generation state capitalism is distinguished from its older incarnation less by the declining role of the state than by the increasingly pro-business nature of these transfers.