Sucheta Dalal :Draining the exchequer through the public sector
Sucheta Dalal

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Draining the exchequer through the public sector  



June 13, 2000

A couple of weeks ago, a public director of two nationalised banks called me to whine righteously about sale of public sector companies or what he called the sale of the family silver. This whine has been on since 1991 when Dr Manmohan Singh first embarked on the "disinvestment" of government holding in public sector undertakings (PSUs).

Over the years, the loud chorus of opposition has prevented the implementation of a sensible divestment programme and only worsened the financial position of several PSUs. It is only the pressure to balance the Budget and cut fiscal deficit that has allowed successive finance ministers to push ahead with some form of a bumbling disinvestment programme and the listing of some PSUs on the stock market.

That public sector companies have always been the milch cows for politicians and bureaucrats to exploit is old news. What is new is that liberalisation and increased competition, which have eroded their monopolies, combined with debilitating giveaways proposed by various ministers, red tape and interference in business decisions, are together pushing these companies into the red and making them a drain on the economy.

A helpless finance minister and minister for disinvestment now face the double bind of opposition from their ministerial colleagues and the pressure to bail out large loss making PSUs and financial institutions.

If Ram Vilas Paswan as minister of communications has given Rs 12 billion to telecom employees, the Petroleum Minister Ram Naik is worse. Sunil Jain of the Indian Express reported last week that Naik ordered oil companies to provide 10 million new cooking gas connections. The cooking fuel is currently subsidised by the government, so the largesse doled out by the minister amounts to a whopping Rs 22 billion - Rs 8 billion in direct subsidy on fuel and Rs 13.5 billion for buying cylinders. This money will come out of the oil pool deficit or the kitty of the public sector oil companies. Curiously there is not even a murmur of protest.

The plunder of the public sector is not restricted to the antics of Ram Naik and Ram Vilas Paswan, it is even more rampant at smaller levels. Manuscripts and rare books being pilfered out of the best libraries and institutions is regularly whispered about.

The Asian Age recently reported that the National Film Development Corporation has sold the rights to 15 Bengali and two Marathi classic films for a pathetic Rs 100,000 each. The buyer - a tiny firm called Venus Telefilms which had a capital of just Rs 100,000 immediately sold the rights to a television channel for more than twice the amount and raked in a huge profit.

The films included such classics as Satyajit Ray's Agantuk, Ganashatru and Gharae Biare, Mrinal Sen's Antareen, Gautam Ghoshe's Antarjali Yatra, Aparna Sen's Sati and Juganta and others. There is barely a ripple from the film lovers about the deal.

Then there are the bigger problems. The Steel Authority of India (SAIL) - once a mighty symbol of Jawaharlal Nehru's commanding heights of the public sector is now a huge loss-making monolith, whose share price languishes well below Rs 10. It is bloated and overstaffed and its managing directors are pulled up by the Comptroller and Auditor General (CAG) for burning up money zipping around in a score of aircrafts acquired to shuttle between one sprawling facility and another.

The situation of Air India is similarly horrific. The airline which was once among the best in the world now makes news for inefficiency, frequent blackmail by its pilots, flash strikes by its trade unions and of course, its massive losses. After years of delay and debate the government has finally decided to bring in a strategic equity partner instead of giving it a dole. It remains to be seen how the proposal will eventually pan out.

Maruti Udyog, the public sector passenger car company, was promoted and pushed by Indira Gandhi to humour her son Sanjay Gandhi's dream of making passenger cars. Typically, it has grown into a monolith. Fifty per cent of the equity is held by Suzuki of Japan and despite limited options, privatisation plans are only at the debate stage.

The bigger problem is the financial sector. Banks and public sector organisations that have been used over the decades for conducting loan melas and funding of favoured industrialists or to prop up capital market. Today they are draining the exchequer faster than any other sector.

Indian Bank is among the worst examples. It got away with fudged accounts, until one fine day, it was discovered that its net worth had been completely wiped out. That was nearly five years ago. The bank was bailed out, but performed the feat of wiping out its net worth all over again in under a year. Nobody was punished or held accountable - instead it was recapitalised once more. This too has not helped it recover and it is back with a demand of Rs 17 billion from the government. This too will be paid by the finance minister because public sector banks are never shut down.

Unit Trust of India, a giant mutual fund nurtured with special tax concessions since its formation in 1964 has always been as secure as a bank. That is because, in good years, it stashed away profits as reserves and gave investors a return which was just a tad higher than a bank fixed deposit. In bad years, it maintained the return by dipping into its reserves. Over the years, the bad fund management, coupled with the deletion of reserves to buy PSU shares and to intervene in the stock market took its toll. The reserves were wiped out and in 1999 and the Finance Minister bailed it out with a massive Rs 48 billion infusion.

If the Unit Trust and Indian Bank, as well as the smaller United Commercial Bank and United Bank of India, have faced no run by depositors and investors despite their losses, it is because of the confident complacence that the government will continue to bail them out. The public and the taxpayers never seem to realise that it is always their pockets that are picked to keep these institutions afloat.

The drain on national resources due to public sector undertakings have now reached a stage where one is no longer worried about selling the family silver. The sensible option is to simply get rid of it so that these companies are no longer a drain on the exchequer or open to pillage by unthinking politicians such as Paswan and Naik, or deal-making by corrupt babus and petty clerks. But that too will depend on non-existent political will rather than pressure from the masses.


-- Sucheta Dalal



 



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