Modiji, reform the public sector first

By all accounts Narendra Modi is a pretty isolated figure. Few know who he meets and whose advice he solicits. Unlike the previous Prime Minister, who created many councils of advisers and gave many of the country’s gainfully under-employed titles and platforms to be seen on and not necessarily heard, Narendra Modi has given away little except to a few cronies from his Gujarat days. Dr Manmohan Singh had a surfeit of advice with it flowing from as many as eight sector specific councils of which he himself headed as many as six, including one each on skill development, industry, nutrition, wildlife and unique identification. These councils rarely met. The one on nutrition, for instance, met only once in the UPA’s 10 years. Apart from these, Dr Singh had 35 ministerial committees — empowered groups of ministers (EGoMs) and groups of ministers (GoMs) — to whom he tossed decisions, more often not to be taken. The only council that met regularly was the Council on Trade and Industry, which featured all the major captains of business. As they say, money is the mother’s milk of politics

True to his word, Mr Modi dismantled all these councils and committees and everything is now concentrated with him. But one group he meets from time to time, even if not to solicit advice but to preach, are industrialists. Since he took over he has had two well-publicised gatherings of all the fat cats, even the NPA overburdened ones, and one more is now planned for soon. The industrialists will make presentations with an aim to suggest ways to achieve Mr Modi’s policy vision — New India 2022. The discussions are likely to revolve around “Make in India”, overhaul of the financial services, healthcare, retail and Digital India.

However, his list of expected invitees betrays his myopia. He obviously believes that the private corporations are the ones who will lead India’s economic growth and provide it with the entrepreneurship and vision required to make our dreams come true. He seems to forget that most of our major companies have business models based on obtaining government assets at low prices and selling the products and services at market prices. He also misses the fact that most of industrial investment in India is by the State, and unless these become productive and profitable, India’s industrial sector will languish. The private sector by contrast does well and the challenge for the government is to make the public sector do as well. This does not always entail privatisation.

Yet, in the three years he has been in office, Mr Modi has shown a singular lack of interest in the public sector where our economic and industrial malaise is concentrated. He has heard enough of the gripes of the private sector captains. Mr Modi should now be talking to PSU bosses to understand their problems and seek ideas and advice from them on how to jumpstart the moribund PSUs so that they can contribute to growth in a meaningful way.

Thirty-five years ago in 1980-81 the capital invested in Central PSUs was `18, 207 crore and they had a combined turnover of `28,635 crore. In 2016, Capital Employed (Paid up capital plus reserve and surplus and long-term loans) in all CPSUs stood at `19,68,311 crore on March 31, 2016. The 320 CPSUs contributed by way of excise duty, customs duty, corporate tax, interest on Central government loans, dividend and other duties and taxes `278,075 crore, which increased from `2,00,593 crore in 201415, showing a growth of 38.63 per cent. They also employed 12.34 lakh people (excluding contractual workers) in 2015-16.

Considering that the entire industrial sector only contributes about 20 per cent of the GDP, it is quite obvious that many, if not most, of the commanding heights of the economy are still with the public sector. India has made huge investments in the public sector and has never got even halfway to a fair return on them.

Clearly, the overall picture is not a rosy one, for our PSUs depend on administered prices and are mostly oligarchies in many major sectors such as coal, hydrocarbons and minerals. The state oil companies contributed 30.4 per cent of all PSU profits, the coal sector 20.5 per cent and the power sector 14.4 per cent. In 2015, the 41 PSUs in these three sectors together provided `100,369 crore or about two-thirds of PSU profits. If you keep these three sectors aside, the rest of the PSUs together earned a pittance. This is a sorry state of affairs.

Quite clearly we are unable to extract any benefits from the huge investments made in these companies. The PM should focus his attention of improving their performance instead of being attentive to only the needs of the private sector, which for the most part are well managed and are profitable.

Soon after he assumed office, Mr Modi indicated plans to do more with state-controlled companies than use them as piggy banks to break into whenever the government needed a revenue boost. He said he had plans to sell off the traditional laggards and to fix the ones with potential. He also signalled the government had plans to privatise state-run firms and unfetter them from the clutches of the middle bureaucracy of deputy and joint secretaries. There is no sign of this any of these happening. PSU holdings are being offloaded to plug revenue gaps without any plan to make PSUs profitable and contribute to the States coffers.

But solutions are possible that will enable the public sector to become a profitable, productive and contributing sector of our economy. The critical first step would be to take all the PSUs from out of their administrative ministries and bring them under one administrative ministry whose mandate would be to make the PSUs cumulatively profitable.

Then by a process that selectively uses liquidation, outright sale, restructuring and amalgamations, new, viable and profitable entities could be created whose ownership could then be progressively diluted to broad base it and liberate these companies from bureaucratic and ministerial control. All this is possible, but only if Mr Modi focuses his attention on reforming and restructuring our PSUs and on realising returns on the huge investments the nation has made on them.

Considering that the entire industrial sector only contributes about 20% of the GDP, it is quite obvious that many, if not most, of the commanding heights of the economy are still with the public sector