Economic Highlights

New Delhi, 26 October 2012

Prime Minister Is Wrong

PUBLIC SECTOR NOT CRUTCH

By Shivaji Sarkar

Prime Minister Manmohan Singh has asked public sector enterprises (PSEs) to unleash spending to spur growth as they have a cash pile of Rs 175,000 crore. Undeniably the Government wants to drain this out. The moot question is: Would this spur growth or cause benefit to the private sector?

Significantly, the Prime Minister’s meeting with PSE Chiefs recently, unfolds two divergent facts: One, the Government’s concern about the economy and the unsaid anxiety about the private sector’s non-functioning.

Recall, Singh’s 1991 economic philosophy had relegated the public sector to virtual redundancy underscored by the objective to have growth through private finance and efforts. The past two decades saw a “high” growth yet no one is sure as to who reaped its benefit. The poor certainly have not.

Perhaps, the Government might have fudged numbers of the poor but the reality is that the poverty level needs to be redefined. At over 30 per cent cumulative inflation in three years, it has reduced the wealth of even the top 100 billionaires. Less said the better about the middle class. Those earning Rs 10,000 a month consider themselves to be below the poverty level.

Arguably, the Nehruvian philosophy of public sector-led growth had helped India at a time when the private sector was least interested in investing. Today, Manmohan Singh’s sermon to the PSEs once again shows the country wants to go back. The private sector according to recent Government reports wants to ride piggy-back on the PSEs to siphon off public funds in to their coffers. That too without investing a penny!

Examples are aplenty: highway and expressway projects, airports deals of the GMR-type, coal fields, and power projects. The CAG’s estimates of money siphoned off from public sector are mind-boggling.

The Prime Minister is right when he asserts, “Our public sector has sufficient financial muscle power to invest and push the country’s sagging economy”. But is the PSU a doctor or hospital that it should infuse funds to create wealth for people who are the wealthiest?

Next, Manmohan Singh wanted to know about the public sector undertakings (PSU) woes. Needless to say in our heavily bureaucrat-led system, the Prime Minister would never know the truth. As the biggest woe of the public sector is the dominance of the bureaucracy, read IAS. Rid the PSUs of the shackle of the IAS, more than 50 per cent of its problems would be over.

Think. The PSUs cannot take a decision, because the bureaucrats find it safest to remain non-functional. And when they function, it leads to bleeding the organization. See how Air India was bled but its top bureaucrats like Raghu Menon or Arvind Jadhav went unpunished. Worse, even as the national carrier’s spending increased, its operations on profitable routes were reduced resulting in a once robust PSU going into the red.

Undoubtedly, this calls for a serious probe and highlights that public spending can lead to disastrous consequences. Similar is the problem with privatisation of airports and highway sector. They all spent, but the process of growth was not only reversed but it also led to a burden of over Rs 60,000 crore on the poor taxpayers, of which Rs 30,000 crore is by Air India alone.

Further, ironically even as roads are being built with public money the toll is going to private players for a shocking 30 years at enhanced rates! Clearly, this is burdening the economy and impoverishing the country for the growth of some individuals.

True, what the Prime Minister states is logical but all logics might not turn the economy. Since 1991 and more after 2004, the country has witnessed that more the Government opens up public funds it goes to the benefit of those who do not contribute to public good. Primarily, because all such decisions are taken by bureaucrats. The political masters put their seal without scrutiny or like 2G, coal or Commonwealth games scams show their near and dear ones.

Scandalously, the public sector is allowed to bleed. According to the ‘Public Sector IT Opportunity in India’ report, more than two-thirds of the total IT spending is being undertaken by the Central Government, with State and local Governments contributing to the rest of the spending.

The report provides a detailed coverage of the public sector market dynamics including the buying process for key segments like healthcare, education, defence and public safety. Again, the benefit in these sectors does not go to the public sector which is trying to create digital literacy but to top IT firms who make huge profits due to Government funds or contracts. Is that the role of the Government?

Shamefully, the Government spends the least on public health ---- a mere 1.2 per cent of the GDP. India’s annual healthcare spending of $65 billion at the market-exchange rate, $160 billion in general purchasing-power parity (PPP) terms and $500 billion in healthcare PPP terms has turned the country into a major healthcare market. This has happened without PSU investment. No matter that health care is most expensive and beyond the reach of almost 80 per cent of the population.

This is a lesson. As it is in sharp contrast to what Manmohan Singh avers, “The PSUs should use their surplus for driving investment, growth and jobs”. A laudable suggestion, but it lacks practicality. The Prime Minister’s growth concern is fine, but it should not be a ruse for the private sector to withdraw its investment initiative.

Pertinently, it is not only the public sector, even private sector companies have amassed enormous cash reserves of Rs 80,000 crore during the last three years. But they are not investing because they feel their investments might not bring in high returns they are pining for.

Instead, the public sector is propelled by a no-profit-no-loss motive. The tragedy is that the PSUs basic philosophy is its people’s money so it could be lost. Thus, they are told to invest more, go into losses and lose their reserves. And as they invest, fund flows to the private sector, their reserves grow but overall growth is stunted. No jobs are created while disparity and poverty increases.

Notably, it is globally a difficult economic situation. The country must be extremely cautious and needs to hold on to its PSUs strength and reserves. Given that in the most difficult times they have proved to the backbone. Let us change the tack for spurring growth.

All in all, six decades after Independence and post 20 years of liberalization, the Government needs to let the private sector feel the pinch to open up their coffers and take the lead. Unless the private sector matures, the Prime Minister’s concerns will never be addressed. It can no longer use the public sector as a crutch. ----- INFA

(Copyright, India News and Feature Alliance)