Goverment In India

by T S R Subramanian

  The Rashtrapati Bhavan, the erstwhile viceregal lodge, atop Raisina Hill, is part of the magnificent architectural conception of Lutyens. Sadly, for security reasons, the general public is not allowed a closer look at this wonderful edifice, with its marvellous wide front steps; the images of a loin-clothed 'half-naked fakir' climbing these stairs, just before Independence to meet the viceroy, are still etched in one's memory. Gandhi may have been forgotten, poverty has been 'abolished' many times, but the symbol still remains; of what once was imperial majesty and now of a proud republic.

  The sprawling (nearly a thousand acres) land which is part of the Rashtrapati Bhavan, right in the heart of the capital, requires approximately five hundred employees to maintain the majesty of the incumbent. The regal style of conduct of entertainment and other affairs, as well as the hefty annual budget have occasionally come under adverse public scrutiny, in the context of the poverty prevalent in the country, and the appropriateness of such exhibition of opulence in a democratic setup. Any questioning on this issue could be considered churlish or petty-minded. There could be two opinions on this matter. The lavishness of the ménage of the president makes one feel queasy when juxtaposed with the quality of life enjoyed by the poorer segments of the population, indeed the vast majority of citizens – the disparity is stark. Even the various Raj Bhavans housing the governors are generally to be found in sprawling premium locations in state capitals. During the British Raj, this was perhaps necessary as a symbol of state authority or power; as also tactically as a 'last bastion' in times of insurrection or grave emergency, when it could house and protect the white sahibs from native hordes till the 'marines arrive' – it is moot if there should be continuation of the same lifestyle for our titular heads sixty years after Independence? Comparisons have been made about the style of living of monarchs in a number of rich, developed European countries, with the example of India, which may aspire to be a developed country some time in the future, but which certainly is not one today. Many of these heads of states and heads of governments of even developed countries travel by commercial airlines (sometimes getting the entire first class cabin reserved, at the most); some eyebrows have, now and then, been raised on whether it is essential for the Indian head of state to commandeer planes from Air India to meet the needs of presidential travel abroad, or for state governors to travel only by state planes within the country. Indeed, till about even ten years ago, the peregrinations of our president or the prime minister to other countries, used to be newsworthy. However, in the last few years, they command as little public attention inside India, through the media and the newspapers or drawing room conversations, as they do in the countries visited by them! One recalls, for instance, that in 2008, our prime minister was abroad for about a week or so, at least on three occasions; each time there was hardly any reference to it in our media; most Indians did not even know that he was travelling.

  The president usually welcomes the visiting heads of states at the foreground of Rashtrapati Bhavan; each such occasion is celebrated with a brief impressive ceremony, with the visiting dignitary taking the salute of a unit of the Armed Forces, accompanied by music from one of the massed armed services bands; the visiting dignitary and the Indian host briefly meet selected Indian senior personnel as well as representatives from the country of the visiting head of state. Perhaps this function, which lasts about forty-five minutes, is televised these days; however, nothing can compare with the visual effect of being physically present at this wonderful occasion. Another great tradition is the occasion of Beating the Retreat, held at the end of January, to signify the conclusion of the Republic Day celebrations; the president takes the salute of the massed bands of the army, navy and air force, during a thrilling, glittering hour at dusk, that gets etched in the memory of anyone who has attended this function even once.

  We have seen above that the president has no significant direct role in decision making in the country. Though Article 356 talks about President's rule in the states, there is no corresponding provision for President's rule at the Centre. While a 'Financial Emergency' situation has been envisaged in the Constitution, the possibility of a fractured verdict in general elections leading up to splinter groups emerging, unable to form a potentially stable government even through coalition, has not been reckoned at the Centre. It is not unlikely that such a situation may happen at the Centre; Murphy's Law would indeed manifest itself. This is uncharted territory, as of now. If such a situation arises, the president will surely have to play an active role of intervention, and help find an appropriate and safe path for the country. This may indeed happen sooner than later; it is a moot question if at that time, the president will behave like the prisoner of a political party or as a genuine head of state.

  7

  PUBLIC SECTOR UNDERTAKINGS

  Background

  here were five Government of India, PSUs at the time of Independence. By early 1990s, this number had swelled to about 250 wholly owned PSUs in the Government of India public sector; this does not count the large number of undertakings under the purview of various state governments. Indeed in the 1950s, the PSUs were heralded as the primary route for ushering in a modern and diversified economy. The Avadi Resolution of the Congress party 1956 envisaged that the government would occupy the 'commanding heights' of the economy through the public sector. While the development and diversification of the agriculture and rural sectors were to be achieved through Panchayati Raj and the 'block development' route, the PSU was to be the main vehicle to develop the industrial economy.

  It needs to be recalled that India had adopted, with some modifications, the Soviet model of 'planned development', wherein the national resources to be earmarked for specific sectors were controlled by a Central Planning Authority. Concurrently, Industrial Licencing Policy for the private sector was ushered in, using the DGTD – which was to perform specific case-by-case consideration of individual private investments in the industrial sector; as well as follow a rigidly controlled annual import-export policy to service the economy. A planning commission was established in India and was responsible, at least for the first eight Five Year Plans for planning the detailed allocation of resources to various sectors and sub-sectors. It was envisaged that the economy would grow in a planned manner and industrialisation would take place on a pre-specified path, with the Central planning apparatus as well as the PSUs playing a dominant role in the economy.

  It was the period of Rostow and the inversion of the 100 x 100 input-output matrix and references to the 'take-off ' stage of the economy – where the preparation for rapid growth was to be through the government and its agencies' detailed engineering. It is in this background that massive investments were made in the heavy industry sector and in large hydro-electric projects and the like – all according to the Soviet development model as fashioned by Jawaharlal Nehru. It was the time of the Bokaro, Bhilai, Rourkela steel plants, the Bhakra Nangal and Damodar Valley dams and hydel projects, as well as investments in fertilisers and other heavy chemicals, mostly through the public sector. Curiously, there was also room for a 'mixed' economy, where the private sector was encouraged to invest in industry, though most of the funds came through loans from public sources.

  To some extent, the strategy that was adopted was inevitable. Through the previous century, the British had made investments in processing and utilising Indian raw material – predominantly for their home consumption. Thus, the industrial enclaves built on the banks of the Howrah or the Ganges at Kanpur were mostly British owned – many of the owners sold these units at throwaway prices on the eve of Independence to Indian business houses. There were also a number of Indian entrepreneurs, the Tatas, Birlas, Jaipurias, Modis and the like – some names which continue to be formidable in the Indian economy. However, there indeed was an investment vacuum in the Indian industrial scene which had to be filled through strong government initiatives – PSU was the appropriate answer.

  The focus of the economic ministr
ies in Delhi, in the first three or four decades of Independence, was on industrial development. Indeed this has continued to be ever since. While agricultural and rural development were, in theory, recognised to be of primary importance, these were conveniently treated as 'state subjects', and relegated to the various state capitals. Thus, the entities which ruled the roost in Delhi till at least the first four decades after Independence were commerce, industry, petroleum and other 'economic' ministries – it was indeed the aspiration of every bright IAS officer to be selected for a posting in one of these ministries, which indicated that he was on the way up. While the agriculture and rural development ministries continue to have relatively low significance or importance in the eyes of the politician or the bureaucrat in Delhi, the aura and significance of the economic ministries has also diminished to some extent over the past ten or fifteen years, thanks mainly to the liberalisation and 'opening-up' processes, introduced in the early 1990s through the political resolve and leadership of P.V. Narasimha Rao. We will see what this has done to the PSUs. En passant, it needs to be emphasised that the forces let loose in the early '90s have made the Planning Commission totally redundant. As is well known in administrative circles, any agency which has no active constructive role to play, quickly converts itself into an obstacle or a stumbling block. The role of the Planning Commission today is nothing short of this – it is not merely a curious bystander, it is an active deterrent to progress. Indeed, it is astonishing that such a strong votary of the free-market system like Montek Singh Ahluwalia has not tried to dismantle the Planning Commission totally – such is the power of the Continent of Circe.

  An overview of the development model adopted is in place before we return again to PSUs. China, in the first three decades after Independence, focused heavily on developing its rural infrastructure and its agriculture. Concurrently, major steps were taken to increase or to enhance the universal literacy levels by significantly strengthening its primary and secondary school systems. Efforts were made to ensure minimum public health standards for the common man, especially the rural citizen. The Indian model focused on industrialisation and on higher education, with de-facto neglect of the rural and agricultural sectors. Thus, when in the 1980s and '90s, China opened up its economy and went in for rapid industrialisation, inviting massive doses of Foreign Direct Investment (FDI), the system was able to absorb it, especially since basic minimum standard of life was guaranteed to most of its citizens. While this may be an over-simplification and over-generalisation and may not underline the significant social and economic tensions lurking below the surface in China, the reality is that their march towards becoming a world power has a strong base, since it has carried along with it the majority of the rural population. In contrast, the vital importance of meeting the basic needs – roti, kapra and makaan– has been recognised in India only through lip-service. The Central Government's clear focus for the past six decades has been on the industrial and service economy – much of it urban-related – at the expense of meeting minimum national development standards.

  Have The PSUs Performed?

  Coming back to PSUs, it will be necessary to ask the question, have they 'performed'? Has the PSU policy succeeded? Different answers are possible to this question. Perhaps a balanced view would be that the policy has succeeded to a large extent; it has achieved the desired objective. The PSUs, in general had created the base for rapid industrialisation, and had fulfilled an important role in the economy. However, in light of the liberalisation processes of the '90s, most of the PSUs now deserve to be shut down or handed over to private ownership/management.

  Indeed the BHELs, NTPCs, HMTs and the like have created the base for the rapid development of the economy in the '90s. The large investments in these units created a strong bank of highly qualified technical personnel, willing and able to adopt the best technologies, at a time when private investment was unwilling, indeed unable to invest in the industrialisation process. These mother units spawned a large number of ancillaries, and small-scale suppliers, all over India. The Government of India very sensibly spread out the location of the plants of these PSUs to different parts of the country, thus giving a fillip to the development of small scale unit colonies in different corners. In course of time, many of these smaller units grew to become medium sized, found the strength to improve the product and were able to market independently both in India and abroad. Some of these graduated to become high quality large scale entities. The various units of HMT, for instance, played a significant role in ushering in the light engineering sector in India. The development of light engineering industry in Punjab, Coimbatore and elsewhere can be, to a significant extent, attributable to the pioneering efforts of HMT. I recall that during visits to Southeast Asian countries like Indonesia, even in the '80s, one could see the great desire in those countries to have collaborations with India to replicate the HMT model. Indeed, one could facetiously say that by that time, HMT had lost its relevance in India, and was ready to be shipped abroad!

  The Engineering Projects of India (EPI), a PSU of the heavy industry department, focusing on the construction sector, went on to take major construction projects abroad, especially in the Middle East. With massive revenues in these countries coming through oil at that time, it was boom time for all international construction companies in that part of the world. EPI stepped in to bid for and execute a large number of projects in those parts. Along with them, a number of smaller privately owned fledgling Indian companies became their sub-contractors. In course of time, the Somdatts, the Jaypees and the like, got rich valuable experience and absorbed the best construction technologies of the West, which were then inter-alia imported into India through these agencies. Many observers criticised EPI for being a loss-making PSU. What the critics did not observe was that while the mother unit was not so successful financially, its subcontractors made substantial profits and the foreign exchange balance was tilted heavily in India's favour through these contracts. Besides, these foreign contracts, pioneered by EPI also opened up the Middle East as a huge labour and services market for Indians – leading up to large remittances from Indians from these parts, to their accounts in India. We see a pattern emerging – the PSU as the pioneer enters a new territory or space and over twenty or thirty years, leads a group of Indian private industries into that area; like the village school teacher, its job is done at some time and all the running is then taken over by the Indian private sector units.

  The role played by some of the PSUs, selected at random, has been discussed in brief in the following pages essentially to give an idea of the part they have played in the post-Independent Indian economy.

  The Steel Sector – beg, borrow or steel …

  In the mid-'70s, there were four or five public sector steel producing companies, as well as a couple of large private steel producers including Tatas at Jamshedpur, utilising the abundant iron ore reserves in India. Even from the outset, the public sector steel plants – Bhilai, Rourkela, Durgapur, probably where suboptimal in size and were intrinsically unviable, also relying on dated technology. Thus, even by the '70s, they were producing steel at prices considerably higher than those prevailing in the international markets. Indeed, even an import duty level of a hundred percent or more was inadequate to keep out imported steel; quantitative restrictions on imports had to be resorted to. It was ironical that Indian iron ore could be transported from the mines somewhere in Bihar or Orissa on to the ports, ferried to Japan, converted to steel and could be imported in India at prices lower than those of the public sector steel plants. It should also be added, however, that the steel plants gave us a feeling of self-confidence and less dependence on other countries at a time of foreign exchange shortage, even though at a high cost.

  It was an era of shortages and the period of 'licence-permit' raj. Indeed, the spread of corruption on a large scale in the industrial sector came through the massive shortages of raw materials and finished products in the '60s and '70s. The finishe
d steel-rounds, bars, angles and the like, were selling at a premium in the market, sometimes the margins being as high as a hundred percent or even more. The sale price of steel products from the producers was 'controlled'. The Joint Plant Committee ( JPC) had been constituted to 'fix' the gate-head price of all steel PSUs (Bokaro, Rourkela, Bhillai, etc.) as well as Tata Steel. Now, even by that time, it was clear that the private sector management was far superior to the public sector management – whatever prices were fixed by the JPC, which indeed led to large losses of the PSUs, would suit Tata Steel, since they would report a profit on the same steel prices. The PSU had advantages in securing the iron-ore, coal and other inputs through their governmental network but despite these advantages, they turned out regular losses. Based on same or similar conditions, the private sector units were able to make sizeable profits. Indeed, some bright economist of that era had the 'brilliant' idea of steeply raising the JPC prices, to eliminate the large losses of the steel PSUs and the consequent government subventions required to meet this gap and to 'mop up' the market premia. As can be imagined, this move was greeted with great delight by the private sector manufacturers, whose profits suddenly soared. Concurrently as should have been anticipated, the market premia merely readjusted upwards. After all, it was an elementary question of supply and demand – in the absence of large imports to meet the supply gap, the market premium naturally did not abate. To rub salt to the wound, the PSU losses continued unabated after a brief hiccup, since the higher prices rapidly got distributed to meet much greater employee benefits and other luxuries generally indulged in by public sector undertakings.