Dr Bharat Jhunjhunwala
The reader will readily appreciate the difference between revenue and capital accounts. Receipts from sales and payment for expenses are shown in revenue account. These entries are recurring-they take place every day. The capital account, on the other hand, shows receipts and expenditures that are of longer duration, even ‘permanent’ such as Time Deposit in a bank or purchase of house. Profits from revenue account are used to make investment in capital account. That is how people get rich. One who has surplus in revenue account and uses that surplus to invest in capital account is ‘healthy’ and vice-versa.
P Chidambaram is pushing disinvestment in Public Sector Undertakings (PSUs) in order to reduce increasing fiscal deficit on account of subsidies on food, fertilizer and petroleum products. This appears to be a good strategy. Capital receipts are to be used to meet current expenditures. PC is not realizing the folly of this approach. He is trying to cover up revenue losses through increased capital receipts via disinvestment. It is like selling the family silver to enjoy a five-star foreign jaunt. Worse, the basic problems of the PSUs are not sorted out.
Basic problem of public enterprises is that they are not accountable. Our politicians are accountable to the voters every five years. Private businessmen are accountable to the share market. But the public enterprises are not accountable to any such independent entity. The Comptroller and Auditor General audits their accounts. Secretaries to the government review their performance. But these are all part of the same bureaucracy. Just as the Minister’s accountability to the cabinet is unreal while his accountability to his constituency is real, likewise the accountability of PSU bureaucracy to CAG bureaucracy is unreal.
PSUs are not bad or anti-people. Certainly private enterprises are equally, if not more, cruel towards the people. But there occurs a three-way friction between the consumer, Private Corporation and Government regulator in the case of private sector. This is reduced to a two-way friction between the consumer and the PSU-Regulator bureaucracy in the public sector. The consumer can appeal to the government regulators against malpractices by private sector and these are, generally speaking, looked into. Not with the public sector. The PSU executives pose as having authority of their parent Ministries and are less afraid of regulators because they are part of the same Government machinery. This absence of regulation leads to misuse of authority by PSU executives and to losses. The improvement in the performance of PSUs in the last five years should not deflect us from this fundamentally anomaly in their working.
PSUs have played a very positive role in the task of nation building. The foundations of our industrialization was laid by the steel plants at Durgapur and Bhilai. Tractor was made first by Hindustan Machine Tools. Turbines were made by BHEL. Private entrepreneurs lacked the ability to establish such facilities at that time. But times have changed. The role of PSUs must be redefined now.
Mokshagundam Visvesvaraya, the Dewan of Mysore, helps us formulate the problem. The role of the State, he said, was not to run industries. That was the private sector’s job. However, this did not mean leaving the task to them alone. The State had an active role in supporting the private sector. The starting of new industries called for entrepreneurship and adventure. The private sector suffered from the fear that capital that was invested might be lost. Therefore, says his biographer Narayana Rao, Visvesvaraya held that the Government must itself start new industries on a pilot basis and hand them over to private hands when successful.
The need is to privatize the PSUs and use the proceeds to establish new PSUs. Indian space and defense scientists have developed considerable ability in satellite delivery, imagery and communications. Agencies like Indian Space Research Organization lack the commercial bent of mind to sell these services to buyers across the world. A PSU must be started to sell these services.
We have much scientific expertise in genetic and biotechnological research. But research in these areas is risky. One has to make a large number of experiments before some are successful. The investment required is very large. Indian private sector is not rising to the occasion. A PSU should be established to develop and commercialize these technologies. Let us set up a Monsanto in the public sector.
A new generation of internet is in the offing. The internet was developed with the assistance provided by the United States’ government. The Government of India should take the lead in this work. We can develop the new internet at a fraction of the cost of the United States. We should establish and Internet Development Corporation.
Most developing countries are having difficulty in understanding the rules of the WTO and presenting their cases. There is a need to establish a WTO Support Services Corporation to provide these services to other developing countries. We know that countries regularly engage lobbying firms in the United States to present their cases to the American pubic and policy makers. This company should provide similar services in the WTO. It may also have a legal wing to provide assistance in pleading their cases before the WTO dispute settlement boards. There is much scarcity of information about the happenings on in the WTO. The Corporation could bring out a series of journals to update the businessmen, exporters, Government officials, attorneys, etc. about the latest developments. Such a corporation would give India much influence in molding the opinion of the developing countries.
India has an immense potential in exports of labour intensive services like health and education. But we are not able to sell these services. The tuition fee alone for a two-year master’s degree at London School of Economics is about Rs 15 lacs. It is easily possible to provide the same quality of education in India at half the price–including transport of the student. A PSU must be established to sell these services to the world. The PSU should pick up the students in their home country, bring them to India, educate them, get internationally acceptable certification and place them. This would give a big boost to our education sector. The same holds for health services. It is cheaper to come to India and have a bypass surgery done than getting it done in the United States. There is a need to establish an Indian Education and Health Services Export Corporation.
The present policy is to be criticized on two counts. One, the basic problem of inefficiency, corruption and political interference in the PSUs is not sorted out. Two, the proceeds on capital account are to be used for meeting current expenditures.
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