Wednesday, February 20, 2013

Gain of congress Party Is Loss Of Nation

Congress' bail out of bankrupt Scooters India is party's gain at nation's loss ( Economic Times )

By Arvind Panagariya

My last visit to New Delhi coincided with the elections in Gujarat. While trying to catch up with television in my hotel room, I noticed a campaign commercial. It opened with a song whose opening line translates as, "The nation seeks account of the misery inflicted over the last 10 years."

Although the reference to 10 instead of eight years should have served as a clue, my immediate reaction was to wonder why the Gujarat chief minister Narendra Modi was running his election campaign against the Congress in Delhi. As the commercial progressed, I realised my mistake: It was being run on behalf of the Congress with Modi as the target. But that begged the question why the Congress was challenging Modi in Delhi even before he had emerged as the leader of his party? And wasn't this a case of the pot calling the kettle black since one could equally take the Congress to account for the misery it had inflicted on the nation

The commercial had all but faded from my memory when a news story suddenly reminded me of it. The story offers an insight into how parties seek political benefits—a perfectly fair game in democracy— paying little attention to minimising the associated cost to the nation.

According to newspaper reports, overruling finance minister P Chidambaram, Prime Minister Manmohan Singh recently approved aRs 200 crore bailout package for the revival of a company called Scooters India Limited. The company was established in 1972 as a public sector unit (PSU) after the government acquired the Lambretta scooter plant in Milan, Italy. With the licence-permit raj protecting it from external as well as internal competition, the company flourished in the 1970s and even added a threewheeler to its production line. But the success was shortlived. The company's scooter production peaked in the early 1980s and declined thereafter until it was discontinued in 1997. Today, the company produces just 70 threewheelers per day using half of its production capacity.

Scooters India has had a long history of making losses and being bailed out at taxpayers' expense. In 1996, the government wrote off loans worth Rs 430 crore as a part of a debt-reduction scheme. But the company did not revive and has been in loss since at least 2002-03. In 2009, the Board of Industrial and Financial Reconstruction (BIFR) even declared it sick, a key step in a lengthy process of winding up unprofitable enterprises in India.

In October 2011, at the government's urging, the heavy industries minister Praful Patel sent a proposal to the Cabinet to sell stakes in Scooters India and another loss-making PSU, HMT Bearings Ltd. At the time, a senior official of the ministry was quoted as saying, "HMT Bearings and Scooters India are sick PSUs, which are beyond redemption." Patel is reported to have said that the ailing Scooters India could be considered for privatisation. "There are a lot of companies under the ministry of heavy industries, like Scooters India, which need to be looked at differently. ... Some disinvestment, some outright sale," he had said. But in December 2011, the government made a U-turn and shelved Patel's proposal.

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