Veteran industrialist Ratan Tata’s comments on government dictating people what to do or what they shouldn’t, during a chat with students in a Chennai-college, was almost instantly linked with the ‘intolerance’ debate that has dominated the Indian polity in the last few months.
Speaking to students of SRM University at Kattankulathur, Chennai, Tata, currently the chairman emeritus of Tata Sons, said if India has to shine now and in future, people must have the freedom to decide. “While governments can be in the business of monitoring, they should have no role in telling people what to do," Tata said. It is indeed much easier to link Tata’s statement to intolerance — an often used word in Parliament’s washed out winter session.
But, in a separate context the statement also reminds one of the promise Narendra Modi made to a group of US investors in October 2014, a few months after he took over oath as the Prime Minister with a clear majority over the Congress party-led opposition.
It is not the government's business to run a business, Modi had told a group of 300 investors at the US-India business council. "Our job is that of a facilitator to create new opportunities," Modi said.
Exactly 20 months later (Modi took oath on 26 May 2014), if one looks at this promise in the context of the much-needed privatisation agenda, Modi’s words have hardly been translated into meaningful action. Even today, the government is very much in the business of running business. It continues to be the owner of 277 central public sector entities, including 27 public sector banks, many of which are loss making companies draining the exchequer. There are no signs from the government yet that shows its intent to gradually exit its holdings in state-run enterprises.
In 2014, an RBI-committee under former Axis Bank chairman PJ Nayak had recommended that the government should move towards privatization of state-run banks by cutting stake below 51 percent and, thus, letting these entities operate as private entities.
The government’s interference in the running of PSUs (or in simple words telling them what to do and what not) is cited by experts as one of the major reasons for their poor performance since they are obliged to follow ministry diktats first before taking decisions in their own business interest.
Read the Tata comment again: While the governments can be in the business of monitoring, they should have no role in telling people what to do.
The government’s reluctance to let off control of PSUs also have fiscal implications. As finance minister, Arun Jaitley is busy drafting the union budget for 2016-17, one of his biggest headaches is finding money to feed the capital-hungry public sector banks (PSBs), which are staring at least Rs 2.5 lakh crore capital requirement in the next three years to meet the Basel-III capital requirement norms, provisioning requirement on bad loans and the capital required to expand credit productive sectors.
The government has so far announced a capital infusion of Rs 70,000 crore to state-run banks with a direction to raise another Rs 1.1 lakh crore from the market. Raising funds from the market will be, as Firstpost has noted before, quite difficult for the badly managed, bad-loan-ridden public sector banks since there will be little investor interest in these companies. Most likely, these entities would likely return to the government with a begging bowl for money — something that would further constrain the exchequer.
Already, it’s a tight rope for Arun Jaitley to meet his word on fiscal consolidation on account of higher spending need to implement 7th pay commission in the 2016-17. With the disinvestment progressing at a slower pace (just Rs 12,648 crore raised as against a target of Rs 70,000 crore in 2015-16), the government’s aim to lower the deficit target to 3.5 per cent in 2016-17 is already under threat. Jaitley’s options to meet his fiscal consolidation path include aggressively cutting down public expenditure or to raise money, going for a sharp increase in taxes to make up for the deficit or selling stake in PSUs to raise funds.
Theoretically, if the government sells its holdings in the 113 listed state-run entities, it can raise Rs 14,50,000 crore at current market prices. If it goes to pare the holdings in state-run banks alone, the amount it can raise will be Rs 2,90,000 crore. This could free up lot of funds that can be put to use to stimulate growth.
The point here is not that the government should go blindly aggressive and sell the family silver at cheaper rates, but it should show willingness to expedite radical reforms by letting go of control wherever possible. There is no reason why the government continues with its 100 per cent in Air India and over 75 per cent stake in at least nine sarkari banks. It could also consider other heavyweights like Air India and BSNl.
The world didn’t care much when the previous NDA government privatised host of PSUs such as Maruti, Balco, Hindustan Zinc, VSNL and IPCL. To begin with the government could sell with smaller private banks and Air India and act later on other entities based on this experience. It can still retain control of larger entities needed to push social welfare schemes and keep strategic interests.
The short point is Ratan Tata’s advise is bang on in the backdrop of the government’s indulgence in the running of several PSUs by virtue of its ownership in these companies. The government should stick to monitoring and should not tell people (and institutions) what to do.
(Kishor Kadam contributed to this story)