From monopoly power to

deregulated markets: The travails

of a state-owned firm (ITI Ltd)
Dilip Subramanian
Indias policymakers justified the introduction of neoliberal economic reforms by advancing
one of the main grounds that it would help optimise the performance of state-controlled
enterprises. This article argues, on the contrary, that the reform process had an extremely
deleterious effect on these enterprises operations. Based on a detailed ethno-historical
case study of ITI, a large public sector manufacturer of telecommunications equipment,
the article highlights the contradictory nature of neoliberalisation. Even as public sector
companies were exposed to new rules of competition, they continued to be subjected to a
web of bureaucratic constraints. The article then proceeds to contest the official narrative of
the transition from a command economy to a market economy as a gradualist and pain-free
process. For public sector managers and workers, in fact, the rupture with the past proved
to be a precipitous and fairly violent experience. The article concludes by examining a key
strategic measure adopted by the ITI management to enable it to adjust to the changed
business climate, voluntary retirement and workers responses to this scheme.
Keywords: Public sector, telecommunications, voluntary retirement, liberalisation,
deregulation

I
Introduction
Far from being a monolithic and unilinear phenomenon, neoliberalism
as evidenced by the case studies presented in this special issueassumes
different trajectories in different socio-economic and spatial contexts.

Dilip Subramanian is at CMAC-Neoma Business School and Georg Simmel Centre (CNRS/
EHESS), France. Email: dilsubra@gmail.com

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SAGE Publications Los Angeles/London/New Delhi/Singapore/Washington DC
DOI: 10.1177/0069966713502422

74/ Dilip Subramanian

Based on my ethnographic research on one particular public sector enterprise, Indian Telephone Industries (ITI) Ltd, I provide a case study
of how market liberalisation effectively ended public sector industries
monopoly access to the domestic market established at independence.
I further show that the ruling elites political decision to expose stateowned firms to the free play of market forces with a view to stimulating cost consciousness and profit maximisation in these industries was
taken much earlier than 1991the officially consecrated starting point
of economic reforms.
Hence, if we want to understand these neoliberal reforms, an analysis
must start in the 1980s and pay attention to the theoretical and practical
motivations guiding these transformations. Already during the mid-1980s,
policymakers believed that shifting from regulatory planning to economic
liberalism would improve public sector firms financial performance and
reduce their dependency on public funds. The rigours of competition
were seen as the ideal solution to eliminate the anomalies said to plague
state-run companies, and ensure greater efficiency.
Market mechanisms, so the argument went, would infuse the discipline that bureaucratic coordination and monitoring had failed to provide.
However, as I demonstrate in this article, the effects of neoliberal restructuring were rather different. Restructuring pushed and pulled public sector
firms in two opposing directions. On the one hand, they were exposed to
a competitive market established by state deregulation. On the other, they
remained under state regulatory controls, while their competitors were
subjected to none of these constraints.
Despite the availability of extensive literature exploring the reforms
of the 1990s (see inter alia Ahluwalia and Little 1998; Cassen and Joshi
1995; Joshi and Little 2001; Krueger 2002; Mukherji 2007), there is still
a dearth of micro-level inquiries assessing the effects of deregulation
on the operations of former state-owned companies, let alone what this
meant for the organisational structure of individual firms right down to
the individual worker. This article engages with these issues and draws
upon an ethno-historical case study of ITI.
Following David Harveys (2005) critique of neoliberalism, I first argue
that Indian-style liberalisation, as experienced by state sector enterprises,
had little to do with establishing a free, transparent and self-sustaining
market environment congruent with the doctrinal canons of neoclassical
economics. Rather, a market was created where companies defined by vast
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The travails of a state-owned firm /75

resource differentials and granted highly unequal entry terms faced each
other with consequences that proved disastrous for public firms. As the
introduction to this special issue makes clear, the practice of neoliberalisation necessarily stands at odds with the utopian ideology of neoliberalism (cf. Harvey 2005). In the case of ITI, a combination of internal
managerial failure, ideological prejudices and policy double standards
was cause and symptom of the hammer blow inflicted on the companys
chances of withstanding the challenges of the post-reform era.
The second objective of this article is to challenge scholarship emanating from pro-reform circles, both within government and academia, that
seeks to portray market liberalisation as a gradual, relatively slow-paced
transition in consonance with the exigencies of a democratic polity as
complex, diverse and factional as India (Ahluwalia 2002, 2004; Jenkins
1999). Based on ITIs example, I shall show that such a (re)reading of
events is erroneous and misleading. On the contrary, ITIs exposure to
competition was sudden and worsened by the governments refusal to
provide the firm (and by extension, other state-controlled enterprises faced
with a similar predicament and which did not fall into the select category
of Navaratnas, the nine jewels, such as the public sector steel plants
[see Strmpell, this issue]) with the resources and time required to cope
with deregulated conditionsdespite officials stressing the importance
of building a robust indigenous manufacturing base.1
I argue that the neoliberalisation of the 1990s thus saw three concomitant and mutually conflicting forms of state practice with respect to
some of the enterprises under its aegis: a retreating state that reduced
its shareholding in public companies; a dirigiste state that continued to
intervene vigorously in public companies affairs; and a predatory state
that proceeded to cream off revenues via a partial privatisation even while
denying financial assistance for ending the pilloried inefficiencies.
To substantiate my argument, section II examines the impact on ITI
of the removal of entry barriers to the telecommunications equipment
manufacture segment. Sections III and IV explore how the firm
The central government initially identified nine public sector enterprises (this figure was
later hiked to 15) as Navaratnas, essentially on the basis of their size and strategic importance
to national interests. In order to enable them to achieve global pre-eminence, these Navaratna
entities were entitled to special status, benefiting from conditions of considerable financial
and operational autonomy, denied to other public firms.
1

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76/ Dilip Subramanian

experienced the radically altered market environment after losing its

monopoly status. This allows me to discuss the issue of whether the ITIs
deregulation conformed with the governments objective of introducing
greater efficiencies. In other words, I shall demonstrate the disjunction
between the socio-economic reality of neoliberal reforms and the
ideological discourse legitimising the necessity of these reforms with
respect to state-owned enterprises.
Sections V and VI delineate ITIs response to the coming of competition by focusing on one of the key strategic measures embraced by the
management. This was the implementation of a voluntary retirement
programme, designed to help the company resolve what top executives
saw as the main obstacle to competitiveness: overmanning. This analysis
sheds light both on the reaction of the workforce to economic liberalisation
and the nature of managerial practices in the context of a crisis emerging
from the onset of competition within the market.
The next two sections of the article rely exclusively on primary and
secondary archival source material, such as audit reports, minutes of ITI
board meetings, annual reports and the like. Sections IVVI are based on
a combination of individual open-ended interviews with managers and
workers, and manuscript sources.

II
The emergence of competition since the mid-1980s
If one is to assess neoliberalism in India, it is important to recall that already in the early 1980s, competitive pressures rocked certain branches
of Indian industry. Some scholars argue that the package of measures
launched in the early 1990s was very different from the incrementalist
approach to reforms adopted during the mid-1980s (Ahluwalia 1995: 15).
However, the former Reserve Bank of India Governor, I.G. Patel (1998),
for one, dates the starting point of Indias liberalisation process to the New
Economic Policy initiated by the Rajiv Gandhi government in 1985.
One such segment illustrative of this dynamic was the production of
telecommunications equipment where policymakers decided, in March
1984, to eliminate some, but not all, entry barriers. Indian private companies were authorised to take up the manufacture of customer premises
equipment (telephones, fax machines, modems and private branch and
automatic exchanges). For ITI, this signalled the first breach in the
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monopoly power it had exercised over the domestic market since 1948,
for the manufacture of the entire range of telecommunications equipment
from large automatic exchanges to telephones. The loss of its exclusive
control over the market, and with it, the system of guaranteed orders and
prices, the bedrock upon which the firms fortunes rested, thus predated
by several years the official declaration of neoliberal economic reforms.
The advent of competition did more than just erode ITIs revenue
stream. It also provoked a sea change in the public sector firms relations
with its administrative authority and principal customer, the Department
of Telecommunications (DoT). The DoT had not only been responsible
for appointing ITIs chairman, it had also decided all issues of strategic
importance, such as capital investment, choice of technology, product lines
and annual production volumes. If the power equilibrium clearly weighed
in favour of the DoT, during the monopoly era, bonds of reciprocal dependency also linked both sides. Deregulation would fundamentally reshape
the terms of this alliance and establish markedly divergent end goals for
both the parent body and its industrial arm. An analysis of the subsequent
relationship of these two actors then serves to uncover the ideological
fiction lying at the heart of the supposed introduction of a free market.
Instead of placing both parties on a more or less equal footing, mutual
dependency was turned into unilateral dependency, as I will show later.
One explicit aim of the central governments decision to open the
market had been to try and satisfy the huge demand for telephone connections. By 1985, the waiting list for new connections had climbed to about
842,000, while the average waiting period stood at 2.67 years compared
to 1.5 years in 1980 (Mani 1989). The inflow of private investment into
telephone production paradoxically left the industry saddled with high
levels of excess capacity. Several new players, therefore, sought to build
market share by slashing rates. Between 1986 and 2002, prices of telephone
sets dropped by a vertiginous 81.6 per cent.2 This fall in prices obviously
suited the DoTs interests. As the exclusive buyer on the market, the DoT
could now purchase telephones at a fraction of earlier prices. But the effects
would prove disastrous for ITI and severely undermine the profitability
of its telephone activities (Subramanian 2010).
2
In April 1986, the sales price of an ITI-made push button set stood at `1,033.33. By
200203, phone prices had dropped to `190 (source: ITI Bangalore Telephone Division
Records).

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High overheads guaranteed beneficial working conditions. However,

it also meant that ITIs products were invariably higher priced than those
of its new competitors. Consequently, in order to win tenders, offers were
submitted that allowed it at best to recover material costs. In a few cases,
even this objective proved beyond reach, compelling ITI to produce at a
loss. Had it rejected such tenders, labour would have remained idle and
capacity unutilised, thereby leading to even greater losses. In one instance,
an empty order book obliged the management to accept a contract for
300,000 electronic push button phones offered by the DoT and suffer
losses of `54.84 million in the bargain.3
The management was well aware of this new market climate. A note
to the ITI Board stated that domestic, privately-owned firms could take
advantage of modern and highly productive processes and technology
to reduce their manufacturing costs. Furthermore, despite resorting to
price cuts, their margins remained relatively unaffected because their
expenditure is contained to incurring basic necessities only.4 In other
words, the new private sector entrants, in the main relatively small-sized
entities, provided no social benefits whatsoever to their personnel unlike
their public sector counterparts.
The first wave of economic reforms thus set the pattern for the double
standards that would become a hallmark of official policy orientations
in the post-1991 period. ITI would be subject to ambivalent market
performance criteria. In this specific instance, the obligation to grant
certain welfare measures to its workforce, which private players typically
declined to do, meant that ITI was competing with the private sector on
highly uneven terms.
What the foregoing story also tells us is that the decision of the authorities to deregulate the terminal equipment segment occurred without
having ensured that new entrants to the market paid adequate salaries
and worker benefits, an essential precondition for stimulating free and
equal competition between the private and public sectors. Aggravating the situation, the company management and workforce had neither
been alerted to, nor prepared for, the elimination of its monopoly power.
This becomes evident in the following critical comment made by a
3
4

Audit Enquiry No. 7 of ITI Bangalore Telephone Division, January 1991.

Note to the ITI Board, 234th meeting, Item B18, August 1987.

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parliamentary committee with reference to the governments actions in

the post-1991 period:
Even if the removal of certain kinds of protection to PSUs (public sector
undertakings) was inescapable, it would have been more expedient had
it been done in a methodical and phased manner instead of doing it in
one go. Before throwing the floodgates openan environment should
have been created for the public sector to face such a challenge....5
(Committee on Public Undertakings [COPU] 1997a: 67).
The governments inaction meant that ITI lost its monopoly position
precisely at a time when it faced extremely unfavourable business conditions, leaving the firm floundering like a Nehruvian anachronism in a
post-Nehruvian market configuration. It remains open to conjecture to what
extent official attitudes vis--vis the company stemmed from ideological
preconceptions against the public sector in policymaking circles, or from
the unprecedented possibilities for personal gain that politicians and officials
stood to reap by allowing the entry of private Indian and foreign capital.
Of central importance in the liberalised market structure were, among
other factors, access to new technologies; capital for investment in modern
machines and equipment; and organisational know-how geared to successfully restructure the companys operations. The following sections will describe a continuum of failed efforts, deliberate or otherwise, at institutional
restructuring and adjustment of ITIs ownership structure and product
portfolio that, if implemented purposefully, might have helped consolidate
the companys position in the new deregulated environment.

III
Contradictions of neoliberal state control and
neoliberal market forces
From 1991 onwards, both Indian and foreign private companies were
authorised to invest in all areas of the telecommunications equipment
market. Over the next few years, leading transnational corporations such
as AT&T, Alcatel, Ericsson, Fujitsu, NEC and Siemens would establish
5

Emphasis added.

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80/ Dilip Subramanian

production facilities in India in partnership with domestic private capital.

The governments indifference to ITIs needs, however, meant that the
company missed out on the chance of teaming up with an experienced
international partner capable of both upgrading its technology base and
injecting much-needed fresh capital.
With the deeper penetration of private Indian and foreign capital,
ITIs main lines of businessswitching and manufacture of transmission
equipmentwere now effectively exposed to competition. In both segments, which accounted for roughly 90 per cent of its total revenue, it suffered acutely at the hands of private firms resorting to dumping practices.
Foreign equipment suppliers in particular, as part of their entry strategy
into the Indian market with its comparatively high growth potential, had
deliberately quoted extremely low prices on several tenders floated by the
DoT (Disinvestment Commission 1997; Standing Committee on Communications 1997).
Having announced that economic liberalisation would include a review
of the existing portfolio of public investments with greater realism, the
government also proceeded to reduce its shareholding in ITI (Government of India 1991). Between March 1992 and March 1995, it offloaded
22.98 per cent of equity with the initial sale of just under 20 per cent,
generating revenues of approximately `175 million for the exchequer.
From the perspective of ITIs management, partial disinvestment did not,
however, free the company from the pervasive web of controls entangling
the functioning of state-owned enterprises. The DoT and the Ministry
of Communications remained the ultimate decision-making body on all
policy matters, resource allocation and long-term corporate goals.
In the political sphere, state institutions continued to function as
though dirigisme remained the order of the day. Supervisory ministries
made strategic choices aimed, arguably, less at strengthening the commercial interests of the companies than at protecting their own interests
and maintaining their zone of influence. Decision-making autonomy,
which managers saw as indispensable to run a business and conduct
commercial transactions in the re-regulated market, was denied to ITI
executives, leaving them to meet the new competitive conditions with
their hands tied behind their backs (Joshi and Little 2001: 178). Allowing ITI management the latitude to formulate and implement strategy,
DoT perhaps feared, would lead to an erosion of its authority. So, the
decision to partially privatise state enterprises as pursued in the Indian
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The travails of a state-owned firm /81

context defied capitalist economic logic. On the contrary then, we could

argue, it obeyed a political logic since it entailed no loss of power for the
administrative ministries.
This policy had further repercussions. In contrast to the Chinese model
of neoliberal restructuring (Brousseau et al. 1996; Yan and Pitt 2002),
the government did not encourage indigenous equipment manufacturers,
but rather handicapped both ITI and fully Indian-owned private sector
companies. No incentives were granted to private service providers that
would have promoted the purchase of locally made equipment for their
networks. This was a serious policy shortcoming, especially in a market
context where domestic equipment suppliers, unlike transnational corporations, lacked the resources to offer vendor financing for their products
through facilities such as easy credit terms or deferred payments.
A preferential purchase policy, introduced during the early years of
deregulation, constituted the only form of assistance extended by the
DoT to ITI. Under its terms, 35 per cent of all equipment orders were
reserved for public enterprises. This measure, though, turned out in reality to be a poisoned gift since it compelled them to manufacture at a loss,
constrained as they were to accept the throwaway prices set by transnational corporations. Plans developed by ITI to integrate downwards, by
providing basic telephone services once the government had deregulated
this sector in the mid-1990s, were also foiled by the supervisory ministry
(Subramanian 2010).
To worsen matters, the company was left headless for relatively
long stretches at critical periods during the mid-1980s and the 1990s, as
the DoT delayed appointing a chairman. The tutelary bodys behaviour,
though, had probably more to do with bureaucratic indifference and
slackness than conscious policy design. Nevertheless, a parliamentary
committee was moved to describe ITI as a typical example of a public
sector undertaking, victim of the apathetic attitude of the Government
(COPU 1997b: 67).
Thus, for state firms such as ITI, the liberalisation of the telecommunications equipment market assumed an extremely contradictory and
skewed character. The new rules of the game were drafted according to
market-driven principles even as public sector enterprises were obliged
to continue aligning several key aspects of their operations in procedural
norms rooted in a non-market rationale. State authorities deliberately
ignored recommendations of independent bodies, urging that the revenues
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of disinvestment be used for reinforcing the competitive position of

companies such as ITI (Disinvestment Commission 1997). Instead of
modernising plant infrastructure and upgrading technology, these revenues were mobilised to reduce budgetary deficits, thereby laying bare
the ideological bent of neoliberal policy processes.
Whether ITI was discriminated against by its parent body because of
its inability as a public enterprise to pay kickbacks to officials, as the trade
unions more than once alleged in interviews, is, of course, something we
cannot answer. A complementary reason seems to be a deliberate bias
against all forms of indigenous technology that defined official policy
during the years 199296, when Sukh Ram headed the Ministry of Communications. Even local private manufacturers of equipment designed by
the research body Centre for Development of Telematics received few
orders, regardless of obvious cost and quality advantages.6
As Harvey (2005) has cogently argued, the pragmatics of neoliberalisation often stand at odds with its theoretical premises, the most pre-eminent
of which are that all forms of economic state interventionism are bad.
For sure, in the Indian context, high-level official graft predated the prereform years. The byzantine workings of the Licence Raj constituted an
ingenious honeytrap for all manner of capitalist practices. Nevertheless,
the deregulation of the domestic economy unlocked the possibilities for
amassing ill-gotten personal wealth by the political and bureaucratic establishment on a scale hitherto unsurpassed (Gupta 1995; Harriss-White
and White 1996).
In so doing, it also raised the stakes for political interference in the
economy to new levels, thus manifestly distorting the free play of market
forces. During this first heady flush of economic liberalisation, the dealings
of the ministry and the DoT with respect to equipment purchases were
stained in irregularities. The subsequent court convictions of Sukh Ram
and a senior department official in 1996, sentencing them to prison terms of
respectively three and two years for defrauding the exchequer, exposed the
magnitude of what came to be dubbed the Dial M for Money scam.7
6
See No takers for C-DoT equipment, The Economic Times, 28 February 1997; C-DoT
hit by liberalisation, The Hindu, 6 March 1997.
7
For details of the Sukh Ram affair, see Rishab Ghosh, Indian ex-Minister for Telecom
raided; Harris Corp jv in Trouble, The Indian Technomist, 19 August 1996. Available at
http://dxm.org/techonomist/news/19aug96.html. Accessed on 20 September 1997. Also see
T.H. Chowdary, Injuring the Indigenous Telecom Industry, Telematics India, May 1997.

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Such official skulduggery resulting in substantial losses to the public

exchequer contrasts, of course, sharply with the broadsides fired by the
epigones of neoliberalisation at the inefficiencies and waste purportedly
generated by state-controlled enterprises. In the end, it would require the
defeat of the Congress (I) government in the 1996 general elections and
the departure of Sukh Ram, before the DoT agreed to take a slightly more
helpful stance vis--vis ITI. By then, however, irreparable damage had
been inflicted on its competitive position.
But the failure of ministry officials to adopt effective measures to
redress ITIs fortunes could also be interpreted in part as the upshot of
the choice, understandable and partly justifiable, to channel the DoTs
organisational capabilities and financial muscle into extending the reach
of telecommunication infrastructural facilities in the country. The tutelary
body faced significant constraints of its own, notably the need to address
the problems evolving from the enormous unsatisfied demand for new
telephone connections. By 1990, the registered waiting list counted almost
1.7 million applicants, belonging most likely to the urban middle classes
(Government of India 1996). Viewed against this backdrop, it is quite
plausible that the DoT considered the rapid installation of new lines at the
lowest cost as its foremost priority, rather than extending assistance to ITI.
Indeed, more telephone connections were added in the decade 19902000
than in the preceding four decades since independence.8
At the same time as competitors were eating into ITIs market share,
they were also raiding it for a vital resourceits research personnel. From
the mid-1990s onwards, the company experienced a brain drain of alarming
proportions. The bulk of its engineers quit to join the private sector, especially transnational corporations, attracted by the munificent salaries and
other benefits offered by the latter. Thus, given the presence of a sizeable
pool of well-qualified technical personnel in the labour market, the fruit
of the investments made by the Indian developmental state in building a
proficient higher educational system (Sharma and Gupta 2006), foreign
companies neither had to invest valuable resources nor time in training
employees to conform to their standards.
Given the restrictions placed by the government on the size of public sector remuneration packages, ITI found it impossible to retain its
8
In 1989, the country possessed barely 4.6 million fixed line telephones; by 2000, the
number had skyrocketed to 26.5 million, an achievement only overshadowed by the fact that
the waitlist still contained over 2.7 million potential subscribers (Morris 2003: 254).

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research personnel. The most immediate and threatening consequence

of this talent flight was that a number of key development projects had
either to be abandoned or were substantially delayed. This, in turn,
jeopardised the firms capacity to launch new products at a time when
it badly needed to do so in order to remain competitive vis--vis the
private sector.
Adding to the companys woes, the rapid evolution from wired to wireless communication caught it totally unaware, while the steady erosion
in equipment prices hardly helped matters. In 200203, ITI posted the
biggest ever loss in its history; the fact that losses grew even higher in
the following years underlined the durable nature of the crisis confronting the public firm. However, demands for a comprehensive investment
package, designed to restructure the companys operations, elicited no
concrete response from DoT for several years.
In summary, in sharp contrast to the experience of other developing
countries, Indian-style liberalisation did not entail the privatisation of stateowned enterprises. In most cases, there was only a partial de-nationalisation
by the state. The upshot of this was that a system of dual dependency arose
where public companies such as ITI had to contend with the conflicting
logics emanating at once from continued state-imposed regulatory controls
and market-generated pressures. The firms hybrid status then placed it at
an acute competitive disadvantage vis--vis private players. Given no time
to adjust to the radically altered business climate, ITI was also starved of
adequate financial resources, thus dooming it to failure virtually from the
moment the market was thrown open to unfettered competition. But the
crisis did not only catch ITI management without warning and with little
options for countermeasures, the same was also true for many among its
workforce, as we shall discover in the following section.

IV
Workers contrasting reactions to deregulation
On the eve of economic reforms, ITI employed 32,300 people on its rolls.
Nearly half of them were concentrated at its flagship Bangalore factory
and the remainder in six other production units (three of which were in
Uttar Pradesh). Semi-qualified for the most part, workers were essentially
male, an incongruity in an industry where the majority of the tasks are
sexually stereotyped by employers as female.
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Employees reactions to the crisis experienced by the company took

contradictory forms. On at least one occasion during the early years, the
management complained of worker resistance and non-cooperation by
shop floor representatives, jeopardising its efforts to introduce new product
lines at the Bangalore plant. Likewise, plans to promote quality circles,
designed to improve production standards, repeatedly failed for want of
sufficient volunteers. It is worth specifying here that workers reactions
did not stem from an opposition per se to neoliberal reforms but had more
to do with pecuniary motivations.
The changed market environment within which ITI had to operate,
however, struck home forcibly once it posted losses in 199495. The
companys status as a state-owned enterprise gave employees a high
sense of job security. Still, the initial sentiment was one of disbelief mixed
with apprehension: how could a company that had been profitable all
along suddenly sink into the red? There were rumours of the company
eliminating certain unprofitable activities such as telephones and leasing out the infrastructure to private entrepreneurs. With over four-fifths
of non-officers at the Bangalore plant aged above 40 years in 1995 and
possessing only the most rudimentary of qualifications, few individuals
were convinced of their abilities of obtaining another job with ease if
the factory closed down or downsized its workforce. Some workers felt
they were unaccustomed to hard workexplained as much by their age
levels as by the relaxed work rhythms prevalent in public enterprises. As
a machine operative aged 45 years and employed at ITI since the age of
20 years put it: If the company collapses, workers wont be able to get
a single paisa elsewhere. Outside you have to work hard for eight hours.
That everybody knows.9
The example of a neighbouring electronics firm, New Government
Electric Factory, owned by the Karnataka government, paying its employees half wages by way of layoff compensation also revived apprehensions
that ITI would follow suit, especially since the companys losses from 1994
onwards were mounting. It is already difficult to maintain our families on
full wages. So how will we manage on half wages?, asked one employee.
All these fears subsided once the companys financial position started to
temporarily improve in the late 1990s. Even if they were required to go
on voluntary retirement, workers expected they would be leaving with a
9

Interview with Joseph, Bangalore, 14 May 1999.

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relatively large monetary package since ITI, being a central public sector
enterprise, had the capacity to pay.
Yet, this did not preclude workers, especially old-timers, from expressing a strong sense of regret, even bitterness, as they nostalgically
contrasted the present decline in ITIs fortunes with past prosperity. These
sentiments were never more acutely experienced as when they encountered material and spatial embodiments of the companys decline: disused
machines, silent workspaces, shut down offices, idle workers. To these
signs of inactivity and abandon, increasingly visible since the late 1980s
and which echoed their own ageing, workers counterpoised memories of
past activity, testimonies to their own once youthful vigour: Indian and
foreign dignitaries flocking to the factory to witness its technical prowess;
the plant working round the clock during the peak production months of
December to March in order to meet annual targets;10 the din generated
by scores of lathes running at full speed in the automatic machines shop;
and the powerful head of personnel into whose office workers entered
tremblingwhere now stacks of dusty files stood piled.
ITI employees also found humiliating press reports comparing the
enterprise to a sinking ship or a dinosaur. Of a piece with official
commentary, the use of these tropes served to discursively construct stateowned companies as a cumbersome relic the country now had perforce to
bury if it was not to be stuck forever in the rut of the Hindu growth rate.
For those, however, who had devoted several decades of their life to building the company by their hard work, such representations, by underlining
the probable death of ITI, left them, no doubt, with the impression that
their entire careers had been in vain. Their loyalty to the firm had not been
rewarded by securing the foundations of future growth.
Nevertheless, unlike the managementwhich invariably tended to
place the burden of the companys problems on employees shouldersthe
latter showed more even-handedness, apportioning blame to both sides,
in addition to the government. Workers viewed the vast majority of their
colleagues as conscientious and sincere and willing to make sacrifices
for the sake of the company, if required. Nonetheless, they recognised the
existence of a number of shirkers in their ranks, singling out union officials
and their hangers-on as the worst offenders, followed by members of various cultural associations and workers who represented the company in
10
For many Indian companies, the business year does not span the conventional calendar
year; instead, it runs from April to March.

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different sporting activities. All three categories were accused of misusing

the numerous facilities granted by the company so as to avoid working.
The only group that really works is we direct operatives, claimed one
old-timer. But as he and others never tired of pointing out, shop officials
commanded sufficient means to make sure nobody shirked or left their
work spots without permission. Employees also resented the constant
demands being made upon them to forego various benefits, arguing that
top executives not merely continued to enjoy all their perks, but sometimes
even secured new ones.
Workers harshest invective was, however, reserved for the government
and politicians. Even though they may have lacked sufficient political
awareness to directly identify a class antagonist, ITI employees held the
state and its representatives as prime culprits for their companys predicament. If the governments open-door policies had allowed transnational
corporations to enter the domestic market and indulge in dumping, they
argued, venal politicians had worsened matters by systematically favouring private players. Consequently, as workers saw it, the solution to ITIs
troubles lay in the hands of the state. If it chose not to intervene, it was
on account of vested interests determined to dismantle the public sector. Simplistic though the analysis may seem to appear on the surface, it
contained more than a grain of truth.

V
Workers reluctance to opt for voluntary retirement
Interestingly, in much the same way as the liberalisation of the Indian
economy got underway in the mid-1980s, so too did measures aimed at
rationalising public sector workforces. In October 1988, the government
already authorised enterprises under its control to offer voluntary retirement scheme (VRS) as a means of downsizing. Because existing labour
regulations made dismissals and layoffs an extremely arduous process for
big formal sector companies notably, reducing manpower by persuading
labour to voluntarily surrender jobs in return for monetary compensation became a convenient means of circumventing the law with the tacit
accord of the authorities. Public sector managements were informed that
funds for operating the schemes would either come from the administrative
ministries or have to be generated internally, as in the case of ITI where
DoT promptly declared it would extend no assistance.
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88/ Dilip Subramanian

A management note in 1987 claimed that ITI was still burdened with
2,700 surplus staff at the main Bangalore plant, out of a total of 18,011
employees, despite two production lines having already been phased out.
This prompted the company to toy briefly with the idea of VRS before
dropping it.11 However, once it experienced the full force of competitive
disadvantage, as entry barriers to all segments of equipment manufacturing were lifted in 1991, top management policies changed and cutting
manpower costs became the new corporate strategy. Recruitment of new
hands had already virtually ceased by now. But other options, more radical
in scope, also came to be envisaged.
A buyout plan was hence rapidly drawn up and over the following
decade, the size of the ITI workforce contracted by almost 35 per cent,
falling from 30,280 employees in 199192 to 19,692 in 200203.12 The
initial response to voluntary retirement (VR) was extremely favourable
as employees, attracted by the immediate prospect of obtaining a large
lump-sum amount, seized this opportunity to leave the company. The
only groups whom ITI sought to actively retain were technically qualified
personnel such as degree and diploma holders in electronics and electrical
engineering, as well as other engineering disciplines. These personnel were
declared ineligible for VR, though, as I have mentioned earlier, several
of them quit to join transnational corporations.
In 199192, the first year of the schemes introduction, ITI registered
a total of 1,593 resignationsabout 5.3 per cent of its workforce. Thereafter, the figure tapered away considerably (see Table 1), for reasons to
be explained later, until 200102 when the numbers again began climbing
following an increase in severance payments. Overall, between 199192
and 200203, ITI spent `2,368.60 million on 8,777 golden handshakes
with individual severance benefits averaging on aggregate `270,000.
Going by the managements statements, this outflow rate was apparently dissatisfactory, even though we find no precise objectives specified
in the available documents. Indeed, as early as June 1994, many officials
argued that the company would be hard-pressed to achieve its objective of
building a lean and efficient structure through the existing VRS, which
is restrictive and does not seem to weed out surplus staff.13 Following
Note to the Board of Directors, 232nd meeting, Item No. B9, June 1987.
ITI Corporate Personnel & Administration Department archives.
13
Minutes of 1st meeting, Company Goals and Objectives, ITI Bangalore, 9 July 1994.
11

12

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The travails of a state-owned firm /89

Table 1
Voluntary retirement scheme (VRS) statistics
No. of VRS
claimants

Total
workforce

VRS claimants
as % of total
workforce

VRS
expenditures
( ` millions)

National renewal
fund repayments
( ` millions)

199192

1,593

30,280

5.26

162.60

Nil

199293

311

29,730

1.05

40.90

Nil

199394

500

28,633

1.75

67.30

Nil

199495

727

27,477

2.65

114.30

Nil

199596

684

26,272

2.6

162.60

199697

246

25,915

0.95

145

55

199798

902

24,552

3.67

139.70

285

199899

532

23,945

2.22

155.30

100

19992000

333

23,567

1.41

114.10

51.10

200001

537

22,914

2.34

208.80

Nil

200102

1,213

21,518

5.63

561.40

Nil

200203

1,199

19,692

6.08

496.60

Nil

Total

8,777

2.96

2,368.60

Year

50

541.10

Source: ITI Corporate Personnel & Administration Department, Annual Reports

(19912003).

Hirschman (1970), we could say that ITI workers opposed the managements invitation to exit with an unequivocal show of loyalty insofar as
they declined to leave the company. They were possibly reluctant to trade
away the long-term advantages that job security and the status of public
sector employment represented for short-term monetary benefits.
Workers unwillingness to demonstrate what the management termed
entrepreneurial spirit, no doubt, reinforced dominant-class stereotypes
branding public sector employees as deadwood and the like. But their
reluctance to seek alternate career opportunities was quite understandable,
given decelerating employment growth and increasing casualisation in
most sectors of the Indian economy at the time. Contrary to the airy affirmations of neoliberal economists, workers, especially those for whom
retirement was not an immediate prospect, knew, often directly via the
experience of family members of labour market conditions, of the consequences of accepting VR: either unemployment or low paid, irregular
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90/ Dilip Subramanian

and unprotected jobs in the informal sector (see Strmpell, this issue, for
similar developments in a public sector steel plant).
Workers also gave other reasons for refusing the golden handshake.
First, many of them apprehended being swindled out of their compensation benefits by children, relatives or friends, or of losing it in imprudent
business schemes. Workers would invariably have one or two such stories
to narrate of misfortune befalling friends or colleagues. The constant exchange and circulation of such narratives could be interpreted as playing a
dissuasive function, a corpus of counter-examples designed to discourage
individuals tempted by the promise of immediate money that the separation package offered.
Second, they were reluctant to accept VRS because they saw it as
resulting in a loss of identity, self-worth and masculinity. Having entered
the factory, in many cases even before the age of 20 years, work was the
central reference point of their life-worlds, the constitutive element in
shaping their perceptions of social realities. Being gainfully employed
represented more than just a source of economic income. In the words of
a 60-year old telephone assembly worker employed in ITI for almost four
decades, When we bump into some of our colleagues who have gone on
VR, we really feel bad (bejaar) to see how they look. All the life (kalam)
appears to have drained out of their faces.14
ITIs predominantly male workers also expressed fears of having
to share domestic spaces once they stopped working. Because these
spaces were occupied by women and children during the larger part
of the day, they believed they would be perceived as a burden by the
rest of the household. As Joshi (1999: 201) has justly remarked, being
formally unemployed means a diminished patriarchal presence in the
household. This sentiment is unambiguously articulated by a telephone
assembly operative in the Bangalore unit who had joined the company
in 1964; though aged 58 years, he insisted he would carry on working
until retirement:
If I am still working and earning, I feel there will be discipline and
order at home. I will also get respect (mariayadei) both at home and
outside. If I am in service outside, service inside (i.e., at home) will be
good. If I ask for a glass of water now, my daughters-in-law will rush
14

Interview with Alavandar, Bangalore, 12 November 2001.

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The travails of a state-owned firm /91

to get it for me. Nobody now sits directly in front of me. They come
only when I call them.15
To these anxieties were added those caused by the lack of consideration
and respect that workers sensed they would generally encounter in social
interactions after retirement. To again cite Govindaraju: Neighbours and
other people will think that because I am retired I know nothing, that I have
nothing to do. And so if they invite me to a function or a marriage, I will
certainly come because I am simply sitting at home and not working.16
A third reason for declining VRS was that the status associated with
public sector employment enhanced the value of their male offspring
in the marriage market, who could expect to acquire both a good bride
and an appreciable dowry. If a reason commonly advanced by workers
for taking the buyout was that it enabled them to arrange the marriage
of their children, especially female offspring, the converse was equally
true, thereby underlining the gendered dimension underlying the decision
to accept or refuse early retirement. Remaining in their jobs for reasons
of status and recognition thus provides an interesting illustration of how
symbolic capital (Bourdieu 1984) is translated into economic capital.
Lastly, workers apprehended the boredom, enforced idleness and
isolation that would accompany VR. All my interviewees, who either
spoke Tamil or Kannada, invariably used the English noun form bore,
or the Urdu vernacular bejaar (in this specific context, the word signifies
mental fatigue, apathy or listlessness), to describe their feelings of having to stay at home all day every day. Industrial work might have often
been monotonous, but it was at least a shared experience. Retired life,
on the other hand, threatened to hover as a timeless continuum, dissolving the separation that the factory clock had instituted, sometimes at a
considerable cost to their personal lives, between work time and leisure
and family time.
Workers attitudes towards the question of voluntary exit also owed
little to the trade unions position on this issuethey rejected VRS on
the grounds of their own thoughts and reflections on their life-worlds. At
the flagship Bangalore plant, for instance, where a single independent
organisation represented the totality of the workforces interests, the union
adopted a largely passive stance. For certain, the top union leadership
15
16

Interview with Govindaraju, Bangalore, 27 November 2001.

Ibid.

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92/ Dilip Subramanian

bemoaned the departure of large numbers of members and union representatives, acknowledging the loss occasioned by way of experience,
financial resources and numerical strength.17 However, it tended to treat
the matter as essentially one of individual concern, a choice confronting
each worker and in which it could not interfere. Accordingly, the union
limited its involvement to taking up with the management, specific cases
of worker grievances, related to either the selection modalities of VR
candidates or compensation payments.
To sum up, the ambivalent response of workers to the VRS threw into
relief two contrasting logics. On the one hand, echoing the free market
ethos overlaying neoliberalisation, VR clearly subscribed to a monetary
logic, proposing a straightforward cash for exit swap. That this trade-off
proved acceptable, even attractive, is attested to by the departure of almost 9,000 employees from the plant. Nevertheless, to this economistic
transaction, an even larger number of workers opposed a more contextual
social logic. Drawing on the personal experiential reality of everyday life,
many resisted the lure of the golden handshake, counterposing immediate
material gains to the more permanent loss that the lack of employment
could inflict on their subjectivities.
This section has shown how the managements assessment of ITIs
workforce lacked sufficient knowledge and awareness of the wider socioeconomic circumstances. This was one of many factors that ultimately
prevented the firms transition to the market-driven entity that official
rhetoric underpinning the Indian governments liberalisation agenda attempted to realise. The life-worlds of ITIs workforce did not allow for the
making of this kind of neoliberal India, attuned as it was to the Nehruvian
mould of labour relations where thanks to job security, decent wages and
generous welfare benefits, public sector employment represented the most
coveted positions in the labour market.

VI
Voluntary retirement targets non-performers
Overall, between 199192 and 200203, on average, 3 per cent of the
ITI workforce went on VR annually, a figure which, as mentioned earlier, failed to meet the managements expectations. So why did workers
17
Interview with Michael Fernandes, President, ITI Employees Union, Bangalore,
NovemberDecember 2001.

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The travails of a state-owned firm /93

not respond more enthusiastically to the buyout scheme? In the previous

section, we already heard workers voices justifying their decision to
remain in employment, but other more structural factors rooted in the
demographics of the ITI workforce were also at play. Before examining
these causes, it is worth drawing attention to some unintended effects of
the early retirement programme.
A key management objective was, of course, to rid the company of
low-skilled workers, but paradoxically, this translated into a shortage of
shop floor workers. The problem was particularly acute at the main Bangalore plant where the ratio of production to non-production staff, which
had been steadily declining from the 1980s onwards, stood at nearly 1:3
in the late 1990s. As an internal note stressed, maintaining uniform flows
of production throughout the year depended critically on the availability
of shop floor operatives.
To better understand the managements predicament, let us examine
the statistics related to VR beneficiaries. First, roughly two-thirds of
those leaving the company were non-officers. This figure increases to a
substantial 90 per cent if we also include the two lowest officer grades,
since virtually all of them had risen from the ranks. Out of a total of 8,777
employees who took VR between 199192 and 200203, non-officers
numbered 5,742 and officers were 3,035, of which 1,666 belonged to
Grade I and 497 to Grade II.18 So, in reality, officers represented only
10per cent of the total departures.19
Second, and more significantly, only 10.5 per cent of those who opted
to quit between 199596 and 200203 were aged 50 years and below,
whereas 56.4 per cent belonged to the cohort 5155 years and the remaining one-third were aged above 55 years. In other words, it was the older
employees who capitalised on the early retirement plan, essentially because
their working lives were drawing to a close, while the less-aged groups
chose to stick with the company because they still had several years of
service left. Furthermore, many of these workers might have been encouraged not to accept VR following the DoTs decision in the late 1990s to
provide ITI with a short-term aid package. For, it is quite possible that
workers interpreted this measure as signalling the governments intent to
ensure the companys survival.
18
19

Sourced from ITI Corporate Personnel & Administration Department.

ITI Revival Plan, 2003.

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94/ Dilip Subramanian

The en masse exodus of older employees helped to push down, to some

measure, the aggregate age levels of the labour force, but it also created
headaches for shop officials. These senior employees were by no means the
best qualified section of the labour forceindeed the overall qualification
profile of ITIs personnel shows that the vast majority of buyout takers, in
fact, possessed at best, a high school degree. They were, however, both
highly experienced and concentrated at the point of production. Consequently, in the wake of their departure, the company faced a shortage of
well-trained shop floor personnel.
Other difficulties also surfaced. With minimal investments having
been made on new machinery for several years, maintenance problems assumed alarming proportions as experienced repair personnel
deserted the company. For instance, at the telephone moulding shop,
machine breakdown levels stood closer to 10 per cent of total available
machine hours than the stipulated objective of 5 per cent. To try and
staunch this outflow, the personnel department declared in March 1999
that assembly and machine shop operatives, together with testers and
inspectors, would not be authorised to avail VR. Another note called
for a review of the scheme since employees and officers most useful
to the company are leaving.20 In the end, the demand crunch that hit
ITI from the year 2000 onwards provided a definitive solution to the
problem of skill imbalance. Lacking work, direct operatives themselves
now became surplus.
Explanations as to why the buyout scheme proved to be quite unsuccessful lead straight back to the poor response it generated at two of
ITIs big northern units, Rae Bareli and Naini. Out of the total of 8,777
employees who accepted the severance benefits, barely 8.7 per cent came
from these two plants. In fact, as the management itself recognised,
outside of the main Bangalore plant which having the largest and the
oldest workforce also accounted for the bulk of the resignations (81.5 per
cent), employee reaction to VR in all the other units had, by and large,
not been up to the mark.21 Company officials attributed the failure of
VRS at Rae Bareli and Naini plants to the absence of alternative employment opportunities in the region and partly to the age levels of the
labour force. Both plants had been established in the early 1970s and
therefore had a comparatively lower proportion of employees aged above
20
21

Personnel Department note, 5 October 1998.

Record of Review Meeting, Ref. ADP 020, 13 July 1998.

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The travails of a state-owned firm /95

50 yearsthe target group most attracted by the golden handshake

than the Bangalore plant.
Top executives, however, also reproached the two northern units
for not promoting VRS aggressively enough. In a letter addressed to
the Rae Bareli and Naini managements in 2003, the corporate office
spelt out the need to take certain strategic focussed action to counsel,
convince and motivate employees to apply for VR. More specifically,
an aggressive campaign was to be launched by section and department
heads together with the unions and officers associations in the direction
of several groups of employees. These included habitual absentees, malingerers, disciplinary cases and indebted employees; those who availed
of frequent and prolonged leave on medical grounds, claimed heavy
medical expenses or were medically unfit; and unskilled, semi-skilled
and indirect employees as well as those possessing minimal education
qualifications. What this taxonomy revealed was that the company was
intent not merely on ridding itself of the rogue elements within its
labour force, but also sought to shed the weakest and most deprived sections, precisely those who were in greatest need of the protective cover
that only a large public sector enterprise could afford to provide.
To persuade these unwanted groups to quit, the Rae Bareli and Naini
managements were instructed to adopt a mix of carrot-and-stick methods. Employees categorised as non-performers were to be identified
and segregated from the rest of the workforce, their wages frozen and
benefits curtailed. Just how the management proposed to implement this
segregation, though, was left unspecified. Similar measures were advocated vis--vis surplus workers in general, who would not be allocated
regular jobs. Selected to elaborate a restructuring blueprint, consultancy
firm PricewaterhouseCoopers (PwC) warned the management of the
possibilities of resistance from sections of the labour forcedesignated
as surplus or non-performerssince it would be seen as a precursor
to rationalization. Nevertheless, PwC urged ITI to adhere firmly to its
plans, for only by exerting pressure would employees agree to opt for
the separation packages being offered.22
It must be recalled here that a similar strategy of targeting nonperformers as the prime focus of VR had also been elaborated at the
Bangalore plant from 1991, though apparently without much success.
22

PwC Recommendations, ITI Corporate Office, n.d.

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96/ Dilip Subramanian

An internal note mentions that 20 of the 39 employees listed as chronic

absentees at the electronic switching division attended a meeting organised
by the personnel department. While the participants themselves claimed
to be in favour of leaving their jobs, they cited family opposition as the
main reason for not accepting the severance package. The note, therefore,
called for an officer from the personnel department to make house visits
to motivate employees families also, and in certain instances, the management does appear to have acted on its proposal.
A confidential letter sent subsequently to all department heads asked
them to draw up a list of all delinquents who are medically unfit, inefficient, or of doubtful integrity and chronically absent.23 In order to
motivate these employees to opt for the buyout, they were to be warned
that the management intended to prematurely retire them which would
result in their obtaining substantially lower benefits than if they applied
for VR. The company claimed to have identified close to 1100 under
committed employees in Bangalore. Its contention that the numbers
were expected to increase owing to insufficient orders, though, raises
the question as to whether the principal cause of under commitment
in many cases was not lack of work rather than any inherent disposition
towards shirking or absenteeism.
It is extremely doubtful whether any of these measures achieved their
stated objective, given the lackadaisical and patchy manner in which the
management sought to implement them. Moreover, shop officials who, by
definition, accorded top priority to production issues and hence, sought
to dispose of adequate manpower, do not seem to have attached the same
importance to the question of overmanning as did the personnel departments. As a senior executive acknowledged, the fact that the Bangalore
plant was carrying on its rolls over 2,000 surplus employees in the year
2000 underscored the relative ineffectiveness of VR. In his opinion, what
was now required was a compulsory retirement scheme:
(Otherwise,) the lesser qualified workers and non-performers will refuse
to leave the company, because they have no wish to lose their job status,
and the benefits of cheap food, access to telephones and other facilities when they come to work. In some cases they are also involved in
activities such as money lending and petty business inside the factory.
23

Ref. DO. No. CPA/IR/037, 4 November 1991.

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The travails of a state-owned firm /97

Many of them being quite aged lack the entrepreneurial spirit as well
to take the benefits of VRS and become self-employed.24
Though no study appears to have been conducted to assess the actual
labour requirements of each unit, thereby exposing the relatively arbitrary
character of its calculation, the management estimated that out of a total of
nearly 19,700 employees on the companys rolls in 2003, almost 11,000
were still surplus.
To sum up, from the managements perspective, VRS was a failure as
it encountered a poor response from the workforce with the result that
the company continued to be saddled with excess manpower. The relative failure of the buyout scheme had crucial chain effects, neutralising
the efforts being made in other areas to bring down manufacturing costs.
This severely undermined the companys ability to compete in an industry
characterised by declining profit margins.

VII
Conclusion: Neoliberal shock therapy and the
(un-)making of neoliberal India
A few broad remarks can be made by way of a conclusion. A combination of factors related to state policy decisions, high-level corruption, the
companys relations with the DoT and technological developments worked
in unison to bring about a dramatic deterioration in ITIs performance. Far
from achieving the governments stated objective of introducing greater
efficiencies in public sector enterprises, deregulation only succeeded in
weakening ITI by transforming a once-profitable firm into a chronic loss
maker.
In the words of the former ITI Chairman and Secretary, Department of
Electronics, under the guise of liberalization the government strangled
the public sector.25 It is unclear, however, whether he attributed the
governments actions to ideological considerations or the vested interests
of crooked officials, acting in tandem with lobbyists for foreign capital
and DoT functionaries intent on teaching ITI a lesson, as some former
24
Interview with S.K. Chatterjee, General Manager Personnel, ITI Bangalore Plant,
Bangalore, 6 July 2000; emphasis added.
25
Interview with K.P.P. Nambiar, Bangalore, 26 December 1998.

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98/ Dilip Subramanian

company executives alleged. In sharp contrast to public sector units that

were identified as navaratnas and could therefore benefit from continuous state support, no measures were initiated, either prior to the launch of
economic reforms or subsequently, to assist ITI modernise its manufacturing infrastructure and upgrade its technological capabilities. The result
was that it was totally unprepared to confront the harsh mechanisms of
the market.26
As Kochanek (1996) has noted, prominent sections of Indian big business, citing South Korea as their model, voiced their hostility to a radical
integration of the domestic economy with the global economy. Unrestricted
inflows of foreign investment, they feared, could inflict considerable harm
on indigenous industry. While ready to listen to and allay the concerns of
private entrepreneurs, the authorities, however, refused to show the same
solicitude for the public sector. The bureaucracy chose to consistently
disregard the fact that Indian firms, irrespective of their efficiency, were
in no position to compete on equal terms with transnational corporations, backed by their huge research departments, tremendous marketing
strengths and global reach.
The history of ITIs decline thus contradicts scholarship portraying
the dynamic of the post-1991 reform process as gradualist (Ahluwalia
2002, 2004). Technocrats like Ahluwalia contend that the pluralist and
democratic nature of Indian politics, associated with the need to build
sufficient consensus for the new accumulation model so as to ensure
continuity as well as the legitimacy of the ruling elites, signified that
implementation delays would characterise neoliberal restructuring.
Terms like gradualism, reform by stealth or backdoor reform may
apply to spheres such as the labour market or the public distribution
system, where the existence of organised interest groups signalled the
likelihood of collective opposition to a neoliberal overhaul of the status
quo (Jenkins 1999).
Gradualism, however, fails to capture the realities of micro-level
corporate experiences where the pace of neoliberal transformation is
best described as rupture. This was essentially because power relations
at these sites favoured neither managements nor workers, but state
Lest it be forgotten, even a government as self-consciously neoliberal as the Thatcher
administration granted British Telecom a two-year grace period to restructure its operations
before authorising the entry of private players.
26

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The travails of a state-owned firm /99

institutions. As the example of ITI illustrates, the sudden elimination

of entry barriers in many product categories owed little to concerns
to ease the pain of transition (Ahluwalia 2002: 86). On the contrary,
exposure to global competition was immediate, brutal and devastating
in its effects.
More generally, the theory and practice of neoliberalism is, by definition, incompatible with the notion of gradualism. If anything, it has more
in common with shock therapy, as demonstrated by the experiments
to free the former command economies of the Soviet bloc (Stiglitz
2002). Neoliberal reforms endeavour to derive their effectiveness from
an unconditional and rapid break with the past. Such a rupture serves to
forcefully drive home the message to potential investors, stock markets
and opponents alike, that there-is-no-other-alternative and that a return
to the status quo is impossible.
The radicality of this message, though, stands at odds with the rhetoric of
progressive change, room for compromise and broad consensus that informs
gradualism. Moreover, as the narrative of ITIs rapidly declining fortunes
makes clear, the official discourse promoting the vision of a relatively
slow and frictionless transition from state-led capitalism to market-driven
capitalism hardly corresponded to the realities of economic transformation
in certain sectors of the domestic economy.
It is therefore tempting to conclude that the discursive construct of
gradualism espoused by champions of the reform process in India served
one important function. It helped to provide an ideological scaffolding,
a trompe loeil, behind which the Indian state could operate unchecked
to swiftly push through a neoliberal agenda of economic change, at least
in some segments of the economy. Notwithstanding the increasing dominance of Indian corporate capital within the ruling coalition (Chatterjee
2008; Kohli 2006; Sanyal 2007), the complexities of governing a huge,
diversified and democratic polity like India meant that it was politically
inexpedient for the ruling elite to openly advocate a root-and-branch
break with the statist development planning model. It had to do so by
stealth, via the backdoor, and the trope of gradualism furnished the
ideal camouflage for this task.
Viewed against this backdrop, buzzwords such as reform by stealth
or backdoor reform take on a new twist, contributing both to reflect
and obscure socio-economic realities. On the one hand, they testified to
the constraints faced by the government, effectively obliging it in some
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100/ Dilip Subramanian

instances to move cautiously in order to mobilise broad-based public

support for its policy options. On the other, by helping to camouflage
the impact of certain more radical initiatives, the rhetoric of gradualism
was central to the ideological objective of policymakers of entrenching a neoliberal regime as rapidly and deeply as possible in India, thus
foreclosing the possibility of both opposition to the new paradigm and
hopes of a return to the Nehruvian past.
At the same time, neoliberalism, as it unfolded in the context of certain
public sector enterprises, ushered in a lethal combination of opportunistic
pricing tactics, official venality and the absence of regulation, all of which
served to transform the prevailing business environment into a no-holdsbarred jungle. Indeed, one could argue that if Indian policymakers had
been intent on pursuing a gradualist path of transformation, they might
have shown a greater disposition towards privileging pro-business initiatives as opposed to pro-market ones. New market entrants typically tend
to be the beneficiaries of the latter strategy, whereas pro-business policies
favour established producers.
A combination of ideological imperatives and opportunities for
self-interest, given the tremendous latitude for corruption deregulation
afforded politicians and bureaucrats, meant that a defining feature of
the reform process in India was its pro-market emphasis (Kohli 2006;
Rodrik and Subramanian 200427). While perhaps congruent with the
tenets of creative destruction of resources, this policy choice, however,
ended up destroying pioneering players like ITI. Liberalisation thus certainly fulfilled its assigned function of shock therapy as far as several
public undertakings were concerned. The end result of permanently red
balance sheets, though, may not quite have been what the authorities
had bargained for.

Acknowledgements
Comments and constructive suggestions from Daniel Mnster, Patrick Neveling and
Christian Strmpell contributed to considerably improve this article. My sincere thanks
to all of them.

27
Dani Rodrik and Arvind Subramanian. 2004. From Hindu growth to Productivity
Surge: The Mystery of the Indian Growth Transition. IMF Working Paper WP/04/77. Available
at www.imf.org/external/pubs/ft/wp/2004/wp0477.pdf. Accessed on January 2013.

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