The discourse in living rooms in the run-up to the assembly elections is justifiably focused on parties’ use of taxpayer monies to woo voters. This week saw a parade of promises in Jammu and Kashmir, with the Congress offering Rs 3,000 a month for women, 11 kg of rations and Rs 25-lakh health cover, and the BJP promising Rs 18,000 cash transfer to a family’s eldest woman, Rs 10,000 under PM Kisan Samman Nidhi, a 50 percent cut in power tariffs and land for the landless. The battle to win votes is fierce in Haryana, and will unfold in Jharkhand and Maharashtra, too.
The sop story has been riveting attention—this column has highlighted the consequences of taxpayer-funded acquisition of votes. The pursuit of power also demands the retention of votes. And the destruction of taxpayer wealth to preserve political capital has largely escaped attention. It is a silent fiscal crisis. The auditor general’s reports on state public sector enterprises (PSEs) reveals the rot unravelling across states.
For starters, consider the state of PSE affairs in the poll-bound states. Let’s start with Maharashtra, which has 105 PSEs—88 of them functional and 17 inactive. Of the functioning units, 43 were in profit when last audited and 47 were loss-making. Their accumulated losses are at Rs 49,373 crore. The present value of the state’s investment: Rs 5.28 lakh crore. The return on equity: -0.17 percent.
Haryana has 37 PSEs, of which four have been in liquidation processes for 18 years. Twenty reported profits of `648 crore and 13 were in the red with accumulated losses of Rs 28,237 crore. The return on equity: 1.41 percent. Resource-rich Jharkhand has 31 PSEs, of which three are non-functional. In 2022, only 16 of the 28 functional PSEs submitted their accounts for audit—the 10 profitable PSEs netted Rs 23.35 crore, while five reported losses of Rs 2,702 crore. The accumulated losses were at Rs 10,859 crore.
Poll-bound states have company in states of sloth. As of March 2021, Karnataka had 113 PSEs, of which 13 were non-working. Between 2016 and 2021, nearly half the PSEs were running at a loss. During 2020-21, 50 state PSEs incurred a loss of Rs 8,246.47 crore and the net worth of 33 PSEs was eroded. The accumulated losses: Rs 26,193 crore.
In Tamil Nadu, of the 57 PSEs that submitted their 2021-22 accounts, 29 earned a net profit of Rs 1,657 crore, while 28 suffered a net loss of Rs 16,617 crore. According to a Comptroller and Auditor General report, 26 PSEs had accumulated losses of Rs 1.41 lakh crore. Gujarat has 101 PSEs in two categories—government companies and government-controlled companies. Of these, 63 reported profits of Rs 9,927 crore and 30 incurred losses of Rs 2,456 crore, with the accumulated losses touching Rs 18,379 crore in 2022-23.
Take the agrarian and populous states of Uttar Pradesh and Bihar. As of March 2023, there were 113 PSEs in Uttar Pradesh, of which 41 were inactive. Of the PSEs that submitted accounts, 39 clocked profits of Rs 2,169 crore, whereas 27 recorded losses of Rs 32,429 crore; the net worth of 15 PSEs was completely eroded and the accumulated losses were pegged at Rs 1.95 lakh crore. There are no surprises from Bihar, which in 2023 had 76 PSEs of which 39 were non-active. Of the active 37 units, 16 reported profits totalling Rs 317 crore, while 15 reported losses of Rs 2,847 crore; the accumulated losses were at Rs 26,991 crore.
In March 2021, West Bengal had 85 PSEs, of which 66 were working and 19 non-working. Out of the 66 state PSEs, 33 earned profits of Rs 1,752 crore and 33 incurred losses of Rs 1,061 crore. The accumulated losses of 41 of the 85 PSEs were Rs 17,130 crore; 41 PSEs cutting across sectors from agro and manufacturing to services had negative net worth.
It is manifest that there is a systemic crisis. Data is detained by the impunity with which PSEs across states fail to file accounts. Nearly every third—if not every second—PSE is in the red. The accumulated losses in just 10 states add up to nearly Rs 5 lakh crore. It doesn’t seem to matter whether the state is industrialised or agrarian, is in the north or the south.
The race to the bottom engenders a fiscal fragility. The gross fiscal deficit of all states is up from Rs 3.2 lakh crore to Rs 9.4 lakh crore in 10 years. The total outstanding liabilities of states stands at Rs 83.31 lakh crore. Nineteen states are running revenue deficits—states are paying over Rs 4.89 lakh crore, or Rs 1,400 crore a day, in interest costs.
The political resistance to a shift in strategy is about employment protection and triggers questions of sustainability. The state of affairs calls for a national census on state-owned PSEs—on the total number of employees, jobs created, investments, borrowings, interest costs, accumulated losses and surplus. It is evident that good money—taxpayer money intended to fund human and physical capital—is chasing poor outcomes. Ideally, the 16th Finance Commission should look into these questions and design a pathway for states to monetise assets.
The persistence of rot regardless of the party in power validates the existence of a broad political consensus for weak reforms. Ironically, in the public square there is much lather about loss-making central PSEs, but scarcely a ripple about the erosion of wealth by hundreds of state PSEs. The spectre unfolding symbolises the boiling frog syndrome—the elector and the elected seem to be inured to the unfolding devastation of taxpayer wealth.
SHANKKAR AIYAR
Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India
(shankkar.aiyar@gmail.com)