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The CAG’s shocking account of a state that mismanages its finances; that breaches the limits set for its borrowing; which then gives &#...

The CAG’s shocking account of a state that mismanages its finances; that breaches the limits set for its borrowing; which then gives ‘‘guarantees’’ to get the units it owns to borrow for high-sounding purposes; and then has them ‘‘park” the funds with itself to meet its current expenditure—that account continues:

‘‘Further, out of Rs 4,540.55 crore raised by WBIDFC during the years 1999-2001 through bonds and loans for the purpose of infrastructure development in the state, only Rs 291.54 crore (6.4 per cent) had been utilised for the specific purpose and the remaining fund was parked in the deposit account. Thus, the actual use of the funds did not match the stated purpose of raising these loans. The state government used the WBIDFC as a vehicle of borrowing to improve the ways and means position of the government.’’

And clearly this Infrastructure Development Corporation was just one of the instruments to be put to such use! Examining other companies of the state, the CAG records, ‘‘Mention was made (in the previous report of the CAG for 1999-2000) about parking of funds aggregating Rs 1,304.72 crore as on 31 March, 2000, in the deposit accounts of 36 government companies and two statutory corporations. Further, test check revealed that during 2000-2001 various departments of the state government drew Rs 479.79 crore on the ostensible purpose of loans and advances to four government companies and two statutory corporations but deposited the amount in the deposit accounts of these institutions….’’

And all this was facilitated by another feature—one which, if it had occurred in the case of private companies, would have raised a shout, it would have invited prosecution. It turns out that of the 65 government companies of West Bengal, only 15 had finalised the accounts for 1998/99. Accounts of the remaining 50 companies were in arrears for periods ranging from one year to 15 years. Out of the 12 corporations, only one corporation had finalised its accounts for 1998/99 within the stipulated period. The accounts of nine corporations—for which information could be obtained—were in arrears from one to 19 years. A test check of the accounts revealed that of 40 state undertakings, 25 had understated their losses, and eight had overstated their profits!

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‘‘But why is the Government not rehabilitating the units first?’’ progressives demand at the Centre. In fact during the last decade, successive central governments have implemented a large number of ‘‘revival packages’’. These have cost the taxpayer around Rs 40,000 crore. Each time the package was put up for approval, all sorts of forecasts were made—how in two years, sales would increase by X per cent, how net profits would become positive in the third year….I leave it as an exercise for the reader to find out how many units were turned around as a consequence, how many lived up to the forecasts that were made while extracting the ‘‘revival package’’.

Off record books
   

‘‘But that is because you fellows do not really want to help public sector units, the packages have been just for show,’’ progressives retort. So, why not consider the fate of units in West Bengal? After all, the Government of that state at least cannot be accused by its own votaries to not have wanted to revive its units. The CAG reports that the West Bengal government set up an Industrial Reconstruction Department in 1973. Till March 1999, the state government had taken over 20 sick units for revival. Eighteen of these 20 units continued to remain sick. Their paid-up capital was Rs 65 crore. As against this, after what we must assume were strenuous and dedicated efforts at reviving them, the accumulated losses of the units were Rs 704 crore!

The units must remain in the public sector so as to ensure accountability, the progressives argue. If government holding is allowed to fall below 51 per cent, the managements will escape from the purview of CAG etc, they allege. In point of fact, accountability will increase were government ownership to be diluted. The lament of the CAG in the West Bengal case explains the state of accountability in these units, and bears testimony to his own helplessness:

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‘‘The Comptroller and Auditor General of India has repeatedly commented in the audit reports of the state (West Bengal) on the failure of the Heads of Departments and the managements 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 was 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 companies and the latest year for which their accounts are available. Remember, he is not commenting on their financial and physical performance—that is awful by every standard. Nor even on the veracity or otherwise of the accounts. He is merely talking of the most elementary requirement—whether they have cared to maintain even pro-forma accounts. It transpires that accounts for the Sisal Plantation Scheme have ‘‘not (been) prepared since inception’’, in 1955/56. That the accounts of the Oriental Gas Companies’ undertakings too have ‘‘not (been) prepared since inception’’, in 1960/61. That the accounts of the Government Sales Emporia in Calcutta and Howrah too have ‘‘not (been) prepared since inception’’, in 1951/52. That the accounts of the Government’s Silk Reeling Scheme too have ‘‘not (been) prepared since inception’’, in 1956/57. That the accounts of the Government’s Training-cum-Production Centre—Mechanical Toys, Hooghly—too have ‘‘not (been) prepared since inception’’, in 1972. That the accounts of the Government’s Central Lock Factory, Bargachia, Howrah, too have ‘‘not (been) prepared since inception’’, in 1972/73. That the accounts of the Government’s Industrial Estate, Manicktola, too have ‘‘not (been) prepared since inception’’, in 1983/84. That the accounts of the Government’s Industrial Estate at Sakigarh too have ‘‘not (been) prepared since inception’’, in 1983/84. That the accounts of the Government’s Kanchrapara Area Development Scheme too have ‘‘not (been) prepared since inception’’, in 1975/76. That the accounts of ‘‘hats’’ under the management of the government too have ‘‘not (been) prepared since inception’’, in 1982/83.

Fifteen other companies are listed—with accounts not being available for three years to a decade. Accountability! Governmental enterprises serving a ‘‘social purpose’’!

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Having given this shameful list, the CAG observes, ‘‘No action was taken by government against the management of these undertakings for such gross failure and disregard of public interest.’’ His concluding words are worth putting as the frontispiece of reports of public sector enterprises.

The CAG laments, ‘‘The lack of accountability arising out of the failure to prepare 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 re-examine the justification of continued release of budgetary funds to units without finalised accounts and without assessing their financial performance…’’

That was written three years ago. Nothing but nothing has happened since then on any of the strictures. Not one person has been brought to book. The culture of not one unit has changed in any way. And yet we are fed the myth day in and day out: these enterprises must be kept in the public sector as that alone ensures that they remain accountable.

The Laws

Such being the facts, we can formulate ‘‘laws of public sector units’’:

The more governmental an enterprise, the more unaccountable it is;

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The more unaccountable an enterprise, the more uncompetitive it is;

The more uncompetitive an enterprise, the more certain it is to die the moment the artificial respiration from the governmental exchequer ends;

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The more certain it is to die, the more resistant its management and trade unionists, and even more so the politicians of the region will be of change, the more vociferous and minatory will those be—those sections of management, of labour, others—who have done most to bring the unit to its sorry state; they are the ones who will do everything they can to thwart the only steps that might save the unit and the jobs in it.

When we combine these laws—laws almost of nature, I would say—with the empirical fact that the largest concentration of derelict, irremediable governmental enterprises lies in Bengal and Bihar, we come to see what is taking place. It is the political and trade union leadership of these states that is the most determined to block change.

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That is what the country has to make up its mind about: should it mortgage reforms to those within public sector enterprises who have done most to bring them to the sorry state in which they are? Should it mortgage reforms to politicians and traders in unions from precisely those regions in which—because of the actions of these very personages and groups—the work environment has been worsened the most?

(Concluded)

PART-I : The sterling example to follow

First published on: 05-07-2004 at 00:00 IST
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