The government’s immense political capital should give confidence to babus to take bold measures.

 

Prime Minister Narendra Modi, in less than six months of his second term, has shown immense fortitude and conviction in carrying through tough decisions. Whether on Article 370 or triple talaq or Ram Mandir (though it’s a court decision, the PM ensured the verdict was peacefully accepted), the Government has been resolute in carrying forward its agenda with utmost clarity and precision even on volatile issues. And I believe the PM would have the same conviction and clarity of thought to lift the economy, which is going through a protracted slowdown, with growth slumping to a five-year low. So what is holding the economy back? There are several instances that indicate execution and implementation—where bureaucracy plays a pivotal role—have been one of the key reasons that have failed to provide timely intervention, aggravating the crisis. From telecom to highways to financial services to oil, a large part of the problem would have been addressed if babus had intervened in time.

Though bureaucrats have held back from taking any bold decisions due to a possible scenario of being hauled up during retirement for a well-intentioned decision that may have led to a “notional loss to the exchequer”, a complete lack of decision making is unacceptable, given the present circumstances.

Take, for instance, telecom. The headwinds for what was once India’s sunshine sector are so acute right now that it is now headed towards a complete collapse. Consider this: British telecom giant Vodafone has written off its India unit to zero, which means India operations have no value in Vodafone PLC’s books. A market in which Vodafone paid $11.1 billion to enter in 2007, a market in which it fought and won the retrospective tax case (UPA brought the retrotax law to overturn SC’s unanimous verdict), a market in which it merged with Idea Cellular to remain competitive. A market in which Vodafone has now officially given up. Of course, the SC judgement of levying hefty fines on spectrum and licence fees is the last straw. But why is it that the Department of Telecom pursued this case for so long that led to mounting penalties and interests being almost 70% of the total dues? A committee of secretaries formed to look into relief measures for the sector has suggested a reduction of annual licence fees from 8% to 5%. This reflects the very incremental approach that has now become the hallmark of Indian bureaucracy. Simply put, India’s third largest telecom company may go into insolvency, impacting banks, financial institutions, denting global investor sentiment and leading to massive job losses but the bureaucracy is still not able to come up with an out of the box measure or even a waiver of the penalty and interest dues.

Let us now take a look at India’s public sector undertakings (PSUs), particularly oil PSUs HPCL and BPCL. There has been a lot of talk about privatisation of these two companies, but little progress has been made. It was on 9 May of 2016 that the official Gazette notified the Repealing and Amending Act, 2016, paving the way for their privatisation. But a good 3.5 years later, we are still debating and exploring. It is not the Prime Minister or the Finance Minister who will keep track of a timeline for privatisation after the passage of an enabling legislation, instead the bureaucracy needs to be answerable for such delays. India’s outlook and approach towards running sick PSUs reeks of bureaucratic inability to come up with innovative solutions. After 70 years, we need to realise there have been fewer instances of PSUs maximising shareholder value than eroding them. Disinvestment—a unique concept of selling small chunks of shares to companies, no doubt discovered by our innovative babus—has done huge disservice to addressing the basic premise of the sale—maximizing the value of taxpayer money. A disinvestment program is inherently linked to a budgetary revenue target and so despite market cycles a budgetary target necessitates equity sale even during weak market years. And unless this mindset changes, India cannot find any alternative solutions to our PSU conundrum, a case in point being the Air India mess.

Highway construction has been a success story for the Modi government, but for construction companies, the inability and reluctance of babus to address core issues related to arbitration have resulted in massive dues impacting the health of the sector. Nearly 15% of the revenue of the top six construction companies—Rs 6,000 cr—was held up due in arbitration in the year ended March 2018, with HCC having the highest number of arbitration claims against government, followed by NCC. The arbitrations are due to disputes over project fees, resulting from cost escalation due to delays. It has often been the case that government refuses to pay awards against it and pursues further litigation. Recognising this, FM Nirmala Sitharaman said that dues would be cleared in time; it was the second time in three years the government was forced to step in. Niti Aayog in 2016 was forced to step in to release 75% of the payments to vendors subject to a bank guarantee when mounting dues resulted in backlog and massive delays. State owned NHAI’s dues on account of litigation stand at a whopping Rs 70,000 cr, leading to cash flow constraints for companies and their ability to bid for new projects; banks and financial institutions are now refraining from any fresh exposure to the sector due to mounting bad loans.

Obviously, all of this cannot and must not land at the Prime Minister’s desk. This must be handled at the bureaucracy’s level. The government’s immense political capital should give confidence to babus to take bold measures. Maybe it’s time for a surgical strike to get rid of the babudom and the status quoist approach that plagues our decision making.

Gaurie Dwivedi is a senior journalist covering economy, policy and politics.

 

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