Modi's Gujarati mind? Why govt move to 'sell-off' defence PSUs isn't in national interest

By Sandeep Pandey*
The Standing Committee on Defence, 2017-18, of the 16th Lok Sabha highlights the idea of Buy Indian-IDDM (Indigenously Designed Developed and Manufactured). The Committee expressed concern over the import content of equipments produced and developed by Defence Research and Development Organisation (DRDO), Ordnance Factories (OFs) and defence Public Sector Undertakings (PSUs) because of the dependence it creates for military hardware on foreign suppliers.
The Ordnance Factory Board's (OFB's) import content in 2016-17 was 11.79%, down from 15.15% in 2013-14. Compared to other big defence PSUs like Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL) or Bharat Dynamics Limited (BDL), OFB has one of the least dependence on imports, which points to high degree of indigenisation that it has achieved or maintained.
OFs produce main battle tanks, infantry combat vehicles, specialised armoured vehicles, artillery guns, air defence guns, rocket launchers, etc. The OFs have stood the Indian government in good stead during wars in 1947, 1965, 1971 and 1999 with Pakistan and in 1962 with China.
Among all the arms of the Ministry of Defence, OFs require the least budget, Rs 50.58 crore out of a total of Rs 2,01,901.76 crore in 2019-10, as they are able to take care of most of their costs by generating revenues from supplying items and equipments to Army, Navy and Air Force.
It says something about the efficient operation of OFs. Former Chief of the Army Staff General VP Malik has also publicly praised OFB for timely supply of ammunition and equipments during Kargil war but highlighted the problems faced in procuring items through import at short notice.

To sustain profit-making ventures in a monopsony market, government may have to create artificial war-like situations to boost demand

According to the Vice Chairman of the National Institute for Transforming India (NITI) Aayog, Rajiv Kumar, a big-bang economic reforms programme has been undertaken during the first 100 days of the second Narendra Modi government as part of which high pace disinvestment of PSUs will take place and organisations untouched so far like Ordnance Factories will be corporatised.
He doesn't hide the fact that foreign companies will have smooth access to excess unutilised government land as the possibility of local community protests will be non-existent. OFB alone has 60,000 acres. The government is likely to fully privatise or shut down over 40 PSUs in this period. It may remove the cap on foreign direct investment to be able to make is possible to sell companies like Air India, where it didn't have much success in the last five year term.
OFs are required to maintain an idle capacity to take care of up to three times demand surge during impending wars. A profit-making venture will not be able to do this. Instead, to sustain these ventures, the government, in a monopsony market, may have to place orders for things not required or will have to bear the expenses of these PSUs or may have to create artificial war-like situations to boost demand, none of which is in national interest.
The Comptroller and Auditor General (CAG) report on Operation Vijay in Kargil reveals that supplies valued at Rs. 2150 crore, for orders placed with domestic and foreign private companies, were received after the end of hostilities in July 1999, of which, supplies worth Rs 1762.21 crore were received six months after the end of hostilities.

Relaxation of rules and procedures in the face of emergency cost government Rs 44.21 crore, supplies of Rs 260.55 crore did not meet quality standards, shelf life of ammunition worth Rs 91.86 crore had expired, purchase in excess of authorisation of requirement was worth Rs 107.97 crore and ammunition worth Rs 342.37 crore was imported whereas it was available indigenously with OFs. This is enough proof of the famed quality and efficiency of private sector.
In addition it points to privatisation opening up new possibilities of corruption. The Central Bureau of Investigation (CBI) has booked a case against British company Rolls-Royce for having paid commission of Rs 18.87 crore to a Singapore-based company Aashmore, which was appointed as a commercial advisor through its director Ashok Patni, to procure about hundred orders from HAL in violation of the integrity pact, a tool for preventing corruption in contracts.
Asset monetisation, an euphemism for asset sale, is supervised by the Department of Investment and Public Asset Management, which too has been named to mislead. Once the assets are sold there will be nothing left really to manage.
First 'demonetisation' in 2016 created a panic among people and now there is asset 'monetisation.' Both moves were essentially planned to help the moneyed. The land acquired from farmers, sometimes without paying any compensation -- except may be for the standing crop -- in the distant past is now going to be handed over to foreign companies in the name of disinvestment.
Earlier this year two payouts in the form of dividends and buyback, totaling Rs 2,423 crore forced HAL to borrow to pay salaries to its employees, first time in its history. Life Insurance Corporation (LIC), which holds two-thirds of India's life insurance market share, is now going to be publicly listed so that its shares will be up for trading, was forced by the government during 2014-18 to spend Rs 48,000 crore to help it reach its disinvestment target.
In 2018-19 the government raised Rs 84,972.16 crore exceeding its target of Rs 80,000 crore. This year the disinvestment target is Rs 90,000 crore. LIC was also forced to buy the most debt ridden public sector bank Industrial Development Bank of India (IDBI) wholesale, which had 28% bad loans. It is clear that when private investment is not forthcoming the government is fleecing its own entities.
Narendra Modi has claimed more than once that as a Gujarati he knows how to manage money. While he was Chief Minister, Gujarat State Petroleum Corporation (GSPC) was created with a loan of Rs 20,000 crore. When he became the Prime Minister, a Central PSU Oil and Natural Gas Commission (ONGC) bought it for Rs 8,000 crore and is now responsible for its debt servicing.
The government proposes to create an autonomous holding company which will subsume all state-owned firms and will not be answerable to bureaucracy when it'll come to selling assets. This will culminate the process of sell-off of public assets.
Now that economist Jean Dreze has called the bluff on the Prime Minister about the purpose of abrogation of Articles 370 and 35A in Jammu and Kashmir (J&K) to open up the path of its development, whereas J&K is ahead of most other Indian states in terms of human development indices, it appears that possibility of additional 2.2 crore hectares of land becoming available for possible sale to private companies may have been an important factor weighing on Gujarati minds in downgrading the autonomous status of J&K Assembly.
---
*Vice President, Socialist Party (India). Contact: ashaashram@yahoo.com