Take the case of the stock market scams. The small investor loses either directly or through financial institutions and mutual funds to the unscrupulous beneficiaries in various of kinds of market manipulations and shady deals. The institutions, being creatures of the government, seek government support on the unstated excuse that they were, after all, carrying out many of these transactions at the behest of the government. So when the scam surfaces, the small investor is left high and dry.
Based on the recommendation of the Deepak Parekh Committee, the government paid out about Rs 5,000 crore to support the Unit Trust of India. The bill for the latest scam in UTI has not yet been settled. The small investors in US 64 have already taken a beating but further government support to UTI is not ruled out.
The same situation arises when banks lend recklessly or knowingly to shady companies and lose their capital. Again, the government, as the putative party, is asked to step in to save the banks and inject fresh capital. The government of India has provided over Rs 20,000 crore through bonds and cash to such banks to recapitalise them. The recent budget adds further a sum of Rs 1,300 crore to recapitalise the Indian Bank for the third time. A claim has been made for Rs 700 crore for next year through advance booking! Recent reports show that the government is putting out Rs 2,881 crore for supporting three FIs to meet part of their non-performing assets.
When government companies incur huge losses year after year by paying non-working workers salaries every month, the first port of call for the distressed management is the government. The losses of the 100-odd loss making government companies have gone up from Rs 5,183 crore in 1995-96 to Rs 10,060 crore in 1999-2000 and Rs 11,000 crore in 2000-2001. During this six year period, the total losses amount to over Rs 47,000 crore. Where does all this money come from Accounts have to be squared to meet the natural law of zero sum game. The answer is that the money comes from the taxpayer in the guise of patriotic surcharges on income tax and also from higher duties on various consumer items. We have not yet squared the equation. In fact, a lot more is passed on to the taxpayer for various purposes like salaries and perks of bureaucrats, ministers, MPs etc. Some of this may be justified but at least the taxpayer should know where his money is going for openly certified uses.
The taxpayer would like to know why he should be asked to pay for the illegal gains of unscrupulous functionaries, corporates, and market players through the mechanism of public institutions. He would like to know what the government and its agencies have done to stop this.
In the case of UTI, he would like to know why the government refused to allow the Securities and Exchange Board of India to inspect the largest mutual fund inspite of several requests from the then chairman in 1992 and 1993 till the first scam in 1998. Who were the persons responsible for shielding UTI from the regulatory body when all other mutual funds came under Sebi
In the case of loss making public sector undertakings, disinvestment has not been seriously attempted. Many of them have to be closed with the workers given VRS. In fact, the corpus of VRS at about Rs 5 lakh on the average giving a return of 8 per cent risk free amounts to Rs 40,000 per year. This is equivalent to the income from six hectares of rainfed dry land which a landowner will get after toiling day and night, after taking the risk of the monsoon and incurring debt for seeds, fertilisers and pesticides. The VRS employee can get this by sitting at home and having free time to pursue any other avocation to augment his income. Even the VRS payment will have to be borne by the taxpayer but it will not be a recurring draft like the losses of PSUs.
Another point that taxpayers should note is that the proceeds of disinvestments during the 10 years from 1991 amount to about Rs 20,000 crore. This money has been merged in the general resources of the government. Its impact on lowering the fiscal deficit on the average is only 0.02 per cent. In other words, the average fiscal deficit would have gone up by a negligible amount from 5.7 per cent to 5.72 per cent if this money had not been taken into the general budget.
On the other hand, if the amount had been spent for creating assets for the rural people, 40 lakh houses and one lakh schools could have been built and Rs 5,000 crore given as VRS before closing down the loss making companies. This would have created assets for the poor people after selling other assets in the form of shares of good companies. What has happened is that the assets have been sold and the proceeds used for revenue purposes.
That is why there is skepticism among the public not so much about the process of disinvestment as about the use of the proceeds. After all, these assets of the public sector were created out of the taxpayers money and he should be satisfied that the sale of these assets will either create other assets for the rural poor or reduce the future draft on him on account of the loss making companies. It is the duty of the government to deal with this responsibly to the satisfaction of the taxpayer.
G V Ramakrishna is former chairman of Sebi and the Disinvestment Commission