The sterling example to follow

This discovery led us to gather information about other public sector units which we may be asked to handle. We were able to gather preliminary information about 68 of these crown jewels8212;excluding the hotels. They traversed several sectors, and were in the care of 16 ministries8212;in a word, a representative lot. It turned out that between these 68 jewels, they had not deposited statutory dues to the extent of Rs 1,578 crore. In addition, they had not paid even the wages of their workers to the extent of Rs 357 crore.

The law says that senior personnel in units8212;directors, managers etc8212;that do not deposit what is due towards gratuity etc will be severely punished. The punishment is to extend up to a year in prison. How is it that these organisations8212;owned and operated by government8212;had been violating the law in this blatant manner? How is it that no one had ever been punished on that count? What would government have been doing, what would our champions of the public sector have been shouting if these figures related to private firms?

The only way to safeguard jobs is for the units to be competitive. That, as has been documented times without number, the public sector units are not. But efficiency apart, do facts that turned up about public land and buildings, for instance8212;lease documents lost; purchases never registered; encroachments of an unbelievable character on these assets8212;burial and cremation grounds created on them, illegal constructions; do such facts show that putting even so elemental an asset such as land in the hands of public sector units is the way to safeguard even those tangible public assets? Do facts about defaults on statutory dues show that keeping these units in the public sector8212;a sector in which no one is ever brought to book, in which no one can ever be brought to book8212;is any way to safeguard even money that the workers have been guaranteed by law, to say nothing of their jobs?

Indeed, I would wager two laws: a The sicker the unit, the greater the insistence of champions of the public sector that it must not be touched8212;and for manifest reason: the sicker the unit, the greater the likelihood that it is one of their gadhs, that is what would have made the unit sick in the first place; b The more strident champions of the public sector are about a particular unit, the more unaccountable it is8212;for every effort to reform it, to change its work culture will be thwarted by these champions.

The Progressives

There is a third law too: the more 8216;8216;progressive8217;8217; the state and its rulers, the more cases we will find in it that document these laws. You have to just think of reforming the work culture of a unit in West Bengal or Bihar, for instance, to say nothing of privatising it, and a howl goes up. Writs are filed. Stay orders obtained. Legislatures are brought to a standstill. Committed journalists add to the din.

What are the facts about public sector units in these most progressive of states? There are 13 units of the Central Government in the old Bihar. Seven of them have been declared sick for years8212;and are lying in that mortuary, the Bureau of Industrial and Financial Reconstruction. There are 37 Central Government undertakings in West Bengal. Twenty of them are in the BIFR. Note three things about them. A unit is not declared 8216;8216;sick8217;8217; and referred to the BIFR just because it has incurred losses for a year or two. It is declared 8216;8216;sick8217;8217; and sent to the BIFR only after it has incurred losses for four years in a row, and only after its net worth has been eroded by 50 per cent or more of its peak net worth in the preceding four years.

In Bihar, for instance, the net worth of two other central public sector units has become negative, though they have not yet been referred to BIFR. In Bengal the number of such units is eight! The net worth of these eight has sunk to minus Rs 1,843 crore. Second, these units of Bihar and Bengal have been rotting in the BIFR for up to a decade: of the 20 units from Bengal that are with the BIFR, for instance, 12 were referred to it in 1992! Neither the BIFR, nor what is called the Operating Agency8212;an investment institution like the ICICI or IDBI, say8212;neither the Central nor the state Government has been able to find any way to revive them: in several cases attempts have been made to get private entrepreneurs to enter into joint ventures for reviving the units, in several other cases attempts have been made to induce private entrepreneurs to take them over. To little avail.

In several instances, having spent years and heaps of public money in these fruitless chases, the BIFR has had to recommend that the units be closed. Governments have not been able to act on the recommendation. Political pressure has been mounted to prevent closure. Stay orders have been secured from the courts. Pledges have been made that new revival schemes will be explored. And all the while, the public exchequer has continued to be bled 8212;to keep the corpses around.

The condition of public enterprises of the states is of course much, much worse. And among enterprises of state governments, the condition of those that are owned and operated by the governments of Bihar and Bengal is much, much worse than of those in other states.

In March 2000, the year for which a study done for the CAG8217;s office was able to get data, Bihar had 54 public sector undertakings. Thirty-two of these were reported to be 8216;8216;non-working8217;8217;. A total of Rs 8,168 crore had been invested in the 54. In turn, they had accumulated net losses of Rs 5,060 crore.

The CAG report on West Bengal for 1999 furnishes data about the state8217;s public sector units. There are 77 of these8212;65 of them are government companies, 12 are corporations. Taking share capital and loans together, Rs 10,633 crore have been invested in them. Against this investment of Rs 10,633 crore, the state government received Rs 71 lakhs from two government companies and Rs 2.4 crore from one corporation! Finances of the West Bengal government have been under severe strain for years: even if the Central Government borrows, it has to pay around 10 per cent as interest. As against this, the rate of return from the state8217;s companies is an abysmal 0.04 per cent! CAG8217;s report on West Bengal for the year ended March 2001 p. 15, Volume I, Civil gives an instructive table in this regard.

Through these years, capital expenditure as a percentage of the state8217;s total expenditures kept dwindling: it was 12 per cent in 1996/97, and 5 per cent in each of the following years. In the meanwhile, the expenditure locked in 8216;8216;incomplete projects8217;8217;, the CAG found, had increased from Rs 766 crore in 1996/97 to Rs 1,083 crore! The ratio of 8216;8216;capital outlay8217;8217; to 8216;8216;capital receipts8217;8217; 8216;8216;has been less than even 0.50 during the last five years8217;8217;, the CAG noted, 8216;8216;and came down drastically from 0.43 in 1996-1997 to 0.14 in 2000-2001 indicating that almost the entire capital receipts were spent either on revenue expenditure or on repayment of debt8217;8217;. 8216;8216;As there is no return from such application of capital receipts, the sustainability of operations of government are sic weakened considerably,8217;8217; warned the CAG.

Now, that is something to remember even when we consider 8216;8216;profit-making8217;8217; PSUs. We should first ascertain the extent to which their profits are due just to the fact that they have been conferred a monopoly by government policy8212;the case not just of STC and MMTC in years when imports used to be 8216;8216;canalised8217;8217; through them; that is the position of the petroleum companies in the retail market too. Second, we should ascertain whether this 8220;profit8221; at least covers the cost at which the Government borrows money.

But to get back to Bengal. With that kind of an unsustainable operation, how did the state manage to continue this state of affairs? 8216;8216;Government of India provided special treatment to the state government despite the poor performance,8217;8217; records the CAG8212;and that about a state whose rulers have always won by alleging neglect and discrimination by the Centre! 8216;8216;The special treatments were accorded through i special loan from HUDCO for infrastructure development and ii additional plan assistance for state plan schemes. Substantial amounts Rs 2,912.87 crore of these expenditures were transfers to deposits and shown as expenditure in the accounts. These reflect poorly on the quality of expenditure8230;.8217;8217; 8216;8216;Persistent lack of balance from current revenues, galloping deficits, mounting interest payments, declining tax compliance indicated continued poor financial condition of the government,8217;8217; the CAG concluded. 8216;8216;8230;Due to its precarious ways and means position, the state government had to resort to huge ways and means advances and overdrafts throughout the year.8217;8217;

The Hidden Account

But there was an even more ingenious device, it turns out, involving the state8217;s enterprises. The corporations of the state were in such a condition that they could not raise funds on their own. The state itself was straining against the borrowing limits prescribed by the Reserve Bank. No problem! The state government provided a 8216;8216;guarantee8217;8217; so that the corporations could borrow. And the corporations put the money at the disposal of the state government! The 8216;8216;guarantees8217;8217; provided by the state government amounted to Rs 5,606 crore in 1999/2000. They increased to Rs 9,677 crore in 2000/01. Giving details for one year, the CAG recorded, 8216;8216;The guarantees given during 2000-2001 included Rs 4,277 crore guaranteed against loans obtained by WBIDFC Rs 2,812 crore, WBKV 038; IB Rs 871 crore and WBPDCL Rs 594 crore8230;.8217;8217;

And later in its report we learn what happened to these amounts. 8216;8216;WBIDFC West Bengal Infrastructure Development Finance Corporation raised Rs 4,540.55 crore during 1999-2001 through bonds/bank loans for the purpose of infrastructure development of the state,8217;8217; the CAG noted, 8216;8216;but spent only Rs 291.54 crore while the remaining funds were kept in the deposit account, raising serious doubts about the stated purpose of raising these funds. Six government companies and statutory corporations parked schemes of Rs 281.47 crore, meant for implementation of various development schemes, in their deposit accounts with the Government.8217;8217;

Examining the Rs 1,567.93 crore that had been raised in 1999/2000 by the West Bengal Infrastructure Development Finance Corporation through bonds and bank loans, ostensibly for infrastructure development, the CAG found that Rs 1,117.93 crore of this had been placed by the corporation 8216;8216;in the deposit accounts with pay and accounts officer, Kolkata, for utilisation by the state government for other purposes. During the year 1999-2000, an aggregate of Rs 1,215 crore was taken by the state government from WBIDFC as loan.8217;8217;

But that, it turned out, was not even one-third of the story! The CAG observed, 8216;8216;Scrutiny September 2001 revealed that Rs 582.31 crore remained in the deposit account of WBIDFC as on 31 March, 2000, awaiting conversion to loans. In addition, during the year 2000-2001, WBIDFC raised Rs 2,972.62 crore through bonds Rs 1,689.85 crore, loans from Housing and Urban Development Corporation Rs 590.77 crore and term loans short term: Rs 542 crore, and long term: Rs 150 crore from commercial banks at interest rates varying from 11.75 to 14 per cent per annum for the purpose of infrastructure development of the state.

Out of Rs 2,972.62 crore, Rs 2,549.07 crore were parked in the deposit account with PAO, 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 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 1999-2001.8217;8217;

How very convenient! You can8217;t borrow. Therefore, you get a corporation under you to borrow. Then, instead of using the amount for the purpose for which that entity borrowed it, the corporation puts it as a deposit with you. And you convert that deposit into a loan to yourself!

8212; To be concluded