Modi govt's engagement with public sector is harmful for its fiscal health

The Narendra Modi government’s engagement with the public sector entities under its administrative control has many layers. Take, for instance, its decision to infuse equity into about 250 operating central public sector organisations including the Indian Railways.

The Modi government infused an estimated Rs 6.26 trillion as equity into these entities during the first five years of its tenure — between 2014-15 and 2018-19. This was almost three times the equity amount that the Manmohan Singh government had infused into these public sector organisations during its five-year tenure — between 2009-10 and 2013-14.

But take a closer look at the composition of the equity infused into the public sector, a slightly different picture will emerge. During the five years of Modi, capital for public sector banks (PSBs) accounted for about 40 per cent of the total equity infusion. The Indian Railways had a share of 33 per cent, the National Highways Authority of India (NHAI) had 18 per cent and Air India had a share of 3 per cent, raising the combined share of these four entities to as much as 94 per cent of the total equity infusion in five years.

In other words, just four out of the 250-odd public sector organisations had gobbled up so much equity that left only six per cent, or Rs 34,931 crore for the remaining public sector entities in a period of about five years. So, if you thought the Modi government was generous with equity allocation to all its public sector organisations, think again. It distributed 94 per cent of its entire equity for the public sector to just four entities.

The Manmohan Singh government was a little more democratic in equity allocation. Of its total equity outlay of Rs 2.34 trillion for public sector organisations during its second five-year term, 45 per cent went to the Indian Railways, 20 per cent went to the NHAI, 19 per cent went for recapitalisation of PSBs and 6 per cent was spent on Air India. Thus, these four organisations consumed 90 per cent of the entire equity outlay in these five years, leaving 10 per cent for the remaining entities.

Given this context, two developments last week deserve greater attention. One, the government appears to be having second thoughts on a proposal from the department of telecommunications to bail out the ailing two public-sector telecommunication companies — the Bharat Sanchar Nigam Limited (BSNL) and the Mahanagar Telephone Nigam Limited (MTNL). The ostensible reason for reconsidering a revival package was its huge cost, estimated at over Rs 74,000 crore.

Such a review is understandable. The suggestion that the two enterprises could be closed down after offering a compensation package to their employees through a voluntary retirement scheme (VRS) is worth a closer look. And the cost of closing down would be cheaper as several employees are actually not direct recruits in the two organisations. According to one report, just about 10 per cent of the employees are direct recruits, mainly technicians and the cost of offering a VRS to them would not be huge. The remaining employees either belong to the Indian Telecom Services (ITS) or have been deputed from other public sector enterprises. 

The obvious question, therefore, is why the government has allowed its two public sector telecom organisations to be burdened with such staff from the ITS and from other public sector organisations. These two organisations should not be treated as a parking place for either ITS or presumably surplus staff belonging to other public sector undertakings. Since three-fourths of their total revenues are being consumed by their wage bills, the first step would be to free them of this burden and see how the two organisations could be run more efficiently with minimum staffing. Both the organisations have a viable business and a customer base that should be the envy of any rival telecom company. A good way out would be to free these companies from the burden of such huge wage bills and then get their businesses transferred to a new entity that presumably could be set up as a public-private partnership, with a time-bound plan under which the government would eventually exit from the business entirely.

The second development pertains to the Food Corporation of India (FCI), a public sector company that undertakes procurement of food grains on behalf of the government. Partly because of its own inefficiency and its excess manpower and partly because the government has consistently defaulted on paying its bills, FCI is hugely indebted, having borrowed from the market as well as entities like the National Small Savings Fund. Its financial troubles are in no small measure due to the government’s failure to clear its dues.

The financial woes of BSNL, MTNL and FCI present another layer of the Modi government’s engagement with public sector organisations, which is both problematic and potentially harmful for its fiscal health.

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