The most predictable case is that of West Bengal, in that, reality leaves no alternative to doing the right thing, but also in that, because of posturings of 80 years, that thing has to be begun not just silently, it has to be done surreptitiously!
The latest report on West Bengal of the Comptroller and Auditor General (CAG) documents the financial pit into which the state has been driven. Of the total expenditure of the state, only five% is capital expenditure. Even for meeting its day-to-day liabilities, the state Government is heavily dependent on borrowing: 69% of its borrowings are for meeting revenue expenditure.
Having exhausted the margins for borrowing on Government account, in 1999/2001, the state had the West Bengal Infrastructure Development Finance Corporation, to cite a typical instance, borrow Rs four thousand five hundred and forty crore through bonds and bank loans. The stated purpose for raising this amount was ‘‘infrastructure development’’.
But in fact, the CAG reports, only Rs 291 crore—‘‘only 6.4%’’ as the CAG records—were spent on infrastructure development. The rest was parked in the Deposit Account, ‘‘raising,’’ the CAG says, ‘‘serious doubts about the stated purpose of raising these funds.’’
The state has dragged other institutions into this subterfuge, it turns out. For part of these funds were raised from HUDCO—the Housing and Urban Development Corporation—and a good deal from commercial banks. So desperate are the state’s finances that for these amounts the Government agreed to pay 11.75-14% per annum as interest.
The next two sentences of the CAG’s report are even more telling. ‘‘Out of the Rs 2,972.62 crore, Rs 2,549.07 crore were parked in the Deposit Account with PAO (the Pay and Accounts Officer) Kolkata. The state Government converted Rs 2,508.89 crore into loans repayable in 92 equated monthly installments along with interest at the rate of 18 per cent per annum. Thus, the total loans received by the Government from WBIDFC amounted to Rs 3,723.89 crore, of which Government repaid principal amount of Rs 183.59 crore and paid interest of Rs 485.76 crore during 1999-2001….’’
Hence the chilling comment of the CAG, ‘‘Thus, actual use of the funds did not match the stated purpose of raising these loans. The state Government used WBIDFC as a vehicle of borrowing to improve the ways and means position of the Government.’’
One of the explanations of how the Government has brought the state to this pass is contained in two adjacent columns of a single table in the CAG report, which recounts that as of 31 March 2001, a staggering Rs three thousand eight hundred and sixty eight crore had been invested in the state’s PSUs.
The rates of return from these enterprises can be seen in this box: That is, the rate of return was between one hundredth of one per cent and a high of one twelfth of one per cent! By contrast, CAG reports, during these very years the Government was borrowing funds by paying interest of between 10.5 and 13.85%! And remember, that is the interest it was paying for money it borrowed directly: for the money it was borrowing through its corporations etc., as we have seen, it was paying up to 18%!
Even this is just a glimpse of the state of affairs. So called ‘‘capital expenditure’’—which, as we noticed, is down to a mere five per cent of total expenditure—too cries for closer scrutiny. For the CAG tells us that the amounts blocked in ‘‘incomplete projects’’ has been shooting up by the year: from Rs 1,218 crore in 1997/98 to Rs 3,370 crore in 2000/01. Worse, having exhausted all sources from which it can borrow directly, the state Government has been giving its ‘‘guarantee’’ to enable financial institutions and banks to ‘‘lend’’ to the state PSUs. The amount of ‘‘guarantees’’ the state Government gave shot up in just one year from Rs 5,906 crore in 1999/01 to Rs 9,677 crore in 2000/01.
The other side of this coin deserves as much attention. As the state’s enterprises are bankrupt, and will not be able to repay the loans, the entire amount for which state guarantees have been given is a liability of the West Bengal Government—of a Government that is itself reduced to borrowing huge, and ever-increasing amounts just to meet its daily expenses. Why banks and financial institutions lend money on such farcical ‘‘guarantees’’ is something that should in itself make us sit up: it is the sort of practice that accounts for the straits the banks are in. But that is another story.
To proceed with the CAG’s findings, the report concludes with a chapter entitled, ‘‘Lack of accountability in the use of public funds by departmentally run enterprises.’’ In it the CAG records, ‘‘As of March 2001 there were 26 such units in the Government of West Bengal, of which 10 had not prepared their accounts since inception. As of June 2001, 4 units had not prepared their accounts for more than 10 years, 3 for more than 5 years, 9 for more than one year and up to 5 years.’’
But what follows reveals the state of affairs even better. The CAG laments:
‘‘The Comptroller and Auditor General of India has repeatedly commented in the Audit Reports of the state on the failure of the Heads of Departments and the Management of the undertakings in timely preparation of the pro forma accounts. Accountant General (Audit) reminded Principal Secretary (Finance) and the Secretaries of the concerned departments periodically in this matter. But there was little improvement in the situation and most of these undertakings have not finalised their accounts for periods up to 10 years or more…. The Principal Secretary/Secretary of the department concerned neither initiated action against the defaulting Heads of Departments for their failure to prepare the accounts nor took any effective initiative to set right the position.
Moreover, there is no system of Internal Audit and performance appraisal to analyse the efficiency of these Departmentally run Undertakings. As a result, there is no accountability of the Management and Government in respect of the public funds spent by these undertakings….’’
The CAG then lists the undertakings that have not prepared accounts—in the case of the Sisal Plantation Scheme since 1955-56! And observes, no action was taken by the Government against the Management of these undertakings for such gross failure and disregard of public interest.
The lack of accountability arising out of the failure to prepare the accounts by the departmentally run units for years on end is a matter of serious concern, as large amounts of public funds are involved coupled with the possibility of serious financial irregularities remaining undetected for long periods. Since these are departmentally run commercial units, responsibility for failure to ensure accountability of public funds should be fixed on the Heads of Departments. Government should also examine the justification of continued release of budgetary funds to units, without finalised accounts and without assessing their financial performance. Remember these facts from the CAG’s report the next time you hear the leftists shout at others, remember them when you hear them demand more from the Centre, remember them the next time they proclaim that the Centre is denying states their due.
The two figures we encountered above—the Rs 5,540 crore the West Bengal Government raised ostensibly to build infrastructure, and then put in the Deposit Account, and the Rs 9,677 crore that it got via the ‘‘guarantees’’ it furnished for its undertakings—provide a glimpse of the condition to which the West Bengal Government has brought the state’s finances. But they also contain a clue to another sort of posturing. Commentators outside Government writing about the obstacles to privatisation often zero in on the administrative ministries—these do not want to shed their empires, the commentators write. When we think of leftists and their opposition to reforms such as privatisation, we put it to ideology. But here we see another, mundane reason: even bankrupt undertakings are valuable, specially to bankrupt governments—on the one hand, you can use their funds as the spirit moves you; on the other, you can raise money in their name, and divert it to such uses as you must; and in either event not prepare accounts for years and years.
But reality breaks through. I was therefore not surprised to read the story in The Financial Express of May 2, 2002, under the headline, ‘‘Bengal hits selloff road, to select consultants shortly.’’ It quoted the Principal Secretary, Department of Public Enterprises and Industrial Reconstruction of the state, as affirming that consultants would soon be appointed to identify prospective partners for converting PSUs into Joint Ventures, and that six PSUs had already been identified for the purpose. He said that in case the state Government was not able to find Joint Venture Partners, ‘‘it would have to think of alternatives, including closure of these units.’’ ‘‘Under no circumstances will the state continue with its budgetary support for these PSUs,’’ the Principal Secretary added. Indeed, he announced that the Government had already identified two enterprises for closure—Indian Paper and Pulp, and Sunderban Sugarbeat Corporation.
And now comes information that the Government of West Bengal has moved another step forward. It has set up a high powered committee to scrutinise PSUs and categorise each of them into one of three categories: those which are ‘‘structurally unviable’’—these are to be closed down, and their assets ‘‘released for other economic use’’; those which, have a large market share—around 50 per cent—have a large work force, are today saddled with obsolete technology, but which can be made potentially viable through capital restructuring: funds will be sought to be raised for the capital restructuring—how is anybody’s guess; and finally, those which are potentially viable but the reviving which fresh infusion of funds is required, funds that the Government does not have – Government will convert these into Joint Ventures with 74% being given to a strategic partner.
What is the last category but the very privatisation against which they have been shouting against day in and day out?
As the Principal Secretary stated, thus far, the Cabinet has decided that two undertakings will be closed down: Indian Paper Pulp, and Sunderban Sugar Ltd.: the two involve 868 regular employees, and 54 casual labourers. Four units are to be revived through ‘‘restructuring’’: Westinghouse Saxby Farmer, Durgapur Chemicals, Britannia Engineering, Glucunate Health: these four units involve about 3,000 workers, the revival scheme will entail that the services of about 1,500 of them be terminated.
Furthermore, the Cabinet has decided that six enterprises will be privatised—or, to use the politically correct euphemism, they will be converted into Joint Ventures: Shalimar Works, Lily Biscuits, Neopipes and Tubes, West Bengal Chemical Industries, Caster Puller Engineering, and West Bengal Plywood. As I write, the High Powered Committee has also recommended that four more be converted into Joint Ventures: National Iron and Steel Ltd., Engel India Ltd., Krishna Silicate, and Apollo Zipper. The final decision of the Cabinet is awaited.
What a breakthrough.
We have already completed 32 transactions at the Centre. Even at this early stage, the turnaround in those enterprises is visible.
The challenges to the policy have all floundered, and have become pro forma: the debate in the Lok Sabha that the Opposition had insisted must be held fizzled out, it had to be adjourned half way because there weren’t even the tiny number—just 54 members—that are required for a quorum. A year from now, a number of states – across the country, across parties—will have privatised their PSUs. Privatisation will then have become routine. Concluded
Based on a lecture by the Disinvestment Minister to the Indian Chamber of Commerce in Kolkata
Congress dials D For Disinvestment in its states, D for Disaster in Delhi