Modiji, re­form the pub­lic sec­tor first

Deccan Chronicle - - EDIT - Mo­han Gu­ruswamy The writer, a pol­icy an­a­lyst study­ing eco­nomic and se­cu­rity is­sues, held se­nior po­si­tions in gov­ern­ment and in­dus­try. He also spe­cialises in the Chi­nese econ­omy.

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

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