Power Sector – Let there be light! And there was outage . . .
Agencies like BHEL and NTPC have made significant contributions to the national power sector. As industrialisation grew apace, and as power demand shot up significantly, there was a huge lag in the supply of power to the system. This lag exists till today and is even increasing. At a time when private investors were reluctant to enter the power sector for a variety of reasons, these two major PSUs were pioneers in this field; their contribution has been invaluable not only in the field of power but in the development of ancillaries and the small scale sector in all parts of India, not only to contribute to the generation of power, but also in the related fields of transmission and distribution.
NTPC, by all accounts, continues to be a fairly efficient producer of power. Its plant load factor (PLF), is generally superior to the plants of most state-run electricity boards. NTPC controls a sizeable share of the thermal power generation in India. However, the policy makers, over time, have become so used to the cozy transactional arrangements between NTPC, the coal mines and the railway system, that they have almost forgotten that the private sector, as well as FDI can contribute very significantly to not only the generation of power, but also to transmission and distribution. Further, most state-run electricity boards are terribly managed and are in poor financial and technical health and generally in no condition to contribute additional megawattage. The grand folly in our power policy, has led us to the current ridiculous situation of power cuts even in major cities – with just two or three-hour power availability in many rural parts of India. Even the most under-developed countries – those well below India in the ladder – appear to have sorted out their power problems at a reasonable cost. In India, this fairly simple management goal appears beyond reach. We are just unable to create the climate where the players can sort out the necessary commercial linkages between the supplier of coal or gas as the case may be, with the railways which is the transportation agency, as well as to provide comfort to the financing agencies so as to promote private sector investments in this field. This relatively elementary management process is apparently beyond our capability!
Out of about 1,30,000 MW of installed capacity for power, about seventy-five percent is constituted by thermal power. Hydel, nuclear, gas turbines and other sources constitute the balance. Again BHEL sets have contributed about seventy-five percent of the installed thermal capacity. This underlines the critical dependence of the Indian power generation capacity on BHEL. It should also be noted that the current annual shortage is estimated to be of the order of 70,000 MW. The gap is only like to increase, at the current pace of increase in demand and incremental new supply. BHEL's current boiler capacity of about 5,000 MW per annum is planned to be upgraded to about 10,000 MW per annum by 2011. Looking at the heavy dependence of the power generation capacity on BHEL, it is clear that proper planning has not been done to match supply capability with demand, in this critical sector which touches the life of every citizen.
While there are current shortages in the availability of power, likely to increase at least in the near and medium term, the areas of transmission and distribution also have been ill-served by our policies. Much of this is in the hands of state governments, operating through their electricity boards. Lack of proper maintenance of the equipment and absence of new investment in transmission lines and distribution systems has left the entire national network precariously perched. Thus, even when power is available outages ranging from one minute to a few hours – caused through temporary disruption or damage to the distribution system – is a well-known phenomenon, even in cities. Massive investments are required to upgrade and modernise the transmission and distribution systems, which clearly is not fully on the radar of all concerned. It must be mentioned that the Powergrid Corporation has played its role with some effect in this field.
I recall the unseemly row which erupted in late '70s and early '80s on the question of the proposed collaborative merger between BHEL and Siemens of Germany. Practically all the economic secretaries in Udyog Bhawan were split in two warring groups – all the IAS secretaries ranged against the proposed collaboration on the grounds that BHEL's 'independence' will be erased and the non-IAS secretaries of the technical departments were solidly in favour of the collaboration, on the grounds that BHEL's capability will get strongly enhanced. Perhaps the political leadership of the time did not understand the issues. The era of Nehruvian socialism was not yet dead. For whatever reason, the merger did not take place. As the past thirty years have shown, the decision was a blunder. BHEL, while it has been in general an efficient agency, has not been able to live up to the massive national requirements. Its presence also has inhibited the growth of other private sector agencies to create large boiler-building capabilities. Thus, the 1980 decision to kill the deal with Siemens and the subsequent policy failure to encourage massive private investments in this sector have proven extremely costly to the nation. To some extent, though this could be possibly unfair to BHEL today, we can see its role as an unwitting 'dog in the manger'.
Textile Sector – Weaving a tangled web…
The National Textile Corporation (NTC) is a major PSU in this sector. A motley collection of 120 units scattered all over India, of different sizes, and with varied specifications formed this unwieldy agency. Many of the units were acquired through 'nationalisation', mainly to protect the employment of the labour involved, with the prospects of the private owners closing down these units as they became unviable to them. Indeed, a large number of these units – some of which were established before Independence – became sick for a variety of reasons. Many composite units, which combined spinning with weaving, became uncompetitive with the arrival of 'powerlooms', which could operate in a decentralised manner avoiding taxes, as also get small scale industry benefits from the state, some times masquerading as handlooms. The weaving units could not face this onslaught and many owners started quietly transferring resources from these units to their other private investments in real estate and elsewhere – much as Ramalinga Raju fraudulently ate into Satyam. During V.P. Singh's era and even earlier, many of these units were nationalised, in the '70s till the early '80s. A 'revival package' for NTC was prepared in 1992, proposing the permanent closure of about thirty mills, injection of modernisation funds into other fifty mills, with the balance being viable with minimum support – the envisaged investment was of the order of Rs 450 crores. Indeed the plan started to be implemented, coupled with an attractive VRS. The process was proceeding well, till not too surprisingly, there was a political somersault and the process was halted overnight. In 1995, when a second revival proposal was made, only twenty units were viable, sixty were proposed for closure and the modernisation investment of the rest was estimated to cost Rs 3000 crores. The problem was compounded by the fact that twenty 'profitable' units were surrendering their excess cash to meet the liquidity needs of the sick ones. Be that as it may, this opportunity was also lost. According to the latest count, every mill is sick beyond repair, most of them facing total closure, and their valuable land in urban areas is being sold to pay the wage bill for the totally idle workers.
The story of NJMC (National Jute Mills Corporation) is quite similar, another classic case of reckless mismanagement. It was never recognised till the bitter end that these and other similar units were once pioneers in their field but with the arrival of private investors, with modern machines and superior management, the units became unviable. The government of the day had no policy to handle the idle labour. The default solution was to let everything drift, to keep paying salaries from the public exchequer. Thus it was, in the early '90s, that the Textile ministry was giving budget subventions of nearly Rs 800 crores annually merely to support the wage bill of idle labour in NTC, NJMC and elsewhere. The irony was, that of the total annual budget of Rs 900 crores of the ministry, only Rs 100 crores were available for developmental expenditure in an extremely buoyant export-oriented and employment
creating sector, to support common facilities, testing laboratories, standards upgradation, training facilities – the host of steps that could modernise and make a powerful growth instrument even more vibrant. A more irrational way of spending public money can never be imagined even by the most inventive!
While discussing the textile sector, a special mention needs to be made of NIFT (National Institute of Fashion Technology), established in the early '90s, which has played an important part in improving clothing technology and fashion standards of the domestic and export market. The Crafts Museum, near Pragati Maidan in Delhi, is a wonderful repository of exquisite handicraft and handloom items. A veritable treasure-house, it is a hidden gem familiar only to the cognoscenti. Any visitor is well rewarded, as was discovered by Hillary Clinton, then first lady of USA, who planned a visit to the museum for an hour one day in the late '90s. She got so enthralled with what she saw, that she cancelled all her appointments for the day, and spent all of it there! Alas, the then director, who had contributed much to its quality, was removed on some ground or the other. One understands that for the last ten years there has been no curator in full-time charge of this wonderful repository of Indian art; it has since then been under the part-time charge of some relatively junior secretariat official. One can imagine the attention the museum received; I wonder what the museum looks like today. Incidentally, in most capital cities of the world, the main museum is a major attraction to all tourists, domestic or foreign – the National Museum in Delhi is no exception. A cursory study of its history shows that for more than fifteen of the past thirty years, the museum has functioned with only a part-time or ad-hoc curator. This is an index of how national treasures are treated.
Mention also needs to be made of the many export promotion councils sponsored by the commerce and textile ministries, which provided a forum for manufacturers and exporters, along with related governmental authorities to stimulate export. During the 1960s through the 1980s, these did perform a significant role in raising the standards of Indian exports. However, now that most controls are dismantled, and raw materials and components can be freely imported, the utility of these agencies has come down sharply but they did play a role when it was required.
Petroleum Sector – a well-oiled machine, except when it stutters…
Much of the management of the petroleum and related products sector is done by the Ministry of Petroleum, mostly through the agency of the various oil-related PSUs in this sector. ONGC for exploration, IOC for refining and distribution, along with agencies like GAIL and a large number of other PSUs and regulatory institutions – all of them government sponsored or controlled – dominate this field. It was only in the mid-'90s that Indian oil-blocks were allowed private exploration. The major oil and gas finds of the Reliance group are more recent. This sector is managed through an intricate system of administered pricing, with a complex taxation matrix; the petroleum ministry, along with the finance ministry, plays a major role in the management of the national petroleum economy. To put it in a nutshell, the two primary purposes of public policy are – firstly, to ensure that a large element of taxation (probably among the highest in the world) is available to the national exchequer and secondly, that the petroleum PSUs make significant profits. The impact of these prices on the consumer, particularly the poor, is a residuary factor, given importance grudgingly, under extreme compulsion.
It should be recalled that in mid-'90s, the 'administered pricing' structure of petroleum products was sought to be dismantled. Petrol and diesel were to be available in the market at prices based on international levels (however, with heavy taxation). Some subsidy elements were to continue for a while on items like diesel, kerosene, cooking gas and the like. This worked fairly well for a while. However, the temptation of the government to 'administer' the prices, based on temporary political considerations, resurfaced around 2004, with unfortunate consequences.
With the level of government hold on this sector, it is but natural that assignments in this ministry at all levels, are done with 'care'. The popularly held belief, almost certainly correctly, is that one or two large business houses usually have a major hand in the choice of the minister, secretary, other senior officials in the ministry and the chiefs of the PSUs in this sector. To relate one personal incident, I recall a meeting held in the house of the then Prime Minister P.V. Narasimha Rao, at his Akbar Road residence some time in autumn 1992. I had assumed the post of textile secretary a couple of months earlier and after a careful study, had come to the conclusion that the taxation structure relating to polyesters (a key raw-material for textile sector) was highly skewed, and appeared to be tailor-made to benefit one particular large business house. I had mentioned in that brief meeting to the prime minister, that the taxation structure was all wrong, that it needed to be revamped. Narasimha Rao gave a wry smile, in jest he called the peon and asked him to draw in the curtains, with the remark, 'hush, somebody may hear what you are saying, he may not like it'. When I continued in the same vein, the finance secretary, sitting next to me, put a hand on my shoulder and whispered to me, 'you have just come from Lucknow; do you want to go back in a hurry?' Indeed, it may even be a coincidence that within two months I found myself back in Lucknow!
Trading PSUs – give and take, for private benefit . . .
The STC and MMTC were established as the main international trading arms for government's bulk imports and exports. The MMTC focused on various metal and mineral items, while the State Trading corporation dealt with a large number of miscellaneous items. At a time of acute foreign exchange shortage and when import licences were hard to obtain, these agencies also bulked the requirements of various end-users in India – for import and distribution. The STC was the main 'canalising' agency designated by the government for bulk imports of a number of specified products for domestic distribution. By the mid-'80s, however, a large number of Indian exporting firms had sprung up, thanks to the excellent base provided by the Commerce ministry, as well as due to the growing maturity of the Indian export community. Since the early 1990s, imports were also relatively liberalised, and the industry could use private channels, on better economic terms, to meet their requirements of imported raw materials and components.
The STC and the MMTC probably were the first agencies to introduce in India the unofficial 'commission' arrangements. Many or most of the bulk import or export contracts through these agencies had an element of additional commission, over and above the normal transactional cost, as pay-off to various officials in India. The practice was to deposit these illegal payments in various exotic banking destinations all over the world, including Geneva, Zurich, Bahamas, Cayman Islands and the like. It was a time of the introduction of the Swiss 'numbered accounts' in India, which were utilised by many politicians, senior employees of the import/export organisations, private importers and exporters, as well as a few selected 'privileged' government officials, who had a strong political nexus. In all probability, the practice of adding illegal commission started with these two agencies and rapidly spread to practically every other PSU engaged in international trade, as well as the establishments specialising in defence imports. Many Indian businessmen followed suit in this fashionable practice. It was also a period of significant market premia on the US dollar. Under-invoicing and over-invoicing of exim trade, as suitable to the occasion, became a regular trade practice. The state PSUs also, to a significant extent, followed suit. Indeed, the culture of every major governmental purchase deal to have a strong 'sweetener', was pioneered by STC/MMTC. It later became normal nationwide business practice.
The Food Corporation of India was also the main agency to procure foodgrains and arrange distribution under the food rationing arrangements. It had, and continues to have, massive nationwide operations with countless warehouses and godowns scattered all over the country. The distribution of foodgrains continues through the rationing system to BPL families (Below Poverty Line) through this agency. It should be added that large 'leak
ages', in collusion with procurement markets and distribution middle-men, are a well known feature of the operations of this agency.
It must also be conceded that the three major trading organisations have, like many of the other PSUs mentioned earlier, played a significant role in the economy, in providing for imported/domestic inputs, as well as handling of bulk exports. With so many private operators, with efficient international contacts in play currently, along with the elimination of the market premium on US dollar, the role of STC and MMTC has sharply diminished. The FCI, however, continues to play a significant role in the national economy, though it requires much reform.
The Indian Railways – chugging along . . .
Strictly speaking, a reference to Indian railways may not be appropriate here, since it is not a PSU, but is purely departmentally operated. However, it is necessary to take note of the major role played by railways in the national economy. The Ministry of Railways is in-charge of railway policy; it also directly supervises the vast operations of the system.
The first railway train ran in India in 1843 – one of the first countries to start the railway system. By the year 1880, nine thousand miles of track were in operation; managed by a number of privately sponsored companies. By Independence, there were forty-two companies engaged in the railway business in India. In 1951, these were nationalised to create the Indian Railways – now a mammoth organisation. With about 110,000 track kilometres in use, the railways today employs directly about 1.5 million people, and provides transportation to nearly two crore people daily. It is one of the largest systems in the world.
Goverment In India Page 19
