Politicians, leave the PSUs alone!

Just like Pink Floyd, in their classic ‘Brick in the Wall’, exhorted teachers to leave them kids alone, one should ask our politicians to leave PSU (public sector undertakings) managements alone.

The news that nine public sector banks had revealed aggregate losses of ₹14,000 crore in just one quarter, ended March 2016, is shocking. Just one bank, PNB, once the largest after SBI, reported a quarterly loss of ₹5,367 crore, the largest ever by any bank.

The root cause of the malaise is not inept management (in some cases it would be a contributing factor). The root cause is that PSU banks have majority government ownership, which makes their top management amenable to take oral suggestions from politicians to direct loans to select borrowers. Cronyism thus scores over professionalism.

Since the tenure of a bank chairman is dependent on the politician, he is more amenable to heeding the suggestion. The majority shareholder he is answerable to is the government, represented by the minister.

This is the reason all politicians, across party lines, vociferously oppose the privatisation of PSU banks, the only solution to stemming the rot of crony lending and bad loans. The ₹14,000-crore aggregate losses revealed by the nine banks are legacy problems, and the loans have been rolled over to accommodate the borrowers.

Vijay Mallya is a small part of the problem of defaulting borrowers who are unable to repay. In this case, since the money is owed to government-owned banks, the government is going all out to try to recover it. As it should. The government has cancelled his diplomatic passport, frozen his dividend and other payments.

But why does the government not be equally firm in dealing with fraudsters in cases where it is public money that is not repaid? Why can it not cancel passports, and withhold payments to scams like QNet, NSEL, Sahara, Sarada? Is a democratic government not for the people and of the people?

The corporate results for the March quarter have been okay, except for the PSU banks, which are dragging them down. This is for legacy reasons, of directed lending to cronies. Besides banks, politicians have been using other PSUs as milch cows and misusing their assets.

Petro subsidies

For years the government subsidised petro products, making ONGC and GAIL pay a big chunk of the subsidy. Even if certain petro products (kerosene and LPG) need to be subsidised for the weaker sections of society, it was asinine to subsidise petrol and diesel, used for cars and trucks and hardly owned by the weaker sections. Yet companies like ONGC, OIL and GAIL bore the brunt, ruining their ability to invest for future oil discoveries.

Hugo Chavez had similarly plundered his state-owned oil company, PDVSA, and bankrupted it. Today, Venezuela is in a pitiable state, even though it has huge oil reserves. PDVSA has no money to extract those reserves. There is no export revenue to import food. People are rioting and society has broken down.

Fortunately, this government has brought in Direct Benefit Transfers, only to those deserving of subsidies. It has also freed petrol and diesel from price controls; when prices of crude oil fell globally, it raised excise duties, and thus garnered the benefit of falling prices through higher indirect tax collection. Lower crude prices, plus a 39 per cent fall in demand for gold in Q1, are factors that have helped India lower its trade deficit for the fourth straight month to $4.8 billion in April.

So, the question remains — will the politicians leave the PSUs alone?

The writer is India Head, EuroMoney Conferences