Food, steel, communications, aviation, agriculture, petroleum, renewable energy, shipping, chemicals, tourism, coal, power, science & technology, broadcasting, textiles, mining, and housing.
These are not just some of the fast-growing sectors in the Indian economy, but also the names of Union government ministries. Each has its own budget, its own minister, and often a junior minister too. More importantly, in a narrow bid to protect its turf, every ministry becomes the biggest impediment to reform in that sector. Worse, government-granted monopolies in key sectors such as rail transport and coal mining are an unseen but substantial drag on the growth of the economy.
Major public sector enterprises such as Nacil (that owns Air India), HPCL and BPCL have been running up massive losses and are functioning only because of continuous taxpayer support. The only long-term, fiscally-sustainable solution is for the government to completely divest its shareholding in these companies and transfer management control to the private sector. But this is easier said than done and requires strong political will.
During the BJP-NDA government, attempts made to privatize the three entities were scuttled for one reason or another. In 2001, Prime Minister AB Vajpayee went to the extent of shifting coalition partner JD(U)’s chief Sharad Yadav out of the Civil Aviation Ministry because he was against privatization. The government came close to divesting Air India to a Tata-Singapore Airlines group for about Rs 12,000 crore, but the transaction was shelved when the global economic environment changed after the bursting of the dot-com bubble. In 2003, civil society activist Prashant Bhushan filed a PIL against the divestment of BPCL and HPCL in the Supreme Court, which directed the government to obtain parliamentary approval for the policy, thereby stalling the privatization of the oil PSUs.
Since then, just these three companies have absorbed over Rs 2.25 lac crore in taxpayer funds. This isn’t a notional loss, and exceeds even some of the annual estimates of losses caused by government corruption. It’s also unclear how much more money these organizations would require to continue operating in the coming years. Besides being a huge drain on public money, these public assets are subject to abuse too - petrol pumps and gas agencies are doled out to acolytes by powerful politicians, and Air India flights have been known to be delayed at the whim of government officials.
Most Indians, irrespective of political or economic ideology, would support some combination of spending more on social welfare and cutting taxes for the middle class instead of funding white elephants like Air India, especially when umpteen private airlines already ply our domestic and foreign routes.
It takes a reform-minded minister who enjoys the highest political backing to champion liberalization and privatization of companies overseen by his ministry. Many sectors have multiple ministries - there is a Ministry of Drinking Water and Sanitation and a Ministry of Water Resources. A steel businessman is beholden to the three distinct steel, coal and mining ministries. The steel ministry has the power to set prices, while coal and mining ministries allocate ownership rights to vital raw materials. It should be no surprise that corruption and cronyism takes place, for the businessman is hostage to overlords in the government who can literally make or break his company.
The energy sector has three related ministries - Power, Petroleum and Renewable Energy. Agriculture, Food Processing, and Food Distribution ministries oversee India’s food sector. Why are we surprised, then, that forging a consensus on important policy matters proves to be difficult and contentious even within the government?
Half of India’s ministries could vanish tomorrow and nobody would really miss them. Honest entrepreneurs would be delighted that their success depends no longer on their proximity to the Delhi establishment, and we would have an economy with both faster and fairer growth. The only ones adversely affected in the long run would be crony capitalists and their fixers.
We must also understand why India has no less than seventy-seven Union ministers. In any polity, especially in a large and diverse one like ours, there will be many power centers represented by various politicians. In democracies where power is substantially decentralized, either through devolution of power between the legislature and the executive, or through power-sharing between the center and the states, powerful politicians can be “accommodated” in multiple institutions. A visiting American senator is given almost as much respect in global capitals as their Secretary of State, because elected representatives elsewhere can, to varying degrees, take on the executive. But in a democracy like India, where power is concentrated in the Center’s cabinet, such arrangements are not possible. Ministries have to be literally invented to accommodate political leaders and coalition partners.
We need a leaner government with fewer ministries to dramatically curb corruption and make governance more efficient. For ministries to be downsized, political incentives need to be realigned through structural reforms like abolishing the regressive anti-defection law, which would make elected representatives answerable to their voters and constituencies instead of the party high command.
Downsizing ministries, creating transparent regulatory structures and privatizing public sector enterprises controlled by government ministries would also go a long way towards facilitating a level playing field for first-generation entrepreneurs and curbing crony capitalism.
(Rajeev Mantri is director of GPSK Investment Group and Harsh Gupta is director of Catallaxy Finance.)