An incomplete restructuring

It is time all non-strategic PSUs were transferred to the department of public enterprises

Almost two years ago, on July 7, 2021, to be precise, Prime Minister Narendra Modi effected what ranks as his biggest ministerial reshuffle to date. Raising the strength of the Union council of ministers from 54 to 78, axing around a dozen ministers, promoting about half a dozen ministers of state to Cabinet rank, and naming fresh incumbents for the ministries of health, labour, education, communications, railways, civil aviation and petroleum, were some of the highlights of that massive overhaul of the government. 

Remember that two other significant changes were announced that day. The department of cooperation, which belonged to the agriculture ministry, was hived off into an independent ministry under the charge of the home minister. The second change was to shift the department of public enterprises (DPE) to the ministry of finance. Till then, the DPE was part of the heavy industries ministry.

The track record of ministers after they assumed charge of their new ministries in the last two years has been mixed. The health minister can perhaps take credit for having seen off the pandemic without any more major shocks to the system. There were no fresh tremors in the education ministry either, although the Balasore train accidents shook up the Indian Railways, which till then had basked in the glory of having launched new Vande Bharat trains and increased the pace of investments. There were also no fresh moves to notify the new labour codes to usher in labour policy reforms. 

While the telecom industry’s problems on account of its mounting spectrum dues were resolved and the 5G services were rolled out, fears of an emerging duopoly in mobile telephony continued to lurk. Meanwhile, the state-owned Bharat Sanchar Nigam Limited was helped with yet another financial revival package but the Mahanagar Telephone Nigam Limited continued to languish with no clear roadmap for the future. In civil aviation, Air India’s privatisation was finally completed, but rising air fares and the collapse of yet another private airline remained a cause for concern. In contrast, the plan to privatise Bharat Petroleum Corporation Limited was put on hold, India’s dependence on crude oil imports continued to rise and state-owned oil companies were no longer as free as they thought they were in deciding the retail prices for petrol and diesel.

What did the cooperation ministry achieve during these two years? Remember that the decision to allocate the newly created ministry of cooperation to the home minister was aimed at refocusing the government’s energies on strengthening the cooperatives sector, which accounted for 35 per cent of India’s sugar production, 10 per cent of milk production and had rapidly expanded its footprint in the financial sector. Regulation was a key issue that had to be settled by the new ministry just as, politically, the focus on cooperatives from the home minister was expected to help the ruling party reap electoral dividends.  

While there weren’t any instances of major political overreach by using the power and jurisdiction of the new ministry of cooperation, there were schemes, reliefs and concessions aplenty. These included the computerisation of primary agricultural credit societies (PACS), preparation of model bye-laws for PACS for their adoption by states under their respective laws to allow them to diversify into as many as 25 new business activities, allowing PACS to function as common service centres to improve their viability, and recognition of cooperatives as buyers on GeM, the government’s procurement portal. Furthermore, a Bill was introduced in Parliament to amend the Multi-state Cooperative Societies (MSCS) Act, 2002, incorporating provisions of the 97th Amendment to the Constitution, to strengthen governance, enhance transparency, increase accountability and reform electoral processes in the multi-state cooperative societies. 

In addition, the Union Budgets in the last couple of years had a generous dose of tax benefits for the cooperatives sector. These included a reduction in surcharge on cooperative societies with income between Rs 1 crore and Rs 10 crore from 12 per cent to 7 per cent, a reduction in the minimum alternate tax for cooperatives from 18.5 per cent to 15 per cent, a cut in the tax rate for new cooperatives to be levied at a flat rate of 15 per cent, down from 30 per cent plus surcharge, an increase in the cooperatives’ cash withdrawal limit from Rs 1 crore to Rs 3 crore, without being subjected to tax deduction at source, and a generous tax concession for sugar cooperative mills.

While the cooperatives sector got a leg-up after the creation of a separate ministry for it, there was not much substantive action in the areas overseen by the DPE even after it was transferred to the finance ministry. The DPE is the nodal agency for all central public sector enterprises and formulates policies pertaining to them. With the government having already announced its privatisation policy and monetisation of assets belonging to the public sector enterprises, the shift of this department to the finance ministry was hugely significant. Often in the past, inter-ministerial differences would scuttle the divestment process. It was hoped that such problems would disappear after the DPE came under the finance ministry.

In the last two years, however, there has been no substantive change in the way the government’s policy on public sector disinvestment or privatisation has been implemented. The reluctance to proceed on the disinvestment of Container Corporation of India is an example. Perhaps the transfer of the DPE from the heavy industries ministry to the finance ministry was an incomplete decision for achieving the desired outcome. The government or the finance ministry should have pushed hard on transferring all non-strategic public sector undertakings (PSU) under the administrative control of the DPE. At present, the finance ministry controls only a few PSUs under the DPE’s charge.

If Mr Modi wishes to see the same pace of policy action on PSU disinvestment as was seen in the cooperatives sector, it would be necessary to empower the finance ministry and bring under the DPE all non-strategic PSUs, currently being run by different central ministries. From an economic and socio-economic policy perspective, the biggest impact of Mr Modi's massive ministerial overhaul two years ago was expected to be in the cooperatives sector and the PSUs. While the cooperative sector has seen some policy action, there is no move yet to enhance the jurisdiction and power of the DPE. The finance ministry’s agenda for DPE should not remain confined only to reviewing capital expenditure targets, governance of PSUs, pay revision of employees, procurement of goods under GeM or assessment of PSUs’ corporate social responsibility or their memoranda of understanding with the government. Disinvestment and privatisation of all non-strategic PSUs should also be its focus.