Financial Crisis Looming: Why Kerala Must Dare To Reform PSUs

The State of Kerala, which gave the world the first democratically elected communist government, is already in dire financial state, which is being further complicated by the failure of state public sector undertakings (PSUs).

By official count, there are 117 public sector undertakings in Kerala, doing everything from manufacturing ceramics (Kerala Ceramics Ltd) to implementing welfare schemes for non-resident Keralites (NORKA Roots). These companies employ more than 1 lakh people according to a 2015 CAG Report.

The most notorious of these loss making PSUs is the Kerala State Road Transport Corporation. The state-run bus company has constantly been fraught with problems - last financial year, it created a loss of Rs 508 crore for the exchequer, not to mention the frequent shutdowns as its 40,000 odd employees strike now and then, when their salaries are delayed. While Dr Thomas Issac, the Finance Minister, insists that a plan for its revival is afoot, I remain a sceptic.

To save such a massive organisation, radical restructuring and reforms are necessary. But such an activity cannot occur with the concurrence of the trade unions, who would oppose any meaningful reform or privatisation of an entity which is a drain on the taxpayer.

Inside the state, public sector employment is highly prized. A single example would illustrate this: There were 4 lakh applicants for 500 lower division clerk posts! The Kerala Public Services Commission, a body which is prone to controversy, has already been hit with an acute resource crunch. For unemployed youth, the best employment opportunity is public sector jobs, and as far as they are concerned, the validity of rank lists are political issues.

Already, you can see a vicious cycle forming: many government and public sector employment is not due to the necessity of those. Rather, it is existent because of political and social causes. Essentially, it is taxpayer-funded employment welfare for the youth (the youth find this immensely attractive: once you become a government employee, you never get thrown out for incompetence; when your government comes into power, you can expect promotions; you can live off the pension that the government is duty bound to pay once you retire).

How long can the government of Kerala sustain this eco-system of perpetual welfare employment?

Already, there are more pensioners of the government than actual employees. (5.50 lakh pensioners versus 5.245 lakh employees). This of course, is expected to increase, what with 20,000 new pensioners being added every year. When the government tries to utilise the high life expectancy to increase the retirement age, youth organisations protest. When the previous United Democratic Fund (UDF) government attempted to reform the pension system (into a participatory pension scheme), the chief minister was thoroughly criticised, and the Left Democratic Front (LDF) government had promised in its manifesto to scrap the scheme and move back to the old system.

This whole system is convoluted and unacceptable. Is the government not supposed to be a responsible one? Is the government taking the decision to sustain this system in the best interest of the state?

Thomas Issac himself gives a dire warning, stating that Kerala has to escape "the morass of economic stagnation".

Reforming the public sector units will hopefully form part of an idea of fiscal responsibility, considering, it cost the taxpayers Rs 889.89 crore in the financial year 2014-15, and indications are that this year too, the government will bear the brunt of the failure of PSUs.

A whole other issue was brought into light when controversy erupted over some appointments made in PSUs, which culminated in the resignation of the Industries Minister. The appointments made by the ministry came under the scanner on the accusation of nepotism, further aggravated by the appointees being grossly underqualified.

This highlights another important issue facing PSUs: How they are run, and who is running them. The recruitment, as seen in the earlier case, can be influenced by political considerations rather than considerations of qualifications and capability. The appointment of managing directors or other posts can be influenced by the person’s politics (whether they are in a pro-Congress or in a pro-Communist association). This can happen in the case of lower-level employees as well. Secondly, the director boards are constituted with little to no rational nexus to mind. The nominations of the government are based on political considerations, with chairpersonship of premier PSUs serving as political prizes.

Professionalism is the last word in these institutions; sadly, they also serve as doyens of corruption. Just recently, in an instance that should be a matter of immense shame, when the Chief Minister’s official residence contacted a PSU to deliver a fridge, the officials of the PSU demanded a bribe of Rs 17,500 for the fridge to be delivered!

This, in an instant, shows how far the rot has reached, to the very core of the various public sector units. It is high time the government changed course; financial disaster is well on its way.

Hopefully, the government shows the courage to undertake reform, but more probably not.

(How can I complain about this form of crony socialism, when a supposedly centre-right government at the Centre is going to save a complete failure of an Airline. That is another matter altogether.)

The author would like to thank Theyjusvini S.