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Minimum government? It starts right here!

By Debashis Basu
March 23, 2015 12:58 IST
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The Modi government is committed to the same path of maximum government that all previous governments had taken, illustrated well by the strongman approach it has taken to 'fixing' loss-making PSUs like Air India, rues Debashis Basu

Image: Narendra Modi takes charge of the office of the prime minister at South Block, New DelhiHere is a comment from early September 2002: “Of the 240 central public sector undertakings, half were operating at a loss.

Out of 1,040 state-government run PSUs, 90 per cent were in the red.

Taxpayer’s money was invested in loss-making commercial enterprises where the private sector had invested in a big way.”

This was Arun Jaitley, then general secretary of the Bharatiya Janata Party.

Around the same time, Arun Shourie, divestment minister, said this about PSUs: “These are not crown jewels, these are bleeding ulcers.”

On Saturday, 13 years later, with Mr Jaitley as finance minister, came the news that the Prime Minister’s Office is 'concerned' over the overall health of Air India.

The PMO has asked 'the national carrier to submit a detailed performance report on its losses, profitability and revival plan'.

Apparently, the 'PMO has sent a questionnaire to Air India containing queries on, among other things, its mounting financial liability as well as its lack of profits.

The airline was also asked to furnish details of its turnaround plan'.

Air India has a debt of Rs 40,000 crore (Rs 400 billion), while the losses stand at a huge Rs 38,000 crore (Rs 380 billion).

It is surviving on a bailout package, under which the government is committed to inject Rs 30,000 crore (Rs 300 billion) of our money into it in a staggered manner till 2021-22.

Soon, it is going to be a year since Narendra Modi came to power on the promise of a 'development agenda', which would mean 'minimum government, maximum governance'.

Nobody is still clear what this slogan means.

In fact, it seems that this government is committed to the same path of maximum government that all previous governments had taken.

What illustrates this well is the strongman approach to 'fixing' the loss-making PSUs like Air India.

PSUs came to dominate India’s industrial economy since the fateful Industrial Policy Resolution of April 6, 1948, that conferred monopoly on the state for six basic industries. Jawaharlal Nehru called them 'temples of modern India'.

The Left calls them family silver.

And so, they were expanded further through the Industrial Policy Resolution of 1956 and Industrial Policy Statement of 1973.

Many politicians, the media, some businessmen and managers tended to believe that government-owned companies were gems that needed to be polished and they would dazzle us.

This metaphor was popularised by P Chidambaram in the Union Budget of 1997, when he coined a clever term for these gems -- Navratnas.

Most PSUs were hardly gems whether dead or alive.

In May 2000, a youthful and enthusiastic Mr Jaitley announced that more than Rs 2 lakh crore (Rs 2 trillion) was stuck in government units, asserting that the actual value of these assets was 'several times more' and, if realised, could pay off the government’s debt. Mr Jaitley is the finance minister now.

Can he walk his own talk?

PSUs are overstaffed, capital-guzzlers, tied to the apron strings of ministers and secretaries, who have their own commercial/political agenda of exploiting them.

The boards are stuffed with people who are there for the loaves and fish of office, social status or influence-peddling, not to contribute to efficiency.

Some people say that the magic wand of autonomy will turn them from frogs into princes, but autonomy without accountability will be even worse, as the government banks have shown.

Meanwhile, tens of thousands of crores have been wasted in keeping loss-making PSUs alive, while we have been subjected to pictures of a beaming chairman of a profitable PSU handing over a dividend cheque to his master, the minister.

Dividends, something that is a matter of accountability for the users of capital and a matter of right for the providers of capital, is still treated as a special gift worthy of a photo session.

It has been clear since the mid-1970s that PSUs were a drain on the exchequer and so the Industrial Policy Statement in July 1980 talked of 'revival' of PSUs through a 'time-bound programme' in a country where people, events and programmes were always late. Since then, PSU reform has had many well-meaning heroes.

From a fresh-faced and naive Rajiv Gandhi to a shrewd, dyed-in-the-wool politician like Mr Modi, every leader big and small talked of revival (the only exception was Mr Shourie).

This PMO, by sending a questionnaire to Air India, is part of the same piece. Surprisingly, the bleeding hearts hand-picked by Sonia Gandhi as members of the National Advisory Council under Manmohan Singh’s government wanted to direct more money towards the poor, but took no interest in the loot and waste in PSUs.

If Mr Modi truly wants to redeem his pledge of minimum government, his best bet is to start with PSUs.

PSUs run businesses.

Businesses have only one objective -- earn a return on capital that is a few points higher than risk-free return on capital.

This is impossible to achieve through a minister-secretary-chairman-cum-managing director combine with lots of interference from the sides.

The options are clear: to sell off controlling stakes through competitive bidding for the profit-making ones; and to close down the non-functioning units and sell off their assets, including the enormous land value that many are sitting on.

And while doing this, to shrink the ministries that have been overseeing them.

Mr Modi means well, probably has a stronger commitment than others -- but neither nationalism nor strong intent is any substitute for good economics.

If Mr Modi tries to fix PSUs, he may prove a point, but he will keep a false economic thinking alive that has contributed to our economic backwardness.

Debashis Basu is the editor of

Image: Narendra Modi takes charge of the office of the prime minister at South Block, New Delhi Photograph: Kind courtesy, Press Information Bureau

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