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Governance

Surge pricing in railways is Suresh Prabhu's deliberate self-goal

Union railways minister Suresh Prabhu’s latest move of “surge pricing fare system” is a gambit to reduce finance minister Arun Jaitley’s pain, who looks all set to soon adopt country’s messy public transport behemoth. If everything goes by the plan, the 93-year old Rail Budget would cease to exist from the next financial year i.e. FY […]Read More »

Why Vajpayee stands taller than Rao, Manmohan and Modi put together

In India, privatising a public sector company is perhaps a bigger challenge than contesting an electoral battle or even conducting a nuclear test. Don’t see it as an incongruous claim. This may well be a credible reality if one looks at the 25-year-long history of India’s economic liberalisation. In two-and-a-half decades of economic reforms, despite […]Read More »

Modi's war on black money is a let-down, amnesty schemes cheat honest taxpayers

If one pays his or her taxes honestly and does not expect any favours from the government, he or she has every right to show angst over this never-ending business of amnesties to tax swindlers. Prime Minister Narendra Modi repudiated history when he, during his last Mann Ki Baat, reminded people of the September 30 […]Read More »

Special Category for Andhra will remain elusive

In February 2016, Prime Minister Narendra Modi had assured the Andhra Pradesh Chief Minister Chandrababu Naidu that he would consider conferring the special category status to his state. Apart from this privilege, Naidu has been demanding a special package for the residuary state of Andhra Pradesh after it was carved out from the erstwhile composite […]Read More »

India needs a water-sensitive food trade policy

If one lists the nations most suited to produce wheat, sugarcane, cotton and soybean, China and Egypt will definitely stand atop on historical, geographical and climatic counts. World’s largest river Nile flows in Egypt which every year collects fertile soil from different countries in Africa and deposits it in its delta. On the other side […]Read More »

Modi sarkar and telcos have both hung up on the consumers

Do you get full signal on your mobile? Is your data speed fast enough? Have mobile companies started compensating you for call drops? If your answers are a resounding “no” (naturally, they would!) then, more than the government, we ourselves are responsible. We Indians, afflicted with a strange kind of amnesia, tend to forget the […]Read More »

Modi's foreign trips can wait. Indian trade needs emergency landing

Howsoever spectacular Prime Minister Narendra Modi’s diplomatic campaign might have been, the fact remains the void in the trade diplomacy has grown faster than ever. If the government’s own Economic Survey is to be believed, India’s foreign trade has gained momentum over the last decade with a flurry of free and preferential trade agreements signed […]Read More »

Modi sarkar should bet on services for dream growth

If one observes the samurais of growth driving the GDP rate above seven per cent, one wouldn’t find them in the swanky corporate offices of Mumbai and Delhi, but in the markets close to one’s home. These growth warriors make our lives easier by running eateries, repairing shops and providing dozens of similar services and […]Read More »

Don’t make India a circus of cartels and monopolies

Facebook’s Free Basics trial was so legendary that one Ganesh could double the yield from his fields with the knowledge FB-patented internet facilitated. While, advertisements are notorious for making lofty claims, this one goes beyond limit. Considering the state of agriculture in India, this can’t even be an exception let alone a norm. As it […]Read More »

Let’s fix the system instead of opting out

Allahabad High Court passed an interesting order last month, directing the Chief Secretary of Uttar Pradesh to ensure that from the academic year beginning 2016, children of all officials serving with the government, including judiciary, local bodies and representatives of people, must send their children to study only in government primary schools, failing which the […]Read More »

That is retrograde, Mr Jaitley

An important step in clearing our institutional financial system of the cobwebs it has gathered over the years has now been reversed, with Mr. Arun Jaitley announcing deferment of his plan to set up an independent public debt management authority, which he had promised in the budget presented earlier this year. Till now, Reserve Bank […]Read More »

Coalgate Revisited

  The auction of 33 of the 204 coal mines, whose allocations were cancelled by the Sup¬re¬me Court, has just been completed. The auction has brought the government a ‘windfall gain’ of Rs 2.07 lakh crore for 19 operational blocks and 13 about-to-open blocks which were put under the hammer, against Rs 1.86 lakh crore […]Read More »

Will Federalism at Work Let Populism Thrive ?

The just released recommendations of the Fourteenth Finance Commission’s will have far- reaching consequences for the states of the Indian Union, with 42 percent of the central divisible pool of resources now going to them, as compared to the existing 32 percent provided by the Thirteenth Finance Commission. In terms of resources now available to […]Read More »

Why Vajpayee stands taller than Rao, Manmohan and Modi put together


In India, privatising a public sector company is perhaps a bigger challenge than contesting an electoral battle or even conducting a nuclear test.

Don’t see it as an incongruous claim. This may well be a credible reality if one looks at the 25-year-long history of India’s economic liberalisation.

In two-and-a-half decades of economic reforms, despite having pro-market credentials as prime ministers, PV Narasimha Rao, Dr Manmohan Singh and Narendra Modi never dared to privatise PSUs.

It was only Atal Bihari Vajpayee, leader of a complex coalition, who championed the cause of minimum government and made sure that the government has no business in doing business.

di_Vajpayee_

He successfully implemented a privatisation policy, and with the sale of 28 companies, his government showed that running hotels or making bread is not where government should meddle.

As Modi also favours PSUs and has just put a jumbo team of ministers to work, contrary to expectations of a lean government, let’s look at India’s chequered experience with minimum government and pruning of PSUs.

Narasimha Rao’s pro-PSU stance

But before moving forward, let’s read the following excerpts from Congress leader Jairam Ramesh‘s book, To the Brink and Back – India’s 1991 Story:

“So, any decision of sale or one amounting to sale, of our public sector undertakings is a serious one. This news must have come as a rude shock to those with a background knowledge of India’s economic policies since independence…. Mixed economy was part of a package that epitomized an ideal combination of ‘middle path’ policies.

… if, as seems, reasonable to surmise the (disinvestment) proceeds are to form of the admittedly uncomfortable budgetary assets, the decision would be tantamount to selling one’s dwelling house to pay grocer’s bill. …

It is most unfortunate that government should be thinking of selling off Air India/Indian Airlines. I simply cannot think of India selling off her national carrier, which carries the national flag.”

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This is not a comrade’s cribbing. This comes from PV Narasimha Rao’s, political mentor of India’s 1991 opening, long pro-PSU speech, prepared for Congress Party Plenary (March 2001) in Bangalore.

Rao’s address could not be delivered, but he expressed deep anguish over Vajpayee’s privatisation policy in a discussion with Jairam Ramesh on the sidelines of Bangalore plenary.

Narasimha Rao’s reservations on public sector had turned into PSU policy of the Congress party, and privatisation became blasphemy eventually.

Despite being at the helm for ten years, Manmohan Singh comprehensively failed to take a courageous call on PSU reforms.

Case for privatisation

Irrespective of the accomplishments of economic reforms, the fact remains that successive governments kept themselves involved in the business of running banks, hotels, power houses, and making of steel, chemicals, fertiliser or three wheelers, and that too with heavy losses.

Government has 290 companies under 41 central ministries. Banks are in addition. In the active 234 companies, a sum of Rs 17 lakh crore of public money is invested. Their total production is worth Rs 20.6 lakh crore.

Out of them, 71 are running in losses. The total profit from public undertakings is Rs 1,46,164 crore which means the return on their investment is nearly equal to the interest (6-7 per cent) government pays on its market borrowings.

Two-thirds of the profit of public enterprises comes from coal, oil and electricity production and distribution. The government enjoys a monopoly in these areas.

Profit also comes from public sector undertakings in areas where PSUs get a large proportion of natural resources on cheap rates, or for free.

The total losses of central public sector undertakings amount to Rs 1,19,230 crore. If we combine these with bad loans and banks’ current losses, the figures look scary. Over 863 PSUs are operational in the states and majority of them are in losses.

It is surprising that HDFC Bank’s total market value is greater than the combined worth of more than a dozen government banks, or that the market value of Reliance Industries is greater than that of Indian Oil, Bharat Petroleum, GAIL and Hindustan Petroleum put together. It shows that there is no economic logic for keeping these companies running.

Months-long vacancies in higher positions of government companies are a further confirmation of administrative laissez-faire. The logic of employment by PSUs is also untenable.

In the employment market, the share of organised sector (public and private) is only six per cent. There are only 1.76 crore people in government sector, out of which 13.5 lakh people are employed in PSUs.

Anti-climax of Modi era

Narendra Modi was expected to become a market-friendly prime minister by virtue of his claims about minimum government and maximum governance. But that has been an anti-climax.

The Modi government recently asked cash-rich public sector firms ONGC, NTPC and Coal India to adopt one closed urea plant each for revival, which would cost them about Rs 18,000 crore over the next four years.

The government has already announced its plan to set up four steel plants in Chhattisgarh, Jharkhand, Odisha and Karnataka, the first state-owned greenfield projects that will come up in this sector in almost four decades.

It seems, Indian politicos just love public sector and PM Modi comes as a reconfirmation to this pious tradition of India’s politicians.

Public sector privileges

The notion of keeping government in business is not economic or employment-oriented, but purely political. With decentralisation and emergence of independent regulators, political leaders are fast losing their privileges.

In this era of shrinking authorities, government companies alone provide opportunities for rent seeking.

As public sector undertakings run on public money, it is, in principle, a national loss when these companies incur losses. It is clearly evident in the case of government banks where budgetary money (read taxpayers) and depositors’ savings, are both at risk.

However despite all the ills and idiosyncrasies of PSUs, we have to admit that the support for keeping them has now transcended across party ideologies and become a political tradition. This is probably the biggest ever pending reform since 1991 and unlikely to happen soon.

Article first published at dailyo.in

Finance

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  Economic growth isn’t achieved merely by change of governments, or by a series of electoral victories. Although governments keep making tall claims and paint rosy pictures in front of public, they themselves don’t let it get to their head as they know growth results only when a host of factors fire in tandem. However, […]Read More »

4 disastrous effects of demonetisation that Modi ignored

In spite of several inefficiencies, fortunately, India never witnessed a bank-run or monetary crisis parallel to the scale in Europe or America. However, the chaos and long queues that engulfed banks across India now perfectly mirror the plight the Greeks faced last year, albeit for different reasons. Demonetisation is a rudimentary monetary instrument of the […]Read More »

Modi's historic move against black money brings chaos now, gains later

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Diwali or not, India can't boycott Chinese goods

Last fortnight, close on the heels of the rise of firecracker nationalism against Chinese goods on social media, Reserve Bank of India (RBI) was busy making adjustments for yuan’s entry into India’s foreign exchange reserves. Not only RBI, most of the global central bankers too had to alter metrics of their forex reserves after yuan’s […]Read More »

Despite $10 billion in tax net, Modi sarkar's amnesty is a colossal failure

Despite the long history of failed tax amnesty schemes, the Narendra Modi government tried its luck with tax pardons, but to no avail. Howsoever pliable the statistics might be, the fact remains that declarations of Rs 65,250 crore under the black money disclosure scheme could attract just a moderate success for the NDA government. However, […]Read More »

Modi must walk the talk on GST

Even if one doesn’t buy everything that Prime Minister Narendra Modi claimed in his Parliament speech on Goods and Services Tax (GST), one should acknowledge that this is one of the most crucial structural indirect tax reforms in the last 25 years of liberalisation. This may not effectively clamp down on inspector raj, or turn […]Read More »

GST Bill an example of half-baked and vague reform

Contrary to the euphoria and costlier-cheaper headlines, the Constitution (122nd Amendment) Bill 2014 doesn’t spell out even the outline of the GST that India is expected to get in the future. The passing of the GST Bill is just the beginning of a tedious political and operational voyage that should ultimately result in the implementation […]Read More »

Raghuram Rajan, darling of Dalal Street, ‘devil’ for Delhi Durbar

  Sometimes words speak louder than actions. If nowhere, then at least in India. RBI chief Raghuram Rajan has fallen victim to his own candid words (read speeches) on issues of political import. However, his legacy doesn’t lie in his articulations as a blunt economist but as a top-class, innovative and professional central banker. And here […]Read More »

5.80 lakh crore in bad loans: Let's pray for India's bleeding banks

The Rs 13 lakh-crore pile of bad loans of India’s public sector banks now amounts to more than the GDP of countries like New Zealand, Kenya, Oman and Uruguay. A new IMF report states Indian banks are in a poor state compared to the notoriously messy banking of China.The financial results of major public sector […]Read More »

Modi government has actually worked hard to deliver on black money

  After facing severe criticism for its lofty electoral promises on bringing black money to India, Modi sarkar appears to have stuck its neck out on dealing with the issue. The Modi-led government, running past the two-year mark in office, has taken some calculated risks to go ahead on curbing black money. To promote transparency, the government […]Read More »

How India's wealthy are milking billions off subsidy

Do you think the politics of subsidy is only confined around lower and middle economic classes? If yes, then you would wonder how subsidies worth rupees one crore go into the pockets of the rich every year, and that too via merely seven products and services. The subsidy bill may notch up if one takes […]Read More »

India’s three-tiered economy needs bottoms-up approach

Has finance minister Arun Jaitley got it right? If one looks at the economy at hand, the answer would possibly be “Yes”. India is now a three-speed economy.  Double-digit growth is confined to a section that comprises sectors such as e-commerce, travel and stock markets and accounts for 30 per cent of the GDP. Another […]Read More »

India’s Trade Gloom

  Not many years have ended with gloomier prospects for Indian trade. The gloom is not just because of the contraction in exports for 12 months in a row. It is also because India’s role and participation in global trade is becoming increasingly insignificant. The insignificance was evident from the approach to the Nairobi Ministerial. […]Read More »

Budget 2016: Modernising rural economy must be Modi's mission

Last fortnight, when Prime Minister Narendra Modi mentioned crop insurance in his Maan ki Baat programme, people well aware of the state of agriculture justifiably grew anxious. This was not because government’s efforts do not inspire or encourage, but because in spite of three crop failures, Indian politicians are still handling farming with a mindset […]Read More »

Can India finally see a Modi Budget in 2016?

When existing steel companies are already reeling under distress owing to falling demand, why is the Union government going to establish new steel companies in the public sector? What is the need for forming new banks (monetary banks) to provide loans to small companies when several financial institutions of the government are already doing this? […]Read More »

How many more taxes do we need to pay?

Public memory is usually short but the memory of taxation is even shorter. Benchmark brent crude might have tested an unprecedented low of $37 per barrel, but domestic petrol and diesel prices are still ruling higher thanks to heavy taxes. If only the debate on goods and services tax (GST) revolved around explaining this dichotomy, […]Read More »

Is weak rupee still a national shame for PM?

Whether India draws an economic advantage from the ongoing global turbulence or not, a substantial political advantage can definitely be churned out at the moment. It is time for our leaders to rid themselves of their unfounded misconception on the exchange value of the domestic currency, that is, the rupee. In India, the BJP and […]Read More »

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