Articles

Public Enterprises in MP

- Sanjoy Bagchi (IAS)


The future of public enterprises in the country is currently shrouded in controversy on account to the opposing ideology of the political parties. Nevertheless, there is need to ponder over two questions: what were the reasons for the creation of public enterprises and have they fulfilled the intended purpose?

Prior to the change in the geographical configuration of the country that took place in 1956 as a result of the States Reorganization Commission, the former British province of CP & Berar was blissfully devoid of manufacturing activity of any sort. There was a solitary manufacturing concern run by the Defense Ministry, the Gun Carriage Factory, at Jabalpur and some low technology agro-processing units like the rice mills of Chhattisgarh and cotton ginning in Vidharbha.

The re-organized state, however, contained significant manufacturing in private sector like the textile mills in Malwa, the ACC's cement plants and Birla's paper mill in Vindhya Pradesh. Most of these enterprises had been in existence prior to the integration of the princely states and the advent of democracy in these areas had not materially changed the situation. Large enterprises were established in the Public Sector at the instance of the central government like the Hindustan Steel at Bhilai, Heavy    Electricals at Bhopal and the newsprint mill in Khandwa. The state's efforts were limited to the service sector, instead of manufacturing, generation and distribution of electricity and the development of road transport as public enterprises.

This dismal situation continued, inspite of the wealth of agricultural, forest and mineral resources in the state, because of Nehru's fondness for state enterprise and socialism. At his instance, the Congress party declared that the goal of the country was a socialistic pattern of society and the Industrial Policy Resolution of 1956 reserved practically all new manufacturing activity for the public sector which was intended to attain the commanding heights of the economy. Some relatively unimportant areas were set apart for the cooperative sector which was another favorite area of the Congress bosses. The existing private enterprises were allowed to continue but for new ventures, the small sector alone was available.

The exploitation of the state's resources suffered because the state did not have the finances to setup its own manufacturing units and had to depend upon the center for its goodwill. The state was politically weak and its feeble voice did not carry weight in the decision-making fora of Delhi, whether in the Congress party or the central government. The Planning Commission, where most of the decisions were taken, rarely decided matters on merits or on pure economic considerations. It was political pull all the way, cleverly disguised by various pretensions.

Having been denied the delectable cake of public enterprise in the manufacturing sector, the state government turned to this institutional form for the management of government programmes at the instance of its bureaucracy. The development programmes and schemes of the development departments were increasingly hamstrung by excessive 'Treasury control' as it was known then. The schemes were proposed by the departments, with the approval of the Finance Department, for inclusion in the five-year plans. The concerned central ministries examined them threadbare and had to be vetted by the Planning Commission. Having survived the scrutiny of so many agencies, the schemes were either included as centrally sponsored ones or were made part of the state plans. In the case of the latter, financial provision had to be made again with the concurrence of Finance Department in the annual budget. Even after budgeting, which had received the political approval of the minister and in many cases of the state cabinet, and the sanction of the legislature, the release of the funds again needed the goodwill of the Finance Department, which usually condescended towards the close of the financial year. There was hardly sufficient time left for implementation and the balance of the unspent funds lapsed by the end of the financial year. And the same long-drawn-out procedures had to be repeated in the following financial year.

The bureaucracy in the development department hit upon the institution of state enterprises to evade Treasury Control. The departments of the government would establish state corporations that would remain under their overall control and supervision as the heads of department were. The funds once obtained after the approval of the Finance Department will be in the custody of these autonomous units outside the normal governmental audit. There was no danger of their lapsing into the Consolidated Fund at the end of the financial year. Since the corporations would be autonomous of the day-to day governmental control, they will have more freedom and flexibility in the implementation of the plan schemes.

From the 1970s a number of departments mostly dealing with development work but also some of non-developmental nature established at least one corporation under their control. Their names stressed the developmental nature of their functions like industrial Development Corporation, Forest Development Corporation Fisheries Development Corporation, Tourism Development Corporation etc. They were agents of government. They were entirely financed by the government. The department coordinated and supervised their activities by institutional mechanisms. Generally civil servants were appointed as the chief executives in the role of managing directors and in the beginning their board of directors were chaired by the secretaries of the department. Later many corporations came to be headed by departmental ministers or politicians of the ruling party. The boards of directors invariable contained representatives of the parent department, finance department and some other concerned governmental bodies together with a sprinkling of non-official members who may not necessarily have expertise in the subject matter of the corporation.

The autonomy of the corporations was more optical than real. There was certainly substantial freedom from the daily scrutiny of the parent department and the constant interference of the finance department. They were supposed to devise functional procedures that would avoid the rigidities of the governmental system. But since government servants deputed at the beginning brought with them the governmental rules and procedures, they were familiar with, the corporations also created the same wooden structure that facilitated evasion of responsibility, a tall hierarchy that delayed decision-making, and a system that was as rigid and inflexible as the Fundamental Rules. While the flexibility of working prevailing in commercial and business groups was incompatible with Treasury control, it was also mostly incompatible with the requirements of governmental functioning.

Ministerial control and parliamentary responsibility are essential features of our working. The political ministers as head of different areas of governance have to exercise some control, its extent depending upon the minister’s own aptitude and proclivity. Some are fond of close monitoring on a daily basis requiring the personal attendance of the chief executive. Some are satisfied with general supervision of the corporation's functioning at periodical intervals. Some are insistent on advance knowledge and clearance of politically - sensitive issues. Usually the simultaneous functioning of the minister as chairman of the board of directors obviates the need of ministerial control but there are some attendant dangers as well. The minister's role as the head of the corporation is likely to politicize its functioning and administration , It may lead to loss of independent identity and could end up becoming a mere appendage of the political apparatus Although the charter of most corporations contain suitable provision for government directives to corporations (that could be subjected to parliamentary scrutiny later), the minister in his dual capacity could informally pass on his wishes for implementation without anybody being wiser.

Parliamentary responsibility is another element that is closely related to the autonomous character of the state enterprises. No institution, created by legislative authority or otherwise, financed from the Consolidated Fund, can ever be independent of the legislature under a parliamentary system. The annual reports have to be presented to the legislature, which in the case of important enterprises would set apart time to debate its performance. The legislature would also discuss the role and function of individual enterprises at the time of the debate on grants provided in the budget proposals. The members of the legislature retain the right to table questions for the ministers to answer on important incidents and issues pertaining to the enterprise. The so-called autonomy should only             preclude interference in day-to-day functioning but that also depends upon the good sense of the legislators. In Britain for example the MPs as a rule abstain from tabling questions on the state enterprises and even if a question is asked, minister declines to answer because it is related to its normal functioning. In our country, however, the legislators have rarely displayed such understanding or forbearance.

Since the middle of 1970s the urge to set up more state enterprises was intensified. A number of senior civil servants and ministers belonged to the tribe of Clive and Hastings the tribe of empire builders- who were anxious to enlarge their domain to placate their imperial ego. The increasing fragmentation within the ruling party created the need to satisfy the craving for political office and perks of dissident groups. Since all faction leaders could not be accommodated within the ministry, however bloated it might be, without endangering the future of the entrenched incumbents, autonomous enterprises became convenient parking slots for clamorous politicians who were pacified with the award of cabinet rank and status. The corporations, funds could be utilized, avoiding the usual financial scrutiny of actual demand and need, to provide numerous cars adored with red beacons, platoons of personal staff and liveried menials, and unlimited opportunities for travel and entertainment throughout the country.

The IAS could not be left behind. Thanks to the miscalculation of the Planning Commission, the annual recruitment of the IAS had been          doubled and then quadrupled since the end of the 1950s under the misguided notion such that the number of IAS officers should increase in parallel 1970s with the growth of plan size. Fifteen years later they had arrived at the stage of senior positions, which were not available in adequate numbers within the cadre strength. Ingenious devices were conceived, ex-cadre posts were created with impunity, the posts meant for the state services were cannibalized for the IAS and small sections of work were carved out from existing formations to provide suitable berths for officers who demanded time-bound promotions. The most comfortable solution, however, was the establishment of new corporations, it did not matter if there was overlap of functions or duplication of efforts. A slight change in the name was enough to justify the creation of a new body.

The original intention for public enterprises got submerged in the frantic efforts the politicians and bureaucrats to create vacant positions for themselves. The intention of introducing commercial style of working, instead of the usual bureaucratic system, was forgotten. The new institution became as rule-bound and hide-bound as the older governmental organizations. Since new recruitment in the government was restricted, the state enterprises provided openings for the exercise of patronage and soon they were packed with cronies and relatives of political bosses and others. Unnecessary avenues of promotions were created for their rapid advancement irrespective of the need.

Almost all the corporations become infested with over-staffing. A large part of the funds was used up on meeting the staff costs and in satisfying the demands of chairman and managing directors; very little remained for the pursuit of the development programmes. Because of all reasons, the economic condition of enterprises deteriorated and a large number of them became inefficient and beyond redemption.

The enterprises are in equally indifferent health. It is extremely doubtful if injections of fresh funds in large doses would revive the public enterprises. The malaise is intrinsic, endemic and systemic. Sooner this basic fact is recognized the better it would be not only for the state and its finances but also for these sick enterprises that are a constant drag on the economy, this disturbing position is not peculiar to this state alone; the malady is wide-spread and occurs in many states in varying degrees. Nonetheless, the annihilation of these perennially sick enterprises would not be an easy task. There are several vested interests anxious for their continuation. The blue- and white-collar labor would resist their removal from the comfortable sinecures they have been occupying for ages. They are the privileges untouchables who cannot be dislodged by any political party, irrespective of their ideology. Then there are the political bosses who would like to protect their perches until at least they find another convenient nest. And the civil servants, anxious to avoid another spell of job-hunting would do their best in invidious style to delay the closure as long as possible. Public enterprises have had their day and they cannot survive now. The economy has been freed from the shackles. New ideas and new technologies are coming in every day. Liberalization has created a completely different atmosphere. State enterprise by their very nature can never be efficient or competitive. Socialism is dead in its country of origin because it was inefficient and failed to serve the purpose. Even Britain could forge ahead only after denationalizing its industries and services. India will have to forget the obsolete ideology, close down the derelict remains and leave the area vacant for private enterprises.