Back to more govt staff, more PSU outlay

In the first three years of Mr Modi's first term, he did remarkably well in reducing the headcount of government staff in various central ministries to 3.23 million

In 2014, Prime Minister Narendra Modi had inherited from his predecessor, Manmohan Singh, a government whose manpower size was about 3.45 million. A little-known fact is that in the first three years of his first term, Mr Modi did remarkably well in reducing that headcount of government staff in various central ministries to 3.23 million.

Predictably, the pace of reduction slowed with each passing year. After effecting a 4 per cent cut in the government’s manpower size to 3.31 million in 2014-15, the pace of reduction fell to 1.6 per cent at 3.25 million in 2015-16 and even further to 0.44 per cent at 3.23 million in 2016-17.

Yet, the reduction in the government’s headcount by a little less than a quarter of a million in just three years was creditable. The magnitude of the squeeze was also quite substantial, though it was lower than the reduction of about 13 per cent in 2000-01 under the Atal Bihari Vajpayee regime and 6.5 per cent in 2011-12 under Manmohan Singh.

Worryingly, however, more than the entire gain from the manpower reduction in the first three years of the Modi regime was frittered away through an addition to the headcount in the last two years. From 3.23 million in 2016-17, the government headcount rose by 7.8 per cent to 3.49 million in 2017-18 and further by 3.7 per cent to 3.61 million in 2018-19.

What led to the surge? Of the increase in the manpower size by about 250,000 in 2017-18, the bulk was on account of a headcount rise in the government’s tax department by about 70,000, the civilian defence staff by about 45,000 and in the police department of the home affairs ministry by about 61,000. The total increase of about 128,000 in 2018-19 was largely due to the manpower size of the Indian Railways growing by about 99,000 to 1.37 million.

It may be sheer coincidence that the decline in the government headcount took place in three years after the formation of the Modi government in 2014 and the trend reversed when just two years were left before the next general elections. Were the elections a factor in the surge in the manpower?

Whatever may be the reason, there is now clear evidence that the Modi regime is not averse to the idea of a large government. In other words, it may talk about providing maximum governance through minimum government, but it does not actually consistently and sustainably work towards shrinking the size of the government. An indication of this approach is evident from its manpower headcount as also from the nature of its engagement with the public sector. Just as the manpower size in the last two years went up, the Modi government’s engagement with the public sector also increased.

In the last five years of the Modi government, for instance, the government pumped in fresh equity into public sector undertakings or PSUs to the tune of Rs 6.26 trillion. The Manmohan Singh government, between 2009 and 2014, invested only about Rs 2.33 trillion through equity. Of course, the bulk of the fresh equity invested by the Modi government in PSUs is on account of public sector banks — as much as Rs 2.52 trillion. But in addition to that, the Modi government also invested Rs 2 trillion in the Indian Railways, Rs 1.14 trillion in the National Highways Authority of India (NHAI) and Rs 17,320 crore in Air India.

It is reasonable to argue that the Modi government had little option other than raising government equity in public sector undertakings at a time when private-sector investment flows had slowed significantly and government investments were necessary to keep the growth momentum intact. A total investment of Rs 3.14 trillion in the Indian Railways and the NHAI could be justified on that ground alone. Even the need for infusing Rs 2.52 trillion of equity into  public sector banks could be justified on the ground that these banks, burdened by huge non-performing loans, had to be rescued with more capital so that they could get back into the business of prudent lending and promote economic activity.

Thus, the public sector capital outlay (including their internal resources, loans and government equity) jumped from Rs 2.96 trillion in 2014-15 to Rs 8.43 trillion in 2018-19, the last year of the Modi government’s first term. How steep this rise was can be gauged from the fact that the share of public sector outlay in total expenditure of the Union government went up from about 18 per cent in 2014-15 to 34 per cent in 2018-19.

Even as the public sector outlay kept rising, the government also began dipping into the reserves of PSUs. In 2014-15, the government took credit of  Rs 31,692 crore by way of dividends from PSUs. The dividends receipt kept rising in the following years and was estimated at Rs 45,124 crore in 2018-19, even though the PSUs’ profitability or financial health did not show any extraordinary improvement.

The Modi government’s increasing engagement with the public sector had another dimension. In the five years, between 2014-15 and 2018-19, the government sold PSU shares through a variety of methods (including the sale of one PSU’s shares to another PSU) to raise about Rs 2.88 trillion, but without any single instance of privatisation. The Manmohan Singh government had raised only Rs 99,367 crore in its five years from 2009-10 to 2013-14 and that, too, was without any privatisation.

There could be many reasons for the way the Modi government has increased its manpower size or improved its engagement with the public sector, either through higher outlays or by raking in more revenues from PSUs in the form of dividends or disinvestment. But this is an aspect of the Modi government, where it differs from the Atal Bihari Vajpayee government and which is not often recognised.