Gyan Sangam's PSU 'reform

In my last piece, I had raised just a few of the many questions that Prime Minister Narendra Modi could have asked bankers at the "Gyan Sangam" - the Bankers' Retreat in Pune. What came out of the meeting? In a mishmash of hyperbole and management jargon, the prime minister announced that this was the "first step towards catalysing transformation … informal discussions helped achieve meeting of minds, which in turn enabled strategic goal-setting".

The prime minister then went on to praise the banks in successfully implementing Jan Dhan Yojana, which he curiously claimed "would help redefine goal-setting among banks, due to enhanced confidence levels following the success of the programme". After this follow two of the most important statements of the meet.

First, the government banks would be run professionally, and there would be no interference. But accountability was essential, said the prime minister. According to him, "the government had no vested interest, and public sector bankscan derive strength from this fact".

Second, while there will be no political interference, it will continue to mean political intervention, "in the interest of the people". After all, "India is a democracy" where the voice of the common man has to reach such institutions. According to Mr Modi, this can happen only through "political intervention". In these words lies Narendra Modi's approach to running the public sector enterprises. If this government puts out a white paper on PSU (public sector undertakings) reforms ever (most unlikely), I think it would contain the following subtext:

• The government is in absolutely no hurry to bring down its stake and relinquish control over the PSUs or to give them complete freedom to operate.
• The PSUs will be given day-to-day functional "autonomy" even though they will be firmly tied to the apron strings of their respective ministries.
• The PSUs are extended arms of the state. Hence, they will be pressed into service to implement government policies and programmes such as Jan Dhan Yojana and Swachh Bharat Abhiyan.
• They will be made accountable for government policies, and their performance - possibly in that order.

The Modi government came to power in May 2014. The first Budget, two months later, was a disaster, set against the high hopes generated by Mr Modi's pre-election slogans on governance. Instead, to the surprise of Mr Modi's supporters who wanted to see a rapid dismantling of state enterprises that illogically continue to run businesses like airlines and hotels, the government has continued with the same principle - of PSUs being extended arms of the state.

At the Gyan Sangam, Mr Modi asked banks to move to the second phase of Jan Dhan - promote financial literacy by encouraging competitions in schools, much like mock Parliament competitions. He also instructed the public sector banks to develop common strengths in software and advertising, help develop 20,000-25,000 "swachhta entrepreneurs" a bank, offer loans to students (despite huge bad loans on this account) and avoid "lazy banking" - whatever that means. The prime minister also told the bankers that "as part of corporate social responsibility, banks should take up one sector each year to play a positive role". In short, it is business as before, with politicians ordering managers in PSUs what to do with their business, no matter how ludicrous their instructions sound.

In the Budget last year, the government had provided for around ~60,000 crore of disinvestment. Eight months later, only one disinvestment has happened. This is a bogus case of disinvestment - a sale of five per cent stake in Steel Authority of India Ltd to Life Insurance Corporation, another government-owned organisation.

In all fairness, I have no doubt that the government means well. Mr Modi will not use the PSUs - and especially public sector banks - to push personal interests. There will be fewer phone calls to bankers to favour "x" or "y", as has happened with all regimes in the past. Indeed, the department of financial services promptly followed up on Mr Modi's promise and issued a release to bank and insurance chiefs assuring them of freedom, of non-interference in commercial decisions, transfers and postings, etc. It directed them to take decisions in the best interest of the organisation without any fear or favour. It even warned them they should use this freedom fairly and would be held accountable if they didn't. Possibly, the government will choose the right people to lead them. There may also be administrative moves to appoint better people to the boards.

But this is no reform. This is pushing for administrative and operational efficiency within the current structure, something that every leader from Indira Gandhi onwards has tried - and failed. This is not to say that Mr Modi will fail, too. Indeed he will succeed far more than previous prime ministers.

But Mr Modi's philosophy of governance was embodied in statements such as "minimum government, maximum governance" and "the government has no business to be in business". If Mr Modi has to live up to these words, he will have to make a radical departure from the past, not offer us mere operational efficiency while continuing to treat the PSUs as extended arms of the government.

The Bharatiya Janata Party leaders have asserted at various times that they will do whatever is in "the interest of the nation". This has been the favourite phrase of all sorts of leaders - fascist, communist, capitalist and benevolent dictators, believing in "democracy" - if run by a single party. Most thoughtful people will be unimpressed with such statements of intent from politicians. They will rather look for institutional reform of the PSUs based on sound economic principles that dictate the right kind of ownership, competition, incentives and exits. They will not find any of these principles being applied in India anytime soon.