Goverment In India

by T S R Subramanian

  The railways is the only Indian Central Government department, which has its own annual budget, independent of the Union budget. This underlines the special importance given to the railways in the national scheme of things. The railway budget is usually presented in the Parliament by the railway minister one day before the presentation of the national budget. It could be argued, with some validity, that there is really no logical justification to continue the practice of having a separate railway budget. The railway budget usually is the occasion for the government as well as the railway minister of the day, to indulge in a bit of populism. The occasion is utilised to announce a large number of new lines, connecting various points, without making full budget provision for implementing these ambitious new ventures. In fact, as of now, the new railway lines announced cannot be implemented even in the next hundred years at the current rate of financing available for new projects. However, the ritual continues, to please local constituencies every year. One has not heard of a single new line, sanctioned say twenty years back being cancelled for lack of funds or any other reasons concerned with technical or commercial feasibility. While, such 'largesse' of unconstructed new lines has been showered nearly in every state, the main beneficiary has been Bihar, from where a number of railway ministers have originated. It is also noteworthy that Assam and the North-Eastern states have been insufficiently connected with a railway network, which is a legitimate grievance. This also partially explains the lack of full integration of this region with the rest of the country.

  If there is one major agency in India directly touching the lives of the common man and functioning with a reasonable degree of efficiency, it is perhaps the Indian railways. As we have seen earlier, national systems delivering electricity or water to the citizen, including the farmer, have performed abysmally, well below the basic requirements. By and large, to its credit, the railways have continuously expanded their track network, improved safety standards, increased the speed of some fast passenger trains (even though not by a big margin) and has touched the lives of most citizens positively. It should also be added that hygienic conditions in the train and the toilets, passenger facilities, especially in the lower classes are well below par – but not inconsistent with the quality of life enjoyed (or suffered) by most citizens!

  Much of the development of the railways has been done indigenously. The various massive railway workshops all over the country, have also contributed to the growth of small scale units in various parts. Much of the technology has been developed locally; even though in recent years, in the process of induction of diesel and electric locomotion, there has been collaboration and commercial relationship with a number of foreign suppliers. By and large, the Indian railways is a unique phenomenon, a system that is suited to Indian conditions and which works reasonably well. The railways has managed to keep the price of tickets, particularly in the lower classes, affordable for most citizens.

  Railways is also the last bastion of the public sector in India. There has been no talk whatever of the privatisation of the railways as a whole, even though there is reference here and there to subcontract increasingly more activities to private sector. In the euphoric craze of inviting the private sector into each and every service area, the railways has thankfully been exempted. One wonders what the ticket prices would have been for the common man, after ten years of operation in private hands! This is also another index of the sensitivity in this country to give primacy to service quality and price in segments directly in touch with the rural areas. This sensitivity is to be noted in the context of permitting large companies, including international corporations, to come into the rural agricultural sector, in the name of efficiency.

  PSUs of State Governments – the poor cousins . . .

  Taking a cue from the Government of India, there was a rush amongst many state governments to establish 'corporations' to undertake various 'development' tasks. It was found easier to short-circuit the normal, allegedly cumbersome secretariat procedures by creating these entities and letting them function like private companies, with autonomy. Thus, corporations were set up in many, or most states, to deal with acquisition of land and allotment of the same for industries and for creation of industrial estates (IDCs); an agency for procuring scarce raw material and distributing them to small sector units, and in general assisting the small sector (the SIDCs); as well as an agency for encouraging small scale entrepreneurs by helping them with investment finance (the State Finance Corporations, set up in collaboration with IDBI). These were the basic development corporations. Many states also established agro-industrial corporations. All these were supposed to run on commercial lines, with initial capital provided by the state government – their revenues to be derived from the services rendered by them. While these agencies were to be autonomous, the reality was that they were strongly controlled by the minister concerned or by senior officials in the secretariat – many of whom became the board chairmen of these agencies. In general, these agencies were not unduly efficient. Nor were they generally 'clean' – a rent, small or large almost certainly had to be paid by the client for any service rendered, apart from official payment for the services. Despite this criticism, it will be fair to say that these basic corporations performed a significant role in promoting the small scale sector in many states. Incidentally, whereas licensing and control of the medium and large scale units was with the Central Government, the states had the development of the small sector in their purview. Special mention should be made of the role played by SICOM in Maharashtra, for encouraging the creation of industrial estates in that state; this was a role model for other similar bodies in other states. Indeed in many states of India, like Gujarat, Tamil Nadu, etc., these basic corporations have to be given much of the credit for the fillip given to the growth of the small scale sector.

  However, many states got carried away by this 'corporate culture'. In the '60s and '70s, the joke used to be that the entire governmental machinery should be converted to a gigantic corporation for ease of decision making! Indeed, in many states, 'Area Development Corporations' were established in the '70s in the expectation that development of backward areas will take place much faster if a corporation were to undertake the task. Thus, in every revenue division of UP (covering four or five districts), a Divisional Development Corporation was set up – mainly to respond to strident political calls for the development from 'backward regions'. These agencies had no business plan, no strategy; their creation resulting from a knee-jerk reaction to respond to the need for development. They failed right from the outset. The clueless managing directors had no idea how to proceed. They were not given any technical, commercial or managerial direction from any source. These agencies floundered for a few years, till they reached their natural death. Meanwhile all they managed to do was to recruit drivers and peons, to add to the ménage of the executives and of the district authorities.

  I recall an incident of the early '70s relating to the Poompuhar Shipping Corporation, promoted by the Tamil Nadu government to encourage sea cargo transport on our eastern shores. My good friend K.S. Ramakrishnan, an IAS officer of the Tamil Nadu cadre, was the managing director of this company. He had gone to Varna in Bulgaria to negotiate the purchase of three new colliers from the government-owned ship yard for hauling coal from Haldia in West Bengal to Tuticorin thermal plant. While in the hotel, he stumbled upon an exchange of telexes between the state political leadership and the purchase agent which revealed that an addition of 25 percent cushion on the purchase price was being suggested by the state leadership as kickback in the deal – imagine the level of machinations when the managing director himself was unaware of shady action taking place behind his back! Ramakrishnan warned the ship yard management against entering into any such surreptitious kickback agreement and successfully negotiated a price in which there was no 'cushion' for the state's political leadership. When the miffed state leadership did not allow him to proceed further with the deal by refusing permission to op
en appropriate letters of credit, Ramakrishnan wrote a strong formal note on the file exposing the whole game. Naturally, he was transferred pronto to another relatively insignificant assignment in the state. When I heard about it, I spoke to the then Cabinet secretary, and arranged a posting for him in the Ministry of Commerce, Government of India. Lo and behold, the state government suddenly discovered the value of Ramki!; they wrote back to the Government of India that Ramakrishnan was an extremely fine officer, that his services were badly needed for the development of Tamil Nadu, and that regretfully he could not be spared for the Central assignment! With all the signs being clear, Ramki decided to opt for voluntary retirement from service and joined the senior management team of a manufacturing company in Madras.

  The matter did not end there; the political leadership read the Riot Act to the company and forced it to dispense with his services. Ramakrishnan was soon picked up by Ramnath Goenka to be the chief executive of Indian Expressgroup and later resident editor of its Tamil Nadu editions. When word was sent to Goenka that the state leadership was unhappy with the appointment of Ramakrishnan, the redoubtable Goenka replied that he was not in the habit of consulting politicians before appointing anybody in his organisation!

  Ramki had concurrently started 'American Education Aids', an institution providing correspondence coaching for GMAT, GRE and TOEFL, which was a roaring success financially and in terms of benefiting countless young men and women, initially in Tamil Nadu and subsequently all over India in getting admission and financial assistance in reputed American universities. Incidentally, Ramki is also the pioneer of the concept of local area newspaper, starting with Anna Nagar Times, and expanding into eight separate local editions in different mohallas of Chennai. (This story underlines firstly the high quality of the senior personnel that the governments are fortunate to have; as also an illustration of the pressure on senior officials to 'cooperate' with the system. Indeed, Ramki showed enormous courage; many others in his place would have buckled.)

  I am also reminded of an amusing episode, when I was posted as the managing director of the newly created export corporation in Uttar Pradesh, in mid-'70s. At the time of the creation of the agency, there was no strategy, no business plan, not even a preliminary project profile on what the agency should do – merely an expression of the desire to promote handicraft items from Uttar Pradesh. Soon after I assumed charge, I had asked the office superintendent to send a message to all our Indian and foreign contacts – customers, vendors, embassies, agents, etc., to intimate that I had taken over as the managing director and to give my coordinates for correspondence. One day, as I was passing through the dak section, I found the dispatch clerk sealing some envelopes (crumpled brown with smudged glue and dirty fingerprints), carrying the postal addresses in Hindi. Indeed the letters were going to some customers in London, New York, Hamburg, Boston, etc. When I opened one envelope at random, I saw the letter was written in chaste Hindi. The address was also in Hindi. Clearly, the letters would not have made it past the main post office of Kanpur. I can imagine the look of astonishment on the face of the local post master, at say, London or New York, if it indeed reached that far. When I chided the dispatch clerk, he aggressively told me of the government order that all official correspondence shall be in Hindi and that non-compliance of this will be treated as insubordination and would lead to disciplinary action. I promptly issued a circular in my office to the effect that all correspondence meant for going abroad shall be in English language. Any violation of that order was to be treated as insubordination and would lead to disciplinary action!

  In short, the basic infrastructure corporations set up by state governments all over the country were generally successful, in fulfilling the purpose for which they were set up. It should be recalled that it was an era of shortages and these corporations fulfilled a felt need to protect genuine customers from the market premia for most items, which were some times outrageous. It is also true that these agencies were not always clean or pure; on the contrary, they mostly were not – but they did serve their purpose. The land procurement IDCs are still relevant everywhere. Indeed, the process of acquiring land for medium and large size projects has become that much more difficult in recent years.

  Management of PSUs – the puppet strings…

  While in theory, the PSUs were supposed to be autonomous, functioning under the direction of their board of directors, this has hardly been the reality. Till about the end of last century, even minor administrative approvals had to be sought from the government, delaying every process and procedure in the PSUs. Thus, even a visit by the CEO or a senior employee to go abroad, had to obtain the prior concurrence of the ministry concerned. Imagine the MD of a large public undertaking, with a turnover higher than any other private company in India, having to go to a deputy secretary or a joint secretary, asking for his approval before he can go for a conference or for negotiations abroad. In the mid-'90s, the concept of Navratanas was ushered in, wherein nine of the largest PSUs, all profitable, were given considerable autonomy and were allowed to manage their own affairs, within the broad mandate issued by the ministry concerned. There are currently many more than nine Navratanas. Even other PSUs have much greater delegation of administrative autonomy. Indeed, in the last decade or so, the pendulum has swung the other way. The CEOs generally found a nexus with the minister or the political establishment and could cock-a-snook at the ministry, some times leading to embarrassing situations.

  The vexed question of finding personnel to suit the top positions in the PSUs, continues to be in a muddle. The PESB has been given the task of recommending appointments to the board, to fill full-time vacancies. Enormous pulls and pressures operate in this area and oftentimes, logic and fair play are thrown out of the window. Many a time, one sees a dishonest, inefficient but politically savvy CEO getting extension after extension, while on the other hand, the honest, able director is shown the door at the end of his tenure. This is not the occasion to discuss details of reform. This area is in crying need of a reform in approach. Recently, a friend of mine who is a non-executive director in one of the major PSUs mentioned to me that a new managing director had been appointed to his board to cover a vacancy – the new incumbent had to find and pay the sum of Rs 30 crores to the minister, for getting the appointment. While I am unable to testify if what my friend told me is the gospel truth, I see no reason to disbelieve him or to imagine that he was exaggerating heavily – I know him to be credible and he is an insider. Just imagine, if this is the cost of the MD's entry ticket, how much money he has to generate on the side over the first two or three years!

  It is also fair to say that practically every PSU is over-staffed. It is not in the nature of the governmental machinery to be parsimonious in recruiting staff, nor be lean and mean during bad times. Besides, almost invariably, the minister concerned would ensure that the PSU located in his political backyard gets additional recruitment, whether needed or not. Indeed, it can be surmised that the largest single cause of inefficiency of the PSUs is their flabbiness. Hiring in PSUs is a one-way street – much like regular governmental employment, one's prospects may go up or down but one is never out!

  There is another aspect worth noting, when something major goes wrong and the future is fraught with suspense, the CEO of a private sector company will have sleepless nights, whether he has strong ownership interest or not. On the contrary, has one ever seen the MD of any PSU perturbed or worried enough to lose a night's sleep at the commercial prospects of his company? This attitudinal difference is another fundamental divide between the PSU and the private enterprise.

  Competition certainly can help in galvanising a sluggish organisation into some activity. But most PSUs have such large structural weaknesses that even with the best of intentions, one cannot make them sprint. No doubt, Indian Airlines tried to shake itself up in the face of competition, probably with some success. However, this cannot be said of most other PSUs, particularly since the '90s. We have seen
how NTC has fared. It is only those PSUs who are directly used by government as policy instruments and effectively do not have any serious competition that are likely to thrive. The oil sector PSUs are cases in point.

  Disinvestment and Related Issues – the baby and the bathwater . . .

  It should be noted that many or most PSUs have fulfilled the roles for which they were established in the 1950s and '60s. Indeed the public sector policy, as a whole, should be considered successful. But with inevitable changes in the economy, arising out of greater integration with the rest of the world, larger inflow of FDI and with free access to the best technology and management from international sources, clearly the private sector has the edge. Thus, carrying on with loss-making PSUs, unless they serve a strategic purpose is counterproductive. The temporary urge to protect the labour interests, ultimately works against labour itself – sooner or later, the unit has to be closed down. A wiser policy will be to identify units ready for transfer to private management, well before they are fully exhausted and still have some market value and have these suitably transferred to the private sector for management. This broad approach could protect employment, while retaining the overall public interest.

  There are of course many questions related to the methodology of the transfer of management – whether it should be a one-shot sale, whether it is disinvestment in degrees, etc. In addition, knowing the propensity of the political establishment to convert every situation into private profit, the methodologies of disinvestment or divestment or privatisation – each of these terms having a different connotation – need to be executed with care, precision and integrity. Much ground has been covered over the past two decades on this matter.