Privatisation of Andhra Pradesh

Print edition : March 02, 2002

The disposal of state assets in Andhra Pradesh is not only based on unsound economics but also suggests that the State government now wishes to abandon its basic developmental functions.

THE Chief Minister of Andhra Pradesh, N. Chandrababu Naidu, has been the darling of large sections of the English language media in India for some time now. Most of the time, the image that is presented is one of a computer-savvy, efficient supremo who has managed to make the State one of the most dynamic in India during his tenure as Chief Minister.

After his government's enthusiastic adoption of India's first State-level World Bank Economic Reform Programme (APERP) in 1997 the international press has turned just as enthusiastic, and Hyderabad is increasingly being described as a "cyber capital" while Andhra Pradesh is presented as a fast-growing State which is rapidly integrating with the world economy to its own benefit.

All this begins to sound very strange once the actual performance of the Andhra Pradesh economy is examined in any detail. In fact, far from being the most dynamic, this State was the worst performing State of the southern region over the 1990s. The growth of real income, or Gross Domestic Product, was 5.4 per cent per annum between 1993-94 and 1998-99. This was significantly lower than in Karnataka (8.1 per cent) and Tamil Nadu (7.3 per cent) and even lower than in the much-maligned State of Kerala (6 per cent).

Similarly, employment growth was lower than the national average over the period between 1993 and 2000, which was already the worst rate of any period in post-Independence history. In terms of literacy and school enrolment, Andhra Pradesh is well below the national average and ranks among the worst States in India. School dropout rates are among the highest in India. The infant mortality rate is higher than the national average, and has shown an increase in recent years. The rate of incidence of major illnesses is nearly double the national average, and there is a faster rate of spread of communicable diseases, even as the proportion of State government expenditure committed to healthcare has declined.

Meanwhile, all this has occurred in the context of the growing indebtedness of the State government. This debt is increasingly contracted from abroad (including from the World Bank) and on more onerous terms. Currently all borrowing is effectively only to pay interest, since the State government's primary budget balance has now been in surplus for several years. In other words, there has been a huge increase in the State government's debt, which does not appear to have been used to improve basic economic conditions in the State. This not only condemns the State to future repayments but also ties the hands of future State governments with respect to economic policy.

Andhra Pradesh Chief Minister N. Chandrababu Naidu receives a petition for old-age pension at a village as part of the Janmabhoomi programme. There has been a huge increase in the State government's debt, but the funds do not appear to have been used to improve basic economic conditions.-A. ROY CHOWDHURY

Clearly, the quality of life for most people in Andhra Pradesh has not improved and may even have worsened under the stewardship of Chandrababu Naidu. If these depressing facts still do not make a dent on the way in which the mainstream media eulogises the Telugu Desam Party (TDP) government in Andhra Pradesh, this reflects more than anything else the Chief Minister's highly developed skills in media management.

Media misrepresentation is at its most advanced when it comes to the Chief Minister's attempt at public sector "reform" and privatisation. So far, most of the attention has been concentrated on the World Bank-inspired reforms in the power sector, which have involved commercialisation of transmission and distribution agencies, increases in power tariffs and eventually aim at complete privatisation. But the sweeping changes affecting other public sector enterprises have been inadequately discussed in the rest of India.

The current impetus to privatisation in Andhra Pradesh is part of the APERP which is the World Bank-led set of reforms. The measures undertaken as part of the first phase have already been quite extensive, and if the second phase of such reforms goes through as planned, they will amount to an effective dismantling of almost all public enterprises in the State. In the first phase, 19 out of 40 State government public sector undertakings have been "dealt with", that is, liquidated, sold, or restructured pending the point of final closure. In the second phase, which is due to begin now, another 29 PSUs are proposed to be similarly "dealt with".

THE deeply disturbing implications of such a process became evident during the course of a workshop organised by the Andhra Pradesh Public Sector Employees Federation during February 19-20. The discussions at this workshop exposed not only the adverse effects of such privatisation for employment and future development, but also the patently undemocratic nature of the privatisation process itself.

The State government has made its intentions clear in a "Strategy Paper on State PSUs", in which it declares that, since the return on investments made by the State is negligible, there is a huge loss of opportunity in terms of revenue that could be generated on such investment. Therefore it proposes to privatise as many manufacturing and trading companies as possible, and encourage "market forces" (that is, private companies) to play in areas which are socially relevant. This, it claims, will release resources for poverty alleviation, education, health and development of infrastructure and technology.

The basic philosophy is summed up in the statement that "as against the declining efficiency of PSUs, private sector operations have emerged as an alternative force to reckon with, and there is no business that the private sector cannot operate", presumably better than the public sector.

There is much that is contradictory and even wrong in this analysis. First of all, public economic activity must be judged in terms of its social returns, rather than extant financial returns, simply because public investment has to meet socially desired goals. These included providing public goods and services which the private sector would naturally underprovide, such as facilities ranging from street lighting and roads to other infrastructure, as well as developmental activities. Especially in the areas of physical and social infrastructure, financial returns simply cannot be the basis of judging economic performance or desirability.

Second, if the government in fact wishes to encourage infrastructure development and poverty alleviation, then it should have expanded and revitalised some of the existing PSUs rather than closed them down. Consider some of the crucial developmental public institutions that have been liquidated or are about to be closed down in the first phase of "reform".

The Andhra Pradesh Small Scale Industries Development Corporation, the Andhra Pradesh State Agro Industries Development Corporation, the Andhra Pradesh State Textile Development Corporation and the Andhra Pradesh Meat Development Corporation are potentially of great significance even in terms of assisting private sector development and small-scale employment-intensive industry. They have all been closed down. The Andhra Pradesh State Irrigation Development Corporation, which provided irrigation facilities to hilly areas and lands of weaker sections, including tank irrigation which is completely neglected in the World Bank-sponsored projects, has been closed down.

The list of other important PSUs on the anvil for destruction is even more disturbing. These include the Andhra Pradesh State Road Transport Corporation, which cross-subsidises road connectivity of remote far-flung areas which is financially unviable with other routes, which the private sector on its own would never do. PSUs like Andhra Pradesh Agro and Andhra Pradesh Seeds have played important roles in the development of land in remote areas and of weaker sections, as well as in providing some form of quality and price control on the inputs available to farmers even from private sources. Eliminating these can have very negative effects on a cultivating community which is increasingly exposed to various forms of hard-sell by multinational companies and sale of spurious seeds and other inputs by some private agents.

A large number of cooperative societies, both producer and finance cooperatives, are also slated to be done away with, despite the fact that some of these have actually provided important services to rural communities which are unlikely to be replaced by other private companies.

A basic message which emerges from the pattern of closure or privatisation is that the State Government of Andhra Pradesh no longer wishes to fulfil the basic developmental functions of the state, despite its claims. Thus, all public developmental activity which occurs is under various foreign aid or loan projects, including under the "Janmabhoomi" scheme, rather than as part of an overall and systematic scheme of development. It is not surprising, then, that so little actual development has taken place in the State in the recent past.

But the future may be even less attractive for the people of the State, if the current plans for privatisation of the remaining PSUs are implemented. The question then naturally arises: who actually benefits from all this? And why does the TDP government insist on this agenda which is so clearly against the interests of the State as a whole?

One group of strongly interested parties turns out to be relatively easy to identify, although they are not local constituents. As mentioned earlier, the World Bank made "public enterprise reform" one of the important components of its economic restructuring programme, and has sanctioned about $26 million to finance 70 per cent of the payments to workers laid off under the Voluntary Retirement Scheme (which has been more than purely voluntary). It also insisted on an "Implementation Secretariat" in the State government for PSU reform, with a sharp commitment to privatisation and a strict timetable for implementation. This would report directly to the Cabinet Sub-Committee, bypassing all Ministries and Departments.

The Department for International Development (DFID) of the United Kingdom sanctioned a grant of $3.1 million for technical assistance "to strengthen the institutional framework in the Public Enterprises Department". The use of this money, which is incidentally all "foreign aid" to the State government, is especially interesting. It is being used to pay the salaries of the personnel of the Implementation Secretariat, provided by expatriate (mainly British) consultants from the Adam Smith Institute, a right-wing think tank based in London. As the State government's own Strategy Paper blandly states, "The fees of these professional experts are met from the funds sanctioned by DFID as grant. In selection of its personnel, I.S. is not constrained by the salary structure of the Government."

It has been pointed out by V.K. Srinivasan, a senior former bureaucrat who has been Principal Secretary to the State government, that "this is privatisation of governmental decision-making, with staff being neither responsible for results nor accountable to the government or the legislature". Nor has it provided "confidence and credibility at all levels" as the State government claims, since there are already several reported scams and controversies relating to the privatisation process so far.

Thus, the Implementation Secretariat was reportedly visited by Anti-Corruption Bureau officials, who sought to take over records relating to the privatisation of a cooperative. There has been some controversy also with respect to the privatisation of Nizam Sugar Factory and several other units. Clearly, the possibility of placing private profit above public service is not greatly diminished when foreign consultants rather than local bureaucrats are those who propose policies. Rather, the financial gain may simply be directed towards agents abroad rather than within the country.

The Andhra Pradesh privatisation experience thus far appears to be another example of transferring valuable public assets to private agents, without correct valuation of assets or genuine participation of stakeholders. There has been no attempt at a genuine reform of PSUs, which would orient them towards serving the obvious economic needs which exist. In the process, the urgent problems of development and welfare of the people of the State appear to have been forgotten or relegated to only secondary importance.

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