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New
Delhi, 11 October 2002
We
have repeatedly suggested that the Defence PSU's –– Shipyards ,
Ordnance Factories and DRDO production units need better management,
collaborations and release from the clutches of the MOD (except in
the case of Strategic industries). This means privatisation. In this
regard Mohan Guruswamy has written what we consider to be one of the
most well argued treatises on privatisation of PSUs, with statistics
and a clear explanation of how they have become a burden on the
Government/people. The common man pays for their inefficiencies but
they are worth gold if they are handed over for running by the
private sector. We have always been of the view that at the
time of Independence Panditji did offer the gauntlet to the
private sector to take on large scale Industries but it was just a
few like the house of Tatas and Walchand Hirachand who had the
courage. Hence he looked to the Russian model and the commanding
heights of the economy were taken over by the Government –– but
times have changed. Indians unlike the Chinese are not gamblers in
business and the only day they gamble with abandon is on
DEEPAVALI when they say, to lose is good to appease Laxmi –– the
Goddess of Wealth.
In
the article that follows, Mohan Guruswamy has explained the need to
urgently privatise PSUs. We hope you enjoy this very relevant piece
and we look to your inputs, how India’s defence sector can also
follow suit so that the armed forces get a better bang for their
buck –– now that the budget is $14 billion.
A
Pox Unto Both Your Houses!
By
Mohan Guruswamy
The
Sangh Parivar government is in the throes of a fierce internecine
slugfest with the two factions ranged against each other on every
major issue, save one and that is on how to deal with the
minorities. As issues come to the fore and the debates on them
intensify the divisions become more acrimonious, and as potential
political vacancies become more apparent, the personal ambitions add
bite to the bark. It is hardly surprising that these debates are
more notable for their invective than intellect. The larders from
which the two factions draw their intellectual sustenance are empty
but the corporate coffers from which they derive their motivations
keep them going for each other.
Typical
of these is the ongoing debate on what has come to be known as
Disinvestment, a word that does not exist in the dictionary. In this
latest exchange the muscle heads and wooly heads have battled
themselves into an embarrassing stalemate. Since a stalemate itself
would be a victory to one faction and way out is being sought that
will be better than a stalemate but less than a solution to the
vexing problem of huge and unproductive investments in the Public
Sector.
Despite
this, this is not a debate without significance. The total capital
employed in the 230 PSU’s is a huge Rs. 330,649 crores and this
investment generates a turnover of Rs. 458,227 crores. Twenty years
ago in 1980-81 these figures were Rs. 18,207 crores and Rs. 28,635
crores respectively testifying to the enormous growth of this
sector. The turnover of PSU’s account for almost a quarter of the
national income, which in 2000-01 was Rs. 1,765,238 crores. The
combined turnover of the Central Governments PSU’s puts it a
little ahead of the total output of the agricultural sector, which
amounts to Rs. 422,703 crores.
In
relation to the combined turnover of the 864 top companies in the
private and public sectors analyzed by the Business Standard is Rs.
689,210 crores. These numbers only underscore the important and
dominant role of the Public Sector in the national economy whose
turnover has been bounding at a vibrant 14.61% during the last
decade. In 2000-01 these 230 PSU’s had a cumulative value addition
of Rs. 105,133 crores, which in other words is its contribution to
the economy. Lastly these PSU’s employ 17.42 lakh persons at an
average wage of Rs. 2.20 lakhs. This average registered a growth of
over 50% in just the last two years making a joke of all the
much-hyped schemes to reduce PSU payrolls by VRS and employment
freezes.
But
these figures mask an essential reality. While the 864 top companies
together generated a profit after tax of Rs. 253,351 crores the 230
PSU’s of the Central Government together generated a profit of a
measly Rs. 15,653 crores. This in turn masks another reality. No
less than 66 industrial PSU’s are sick having a negative net worth
and registered with the BIFR. Incidentally 34 of these units were
taken over from the private sector “to safeguard the interests of
the workers.” With the exception of the Oil and Power companies
all Central Government PSU’s in various manufacturing sectors run
at a loss. Even in terms of turnover the Petroleum sector PSU’s
have a combined turnover of Rs. 249,913 crores or 54.5% of PSU
turnover. The Petroleum and Power sector PSU’s generate Rs. 11,727
crores and Rs. 5120 crores as profits while other manufacturing
sector PSU’s together log up losses amounting to Rs. 6982 crores.
Among the Petroleum PSU’s, ONGC alone accounts for almost half the
profits earning Rs. 5229 crores last year against the Fortune 500
Indian Oil’s Rs. 2720 crores.
The
only PSU’s that are profitable are those that have a dominant if
not near monopolistic share of the business like ONGC, NTPC, Indian
Oil, Power Grid, GAIL, and MTNL. The lesson is quite clear; PSU’s
can only thrive as oligopolies and monopolies that is only possible
in a rigidly controlled centrally planned economic greenhouse,
something that is impossible now unless we turn the clock back to
take us to the early days of socialist innocence and economic
nonsense.
VSNL
which last year earned Rs. 1779 crores will be hard put to repeat
its past performance now that its monopolistic hold on international
telephony has been breached. We know that in the past VSNL gouged
its customers with arbitrary rates for its services. Like Internet
connectivity charges ISD rates have begun nose-diving once opened to
competition. Wherever and whenever there is competition consumers
benefit and we will soon see this in domestic telephony as well.
Wherever private sector companies have entered the basic telephone
services business, both MTNL and BSNL have begun to gear up their
services, even if it were by just a bit. We have seen how Indian
Airlines has become better, but the lesson of Air India is that even
in the face of total competition government owned and managed
companies can get just only so much better, and often that is not
enough to survive without the dole.
But
the Petroleum business is something else. Here the state is in
monopolistic control of the sector and we naturally pay a huge extra
price for it. Not only that, with this control, the state is able to
play favorites benefiting one section of the consumers at the cost
of another. The unearthing of the recent scam in the allocation of
distribution outlets favoring the near and dear of BJP and RSS
bigwigs is another dimension arising out of this monopolistic
control. All this is enough reason for Ram Naik to wage a determined
rearguard action to prevent his money making and favor dispensing
monopoly from being breached. We will discuss this another time for
the issue at hand is much more important than Ram Naik’s recent
shenanigans.
Very
clearly most of the central governments PSU’s are unprofitable.
Many of them such as HEC or Scooters India or IDPL are just kept
going to pay long idle employees’ salaries. Selling these, and
there are almost eighty like them, would be a Herculean task even if
they be sold to asset strippers. But with the conditions like those
protecting the tenures of employees added in it would be next to
impossible to rid the state of all these albatrosses around its
neck.
The
government is hemorrhaging badly because of these companies. The ten
top red inkers themselves account for Rs. 7943 crores. But these
include many with great value like SAIL and Konkan Railway, which
also make vital contributions to the economy. The immediate task
here is to identify the zero value companies and get rid of them as
fast as possible. Employees of these should be VRSed off immediately
and residual assets sold to the highest bidder. We must not get
bleary eyed over this as the cost of sustaining these industries is
always at the cost of the poorest sections of our society who still
have little voice to back their demands for more from the state,
particularly after being denied everything even after all these
years of redeeming our tryst with destiny.
Arun
Shourie in his characteristic single-minded manner has devoted
himself to achieving the disinvestment targets set for him by the
planners, more to show himself as a go-getter and achiever to put
him on the inside track when the succession sweepstakes open up in
the post-Advani period. Yes, post-Advani period for if Vajpayee were
to depart into any retirement tomorrow, it would undoubtedly be the
Sardar who would take his place. But he is of the same vintage as
Vajpayee and cannot be more than a Chernyenko after the long
dissolute Brezhnev era. Typically, Shourie is focused on the
numbers. He has given himself the task of getting Rs. 80,000 crores
for the next plan. But there is a paradox here. Since his only
mantra is “sell, sell and sell”, Shourie has targeted only the
very profitable and hence easily saleable PSU’s for his frenzied
distress sales. The more profitable PSU’s you sell the greater
will be the cumulative PSU losses. This should be easy to figure
out, but then Shourie is a single-minded man in a hurry to keep his
tryst with what he believes is his manifest destiny!
It
makes utterly no economic sense to sell the PSU’s to bridge the
ever-widening revenue deficits. To do so would be akin to selling
the family silver to support a bad habit. But this is not what
motivates Murli Manohar Joshi when he objects to the sale of PSU’s.
He firstly wants to reckon with Shourie’s vaulting ambitions while
simultaneously wishing to expose Advani’s characteristic
pusillanimity when confronted with choices. And as for George
Fernandes, he is a creature of habit and is being his usual
pyromaniac self. He doesn’t really care which political house he
is burning down as long as there is a good fire. Remember his famous
speech in the Lok Sabha in mid 1979 defending the Morarji Desai
government. Thus, both, Joshi and Fernandes, offer no solutions
except to keep chanting, “don’t sell, don’t sell!”
But
solutions are possible that will enable what is now the Public
Sector to become a profitable, productive and contributing sector of
our economy. The critical first step would be to take all the
PSU’s from out of their administrative ministries and bring them
under one administrative ministry whose mandate would be to make the
PSU’s cumulatively profitable, not as they presently are but in a
real sense giving the nation a proper rate of return on its
stupendous investment. 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.
While
this internecine battle is raging the elected opposition has been
silent, as it has been on most issues. It seems that the Congress
Party’s policies are more guided by the biblical beatitude:
“Blessed are the meek for they shall inherit the earth.” Very
unlikely! And since the present debate within the Sangh Parivar is
not about how to make the Public Sector assets productive, but
essentially one on how to turn the ownership issue into a stick to
beat each other to political death, all one can say to them is: A
Pox unto both your houses!
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