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Let the Bengal model shine

October 27, 2005 10:23 IST

There is now a new ray of hope for public sector reforms in this country. CPI-M General Secretary Prakash Karat has made a public statement that essentially gives the Manmohan Singh government the green signal to either close down or even privatise at least some public sector undertakings.

If you don't believe this, run your eyes over what Mr Karat told a meeting of journalists last week. The Centre should adopt the West Bengal model for PSU reforms, he is reported to have stated.

What is the West Bengal model for PSU reforms? Mr Karat did not explain this in his statement. But what one gathers from the various policies the West Bengal government has put in place in the last few years, it seems the privatisation of loss-making state-owned companies is not a problem in the Left Front-ruled state.

Of course, the relevant policy does not call it privatisation. The West Bengal government has devised an interesting name for this: the joint sector route for reviving sick public sector undertakings. This policy envisages that the state government can divest up to 74 per cent of its stake in a PSU to the private sector through a strategic sale.

Such divestment or privatisation can happen only if the state government is convinced that there is no merit in further infusion of government funds into a state-owned company and that a private sector partner with a 74 per cent stake can revive the unit.

As many as ten such PSUs have already been identified. In at least two cases, negotiations with private sector partners who would take over the companies are in an advanced stage.

As part of the same policy for the reconstruction of PSUs, a sick state-owned company can be closed also if the state government is convinced that the unit is not viable and no amount of technology upgrade or capital infusion can bring about its revival.

Even in respect of such closure, the West Bengal government has made some progress, with one unit already having been closed down and more waiting to receive similar treatment.

What's more interesting, the funds to pay off the dues of workers and other debtors for units which are identified as unviable and therefore fit for closure are coming from the Department for International Development, the British government arm that offers financial assistance to developing countries to fight poverty.

The logic of using DFID money to finance the closure of unviable PSUs is that it frees up the government's scarce resources to be used in other schemes for education, health and poverty alleviation.

DFID money is also used to finance the voluntary retirement schemes for employees who become redundant as a result of the closure of unviable PSUs. Already, more than 3,000 such employees have accepted the VRS and benefited from this scheme.

Officials of the state government involved in the implementation of the scheme are sanguine that the scheme's implementation has faced no big hurdle so far and some unviable sick PSUs in the power and transport sectors could be taken up in the next round.

If this is what is Mr Karat refers to as the West Bengal model, there is indeed hope for the Manmohan Singh government, whose public sector reform initiatives have run aground because of the Left's opposition. There are more than a hundred loss-making central PSUs at present and many of them are unviable.

Manmohan Singh can now cite the West Bengal model of public sector reforms and easily go ahead with proposals to either close them down and introduce voluntary retirement schemes for employees rendered redundant due to such closure or sell majority stakes in them to the private sector.

Apart from the West Bengal model, there are two other points the CPI-M general secretary made about public sector reforms. "We don't want public sector reforms in a manner that does not strengthen it and we don't want the public sector to be run as government departments." Manmohan Singh cannot have quarrels with either of these suggestions.

If the West Bengal model allows Dr Singh to privatise some PSUs, the Left Front's advice on not treating PSUs as government departments should enable him to guarantee the state-owned units operational autonomy and freedom to invest, grow and become stronger.

What Bengal thinks today, the rest of India will think tomorrow. Manmohan Singh used this legendary comment by Gopal Krishna Gokhale in one of his public addresses in Kolkata early this year. Prakash Karat's Bengal model for PSU reforms now gives Dr Singh an opportunity to show the world that he actually believes in what he said. Politically, it will be an astute move.

Nobody - not the Left at least - can complain if he presents the closure or privatisation of sick state-owned companies as the Bengal model for PSU reforms. And fiscally, this will relieve the central exchequer of the burden of providing budgetary support to the sick PSUs.
A K Bhattacharya