India's Crony Socialism and Why Congress Mukt Bharat Will Remain a Dream - Vivek Kaul's Diary
Free Reports

India's Crony Socialism and Why Congress Mukt Bharat Will Remain a Dream

Jun 1, 2016

28

The prime minister Narendra Modi in a recent interview to the Wall Street Journal said: "Actually, in any developing country in the world, both the public sector and the private sector have a very important role to play. You can't suddenly get rid of the public sector, nor should you."

In this column we will concentrate on the second sentence i.e. you can't suddenly get rid of the public sector.

Let's look at the losses of the loss making public sector units over the last twenty years. As can be seen, the losses have gone up from Rs 5,188 crore per year to Rs 27,360 crore per year. While the number of loss-making public sector enterprises came down over the years, it has started to go up again. Also, it needs to be stated here that I stopped in 1995-1996 because I couldn't find data before that.

Year Total losses of loss making PSEs
(in Rs crore)
Number of loss making PSEs
1995-1996 5,188 102
1996-1997 5,939 104
1997-1998 6,697 100
1998-1999 9,305 107
1999-2000 10,302 105
2000-2001 12,841 110
2001-2002 10,454 109
2002-2003 10,972 105
2003-2004 8,522 89
2004-2005 9,003 79
2005-2006 6,845 63
2006-2007 8,526 61
2007-2008 10,303 54
2008-2009 14,621 55
2009-2010 16,231 60
2010-2011 21,817 62
2011-2012 27,683 64
2012-2013 28,562 79
2013-2014 21,341 70
2014-2015 27,360 77

Source: Public Sector Enterprises Surveys

The public sector enterprises have lost a total of Rs 2,72,512 crore over the last twenty years. Of course, this calculation has got very little meaning given that it does not take inflation into account. If inflation were to be taken into account, we would be expressing the losses of 1995-1996, 1996-1997 and so on, by adjusting them for inflation. This would be a horribly big number.

The broader point here is that public sector enterprises have been losing money for many years now. This is a problem that has been left unaddressed by a series of governments. So, when Modi says that you cannot suddenly get rid of the public sector, what he is not taking into account is the fact that these companies have been bleeding for many many years.

In many cases, the government makes up for these losses, once the networth (i.e. assets minus liabilities) of the company has been eroded. And this money can easily be used somewhere else.

Up until, May 2014, India had an era of coalition governments. And this limited the ability of the government to do anything about these loss making companies. Each loss-making public sector enterprise comes under a ministry and what is a ministry without a few public sector enterprises under it. The current Modi government has no pressures of a coalition government.

Further, most political parties have trade unions affiliated to them and no government likes to take them on. Hence, shutting down a public sector enterprise remains difficult.



Advertisement
  Our iOS App is Here... Get it Now!  
   
  We take immense pleasure in announcing that our iOS mobile App is now LIVE.

Yes, the complete Equitymaster experience is now available on your Smartphone...iOS and Android!

Right from the free e-Newsletters to the chart-of-the-day; from the intelligent portfolio tracker to our premium services; from our latest recommendation reports to all the daily market commentary... and a lot more.

If you're reading this on your mobile, just click on the icon below to download the app right away!

  Android Mobile App   Android Mobile App 
 


As of 2013-2014, a total of 2.5 lakh people worked for sick public sector enterprises. A public sector enterprise is considered sick if its accumulated losses at the end of a given financial year are equal to more than 50% of its average networth in the four preceding years. Of course, the number of people working for loss making public sector enterprises would be more than 2.5 lakh. But it still forms an insignificant portion of the population.

The question is why is the whole county subsidising these 2.5 lakh people? Or is this another version of sabka saath sabka vikas? The general impression is that such a waste of money, hurts only the income tax payers, who form an insignificant portion of the population and hence, the government does not bother about them.

This is incorrect. While everyone doesn't pay income tax, people do pay indirect taxes. And by subsidizing these sick and loss making public sector enterprises, the government is essentially wasting this money. In fact, the government seems to have the same view as well.

As the Economic Survey of 2015-2016 points out: "Those paying the costs could well be the poor. They pay taxes, even if only indirect ones. And they may also have to bear the burden of paying higher prices while getting substandard goods and services from inefficient firms which should have exited, but haven't."

Other than this, subsidizing these losses means that the government has lesser money to spend on other things, given that it has only so much money to spend. Let's take the case of money that the government spends on elementary education (classes I to VIII). The following table shows the money spent on elementary education between 1997-198 and 2014-2015.

Year Money spent on elementary education
(in Rs crore)
Total losses of loss making PSEs
(in Rs crore)
1997-1998 2,267 6,697
1998-1999 2,743 9,305
1999-2000 2,854 10,302
2000-2001 3,152 12,841
2001-2002 3,577 10,454
2002-2003 4,305 10,972
2003-2004 5,219 8,522
2004-2005 7,228 9,003
2005-2006 11,220 6,845
2006-2007 15,371 8,526
2007-2008 18,440 10,303
2008-2009 19,489 14,621
2009-2010 18,448 16,231
2010-2011 29,310 21,817
2011-2012 31,673 27,683
2012-2013 35,929 28,562
2013-2014 36,507 21,341
2014-2015 35,517 27,360

Note: The numbers from 2008-2009 onwards are actual numbers. The numbers before that are revised estimates
Source: Indiabudget.nic.in

If one looks at the numbers between 1997-1998 and 2004-2005, the losses of public sector enterprises were much more than India's elementary education budget. After that, the allocation to elementary education has gone up. Nevertheless, the losses of public sector enterprises continue to remain huge. And this isn't good.

What is more necessary, subsidizing people who work for loss making public sector enterprises or educating India's children? Of course, educating India's children. So, why is so much money being wasted then on loss-making public sector enterprises?

Also, it needs to be stated here that simply spending more money is not a solution to the problem. The money needs to be well spent as well. In fact, since the Right to Education became a reality in April 2010, the learning levels of India's school children have actually gone down. (This remains another topic to be discussed on another day).

The crony socialism of continuing to run loss making public sector enterprises which was initiated by the Congress party, continues to survive. Prime minister Modi told that Wall Street Journal that public sector enterprises couldn't be done away with suddenly.

Actually, there is nothing sudden about the entire problem. These companies have been losing money for many years. And some of them should have been shut down a long-time back. But they haven't been. And from what he said, it is unlikely that Modi will shut them down as well.

This means that the crony socialism of the Congress will continue to thrive. Politically, Congress mukt Bharat, might become a reality, but when it comes to economics, the more things change, the more they remain the same.

At least, in India.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

Deep State First August 23, 2017
Nowhere was the darkness deeper than in the nation's capital. There, no light shone. No flicker of awareness...observation...learning...or reflection appeared.
A Darkness Is Spreading Across the US August 22, 2017
Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.
Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working August 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
Trump Takes a Beating August 18, 2017
Donald J Trump, a wrasslin' fan, took a 'Holy Sh*t!' blow on Tuesday.

Equitymaster requests your view! Post a comment on "India's Crony Socialism and Why Congress Mukt Bharat Will Remain a Dream". Click here!

13 Responses to "India's Crony Socialism and Why Congress Mukt Bharat Will Remain a Dream"

Nalin Nirula

Jul 2, 2016

Mr. Kaul is blaming 2 years of Prime Minister Modi's government for the past 10 years of mismanagement by the Congress led government. Is Mr. Kaul a Congress crony?

Like 

Kannan

Jun 18, 2016

Why don't we start a campaign - "Give It Up!!" challenge for the government: Give up loss making PSU?

Like 

KC SARANGI

Jun 4, 2016

Even if Bharat becomes "congress mukta" congress will be in history like Aurangeb. PSU s were a necessity once upon a time.Losses of PSUs are also sometimes gain to the common man.Any way PSU employees should generate their own salary at least.

Like 

Dr. K. S. Ananda Kumard

Jun 3, 2016

I should admire Mr.Vivek Kaul for his splendid remarks. I am now 76 years. I am seeing the same stories being repeated year after year. Why not call for suggestions from the readers, if not from the public on how to solve this problem? We can always ask the employees and their organizations to give their views on this subject. Govt. of India should not go on bleeding the honest citizens and honest tax-payers. We should also inform this to our beloved honest PM also.

Like 

B K Nandi

Jun 2, 2016

The Nehru-Gandhi dynasty congress mukt Bharat is the most important and priority task for the country. This is the party who are at the base of all problem the country is facing. Like racial division, the crony socialism is the dynasty congress vote bank policy. NDA in 2003-2004 the crony socialism was reduced but the dynasty congress again placed it into old increasing trend. The dynasty congress ministers and its members also stolen wealth from these government controlled companies. The dynasty congress wants these companies in name of poor labourer. The filthy Nehru-Gandhi, symbol for corruption, theft and racism must be plucked out for better India.

Like (1)

Srikant Nalkur

Jun 2, 2016

Are you not getting impatient on Modi regime. Everything has to be seen in a perspective.You can't bundle problems of 20 years or more and lay it on Modi.Unless that is your agenda and not analysis.

Like (1)

VENU MADHAV

Jun 2, 2016

I have a different view. Is it posturing by Modi? If he had committed in public of doing away with PSU, entire opposition & all those would end up raising hue & cry. Is that politically acceptable. Understand that journalists asks very loaded questions or leading questions & many politicians fall for it. That is enough for TV news for days together.

The best man to do away with PSU is Modi. But he cannot make public announcement that will be good hearing for pure finance guys. It would be disaster politically. Just see what happened to land bill & being branded as Suit Boot ki sarkar.

Politicians need to be pragmatic even while chipping away at things slowly. Anyway we have seen more progress than in 10 yrs of money blown up by UPA.

I am offering a different perspective. Does it make sense ???

Like (1)

M K Dubey

Jun 1, 2016

All public sectors ( sick or well) being administered by one or other ministries. Why officials and ministers are not being charged for the crime of keeping their units sick and syphoninhg taxpayers money which would otherwise would have built, education, health infrastructure. Isn't it a scam to deprive allocation to nation building process and spending on sick public sector units. It would be interesting to know the overall growth taking place in government undertakings vis a vis that in private sectors.

Like (1)

Salil Gupta

Jun 1, 2016

It is strange that when people talk of doing away with PSUs they only talk about loss making PSU.
I do not have data - maybe you can help me how much money Govt made through Maruti, BHEL, BSNL , ONGC, IOC etc etc etc. my guess is that it may be many fold of the total losses.

No one talks about these gains.

Although I have my reasons for PSUs to shut down. That is simply this - Govt should be in the business of governance and not in the business of business

Like (1)

Aditya Parange

Jun 1, 2016

One Step at a time, atleast crony capitalism is coming to an end.

Just a few years back could you even think that people like Subrato Roy and Vijay Mallaya could be in trouble.

Like (1)
   Next>>
Equitymaster requests your view! Post a comment on "India's Crony Socialism and Why Congress Mukt Bharat Will Remain a Dream". Click here!