Reforms aren't sell-offs

Rajesh Ramachandran

The term reform has become a euphemism for unpopular, painful governmental decisions that are often accused to be legislative measures to facilitate crony capitalistic ventures. The latest example is, of course, the farm laws that were repealed by Parliament this week. What the government claimed as farm reforms were perceived as an attempt to privatise procurement of foodgrains, especially in Punjab and Haryana. The apprehension of a backlash in the soon-to-be-held Uttar Pradesh Assembly elections must have prompted the clean U-turn that the government took, swallowing its pride over the three contentious laws.

What we need are reforms that would put an end to the wrong-side-driving governance of our publicly-funded institutions, not another bid to siphon off public wealth.

Another equally controversial piece of legislation is slotted for Parliament’s winter session: the Banking Laws (Amendment) Bill, regarding the privatisation of two public sector banks. If farm reforms were only feared to be an opportunity for the backdoor entry of crony capitalists into a sector assured of profits, the stated purpose of the new banking Bill is privatisation of two banks. First of all, it is interesting to examine what amounts to public sector assets. These are people-owned assets governed by the people through their representatives with a bureaucracy of the most competent officials who have got in through the toughest of examinations.

As someone who has only worked in the private sector and with tremendous faith in a system of reward and punishment, it has to be admitted a priori that the public sector often has serious deficiencies in terms of competence and integrity. Sure, there are a lot of PSU companies that are terrible service-providers and a huge drain on the taxpayer’s money. All those need to be closed down or given away free to those who want to try their hand at turning them around. So, the decision to sell off Air India to the Tatas was in the best interest of the airline, its customers and the taxpayers. After all, Air India was born of JRD’s vision and it has gone back to the best possible management that can honestly revive it.

Unfortunately, handing over public sector banks to private players would be like selling Vistara to the department of Civil Aviation. Unlike other sectors, financial enterprises, be they banks or insurance companies, do not need investment — they need integrity. Banks and insurance companies are places where thrifty, mostly salaried people park their hard-earned money. All they ask for are predictable returns and if they opt for public sector banks, it is only because of the fear of the vagaries of the private operator and the hope that the government is the guarantor for their money.

In a competitive banking environment where private sector banks lure customers with various offers, if a person still opts for a PSU bank, then it definitely is not in anticipation of her bank getting privatised. In this context, the government’s decision to sell off two PSU banks amounts to cheating customers who chose them. Punish bankers for lack of competence or integrity by removing them, but do not punish customers for their faith in the government. Many public sector banks are burdened with cooked books of the private banks they were forced to take over. Every private bank failure is a threat to a public sector bank as the latter has to bear the cost of the loot of the private bank promoters. After having witnessed a stream of private bank promoters and executives like Rana Kapoor getting arraigned for malfeasance and walking into jail, it is difficult to understand the logic of privatising public sector banks.

In many cases, banks and insurance companies were nationalised in the first place because promoters were siphoning off the investors’ wealth. The best example is that of Ramkrishna Dalmia, who spent time in Tihar Jail for committing fraud in the Bharat Insurance Company, Bharat Bank and Punjab National Bank. Does the government have the voters’ mandate to create more Dalmias? Can the government assure the customers of these two banks that the new owners would manage them better? No, obviously.

Handing over of the people’s wealth to a chosen private operator cannot be termed reform. Real reforms ought to be owner-agnostic. This government believes in lateral entry even in its bureaucracy, so what stops it from getting the best bankers in the world to turn around these two banks if they are distressed? Efficiency is not determined by ownership; it is a function of management. If the government is serious about reforms it should reform itself, starting with all offices providing services.

The going rate to get a piece of property registered in Noida in the ‘double-engine growth’ state of Uttar Pradesh is nearly a lakh of rupees under the table. That is, without this amount of money some officials in certain registrar’s offices will not do what they are paid and hired to do. While the Enforcement Directorate and state vigilance bureaus hunt politicians of certain hues, men and women in government deform the already bent system completely out of shape. The property sector is one of the biggest cash cows because of its high-value transactions, but other offices are no different. When the transport department of Delhi started asking questions on driving, licence applicants who did not want to answer them were offered easier options in neighbouring states. This is not just about Uttar Pradesh; according to the Himachal Pradesh police, 43 per cent of those involved in two-wheeler accidents did not have valid licences. We now know why most drivers cruise in the overtaking lane and many in Gurgaon do the infamous ‘wrong side driving.’

What India needs now are reforms that would put an end to the wrong-side-driving governance of our publicly-funded institutions, not another attempt to siphon off public wealth. The government is not mandated to hand over people’s money to any individual; rather, it was elected on the promise of chowkidari — the gate-keeping of their assets.

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