Sucheta Dalal :When the future looks so bleak... (14 October 2002)
Sucheta Dalal

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When the future looks so bleak... (14 October 2002)  

In the last few months we have learnt to our dismay that the world’s only superpower, the second largest democracy and the perfect capitalist system is severely flawed. If the parade of accounting scandals, fraudulent dealings and phenomenal pay cheques at top American companies was a shocker, then the oil and defence company connections and war games of George W. Bush’s core team and their war mongering have exposed how modern business is closely intertwined with politics and rigged in favour of insiders. Yet, when we see the same in our own backyard, albeit on a much smaller scale (only due to relative poverty and size), we do not even bat an eyelid or demand a clean up.

Last week, several actions of the Maharashtra government brought this once rich and well administered State even closer to financial ruin. It also marked several steps forward in brazen politics. Last week, Maharashtra issued fresh government guarantees worth Rs 85 crore to 47 sick sugar co-operatives because of the combined clout of the politicians who run them. Over the years, the State has guaranteed over Rs 1,800 crore of borrowings by sugar and spinning cooperatives controlled by politicians. Since most of these cooperatives are steadily turning sick, the State would have to pay up on their bad loans. In fact, 20 sugar and spinning co-operatives are reported to have defaulted on a Rs 737 crore, State guaranteed borrowing from two financial institutions — IDBI and IFCI. These institutions (which are themselves seeking a bailout from the central government), have invoked a Rs 500 crore guarantee and slapped attachment notices on government property following an order from the Debt Recovery Tribunal (DRT). Is the government worried? No. On the contrary, it is determined to damage its credibility even further by fighting the DRT order. And, it has gone ahead and issued fresh guarantees without clearing the earlier default. But who would lend money against these pathetic guarantees? That is another chilling joke. Armed with the guarantees, these co-operatives arm-twist and pressure equally sick cooperative banks to lend them money. Most of these banks are victims of Home Trade and other scams, where the politician-financier nexus saw several hundred crores of bank money flee supposedly to foreign tax havens. So media reports tell us that the sugar co-operatives with brand new guarantees will find a fresh target—the Maharashtra State Co-operative Bank, which is a sort of apex bank for the cooperative sector in the State.

Ironically enough, while Maharashtra’s engineer-finance minister recklessly issues new guarantees and brazenly defends his actions, he also declares that he cannot provide a guarantee to the Maharashtra State Finance Corporation (MSFC), which had raised Rs 15 crore through a bond issue in confident anticipation of a guarantee. Nobody is recommending that Maharshtra should guarantee to MSFC (which is in the throes of a financial crisis with bad and doubtful pegged at Rs 600 crore plus) borrowing instead of closing it down. But it only illustrates how the same financial prudence, which allows Jayant Patil to say no to MSFC, vanishes under pressure from his ministerial colleagues who control the cooperatives. Last week, a business paper reported that HUDCO is being pressured to invest Rs 175 crore in the Tapi Irrigation Development Corporation, which is already a defaulter. HUDCO’s finance director was forced to go on leave because he protested against the pressure and had to approach the Delhi High Court for justice. A few weeks earlier this paper had reported how the cash rich and profitable MTNL had invested Rs 250 crore in another loss making irrigation project—the Maharshtra Krishna Valley Development Corporation. It is a pity that the MTNL finance director did not show the same courage and conviction as HUDCO’s A.N.Gupta in standing up to political pressure. Consider the never-ending irrigation projects that are continuously feeding funds to the powerful, politically-connected contractors with no signs of completion. These projects were set up during the Shiv Sena-BJP regime but the contractors have ensured that this government also arm-twists large public sector corporations to invest in the projects, mainly in order to pay off the contractors.

The irrigation bonds raised by the corporations are all guaranteed by the State government, and they amount to continually sinking money into a bottomless pit in order to pay off contractors. The Maharashtra State Road Development Corporation, which made an exemplary beginning and set records in project design, documentation, structuring and implementation of project has been reduced to another guzzler of State guaranteed funds and is hurtling towards a default. Its Expressway has been rendered unviable mainly because of political interference.

The government has even failed to transfer to it over Rs 150 crore collected by way of cess on petrol and diesel for the construction of Mumbai’s many flyovers. Yet, MSRDC continues to fund and plan new project as though there were no question mark about its very future. The Maharashtra State Electricity Board continues to drown with the weight of Enron’s Dabhol Power Company like a dead albatross around its neck. So long as the DPC issue is unresolved, Maharashtra would suffer from power shortages, but if it agrees to purchase power at Rs 2.80 or Rs 3, it could incur cash losses of over Rs 1,000 crore annually which would find difficult to pass on to consumers. Yet, MSEB has agreed to buy the power without saying where its revenue will come from. While the MSEB and the State grapple with the DPC problem, one of the main architects of the Enron deal—Gopinath Munde continually heckles the government for failing to create a few more Dabhols in the State.

If Maharashtra’s future seems so bleak today, it is because its opposition leaders are just as enthusiastic as the ruling coalition about pushing it over the brink. While the financial profligacy of politically patronised projects remains unabated, the financial crunch is so bad that the government is struggling to pay salaries and allowances to government employees. Naturally, this has put an end to all pretence of development in the State, pushing it into an extremely dangerous downward spiral. If this is the story of Maharashtra, India’s favourite investment destination, one can only imagine the horror at other States which seem more focussed on cabinet expansion than development.

-- Sucheta Dalal