The increase in the price of petroleum products has caused a crisis for the public sector oil undertakings. But, there are ways to overcome this crisis. Judicious and accountable management of the country’s massive foreign exchange reserves and reduction in the trade deficit by rationalizing what needs to be imported, are steps that can alleviate the crisis. Are the policies of the government on these issues in line with good governance practices? Concerned citizens need an answer.
Caught between the Scylla of the UPA Government and the Charybdis of the Left Parties, the oil companies figuring among the ‘Navaratnas’ of the Public Sector Undertakings have been stripped of their gems and converted into edifices of graphite! The obduracy of the Left Parties in opposing increases in the prices of petroleum products and the dithering by the Congress-led UPA Govt. for practically 2 years have led to the oil companies losing more than Rs. 50,000 crores during the year 2006-07 alone, and Rs. 200 crores daily from April 2006 till the thoughtful Govt. announced an increase of Rs. 4/l of petrol, etc..
The Left Parties have been wanting the Govt. to reduce the customs duty, excise and other tax components, in order to off-set the increase in the price of crude which had been rising during the last 2 years and had even crossed $ 70 per barrel. The Govt. is, of course, harping on the “loss of revenue’’, which would affect the “development programmes’’ and the provision for implementing the National Rural Employment Guarantee Act which was the magnificent gift of the Congress President reflecting her deep concern for the welfare of the people, and the like of which we are assured on the good authority of the Party’s script writers had never been thought out anywhere in the world! So the impasse continues. Of course, the Congress Party reduced the adverse impact of the price increase by a brilliant strategy — by asking the Congress ruled states to `slash’ the prices of petroleum products by — about Rs. 40-50 p/l!
The present status of these oil companies is that these flourishing concerns have become bankrupt. Their `credit rating’ must have been affected as also their capacity to import raw materials and technology. It is so sad that these navaratna companies have shared their fate of the proverbial rose garland in the hands of a member of the simian tribe. Are the Govt. and Left Parties planning for a takeover of this sector of our economy by the foreign oil — marking companies?
Is there any way we can tackle this crisis? There is one source we can turn to. Actually it is a cornucopia, offering scope for unlimited manipulations by unscrupulous elements in the agencies which are `entrusted’ with the job of administering these resources. I am referring to the `Foreign Exchange Reserves’, which were of the order of $ 150 billion or nearly Rs 7,00,000 crores. It is stated that these work out to the requirement of the country’s imports for a period of 13 months (just imagine!) and exceed the total external debt of the country! Nobody knows why reserves should be this high. It is difficult to reconcile this with prudent management of this precious resource. Prudent management, one would expect, would be to keep the reserves at an optimum level and put the balance to the best alternative uses in the national interest. A reasonable level of the Forex reserves, in the absence of any data being available, can perhaps be taken at 10 months’ requirement for imports (if not less), which will come to about $ 115 billion, and release $35 billion or about Rs. 1,60,000 crores. These can be utilized for covering the losses (of Rs. 50,000 crores) sustained by the oil companies; a substantial amount will also be available for Infrastructure Projects, Poverty Alleviation Schemes, settlement of families displaced by the Sardar Sarovar Dam Project, etc.. Another way of putting these amounts to good use is to discharge some of the foreign debts, so that the budget provision for servicing the debts to that extent can be released for any of the purposes mentioned above. There seems to be no sense in having huge Forex reserves on the one hand, and huge foreign debts on the other, and taking further loans for the Infrastructure Projects of the Central and Statement Governments. By liquidating such debts gradually, the country can free itself from the clutches of the Foreign Lending Agencies and their `conditionalities’. It is very likely that the interest paid by India on the loans taken from the World Bank, IMF, Asian Development Bank, etc.. keeps the business suited bandits of these agencies in business! Why should we not use our (surplus) Forex reserves for paying a very remunerative support price for the food grains, etc. procured for the Public Distribution System, even if it involves heavily subsidizing these? This will facilitate the standard of living of our rural folks going up, contribute to increase of food output and minimizing if not avoiding import of food grains, which nowadays come contaminated with toxic pesticides and are accepted by the Govt. by relaxing norms.
As a concomitant to the above, we shall look at the picture of our exports, imports and Trade Balances. According to the periodical reports which give some statistical data, exports during the year 2005-06 `surged’ to $ 100.6 billion. We could have derived immense satisfaction from this performance — but for the position on the Imports front. The imports during that year `rose’ (and not `surged’, please note!), to a staggering $ 140.2 billion, leading to a trade deficit of $ 39.6 billion of about Rs. 1,80,000 crores. This quantum leap in imports is stated to be due to a spurt in Oil imports to $ 43.8 billion (compared to $ 29.8 billion in the year 2004-05), which is understandable and is mostly beyond our control. Non-Oil imports are estimated at $ 96.4 billion or Rs. 4,50,000 crores. Details for these are, of course, not given — probably, the public are not expected to understand the mystics of international trade, trade balances, etc.; they should leave them in the `safe’ hands of the mandarins who are the experts in these esoteric fields. Nonetheless, it is difficult to accept, prima facie, why the non-Oil imports should be of the order of $ 100 billion, and why imports of these items could not, at the least, be contained, so that the total of the imports did not nullify the excellent performance on the export front — by exceeding the exports by 40%? In the absence of details, we have to resort to guesstimates. Granting that there have to be imports of certain essential items (non-Oil) such as food grains, pulses, edible oils, defence related items, requirements for capital and maintenance on the industrial sector, it will be reasonable to assume that they may constitute about 50% of the difference between the total imports of $ 140.2 billion and the requirement of $ 43.8 billion for oil import — i.e., 50% of $ 96.4 billion or about $48.2 billion. The balance of about $ 50 billion or Rs. 2,25,000 crores is presumably relatable to imports of consumer items of various categories which are flooding, in a sickening manner, our Supermarkets and Malls (which are sprouting in our cities at a frenetic pace, adding to the woes of the city dwellers), catering to the elitist nouveau riche and upper middle classes. Most of these items are manufactured in India ; the others are of cosmetic value and the country would be better off without them. By severely limiting the imports of such items (and giving a fillip to consumer goods in the country), the earning from the exports could have been saved at least to the extent of Rs. 1,00,000 crores (if not more) and these could have been used for the purposes mentioned earlier.
The story continues during the current financial year. It is difficult to escape the conclusion that, far from exercising any control over the imports, the Govt. has been most profligate in its management of these precious Forex resources of the country.
There are several disturbing features that come to mind:
The Forex of $ 150 billion is, by any standard, a massive sum for most of the countries (except perhaps for a few affluent ones). Who are those that are managing/dealing with these astronomical balances? Are they those of impeccable integrity, are they managing these reserves with the utmost caution and in the best interests of this poor country?
Are these balances `parked’ in institutions which are totally reliable?
Does the system in vogue ensure that there is no scope for unauthorized withdrawals — temporary or permanent — and that the book balances are reconciled with those certified by those institutions which are holding the balances?
Why can not the Forex reserves be kept to the minimum required (instead of the requirements of 13 months imports), and the remaining balance put to the best alternative use(s) in the interest of the country (including liquidation of the foreign debts of the country)?
Can we not hope that Parliament may become pro-active in these matters and require the Govt. to submit an annual report (along with the Budget for the year), giving details of the balances, by whom they are held and so on, along with the Projections of Imports and Exports (with sufficient details especially for the former), so that the whole thing comes under the scanner and becomes transparent and a healthy check becomes possible especially on the tendency to import wasteful consumer items in the guise of globalization, free trade, etc.
If the Finance Minister does not have the faith in the citizens of India, but wants everyone having even the least bit of taxable income, to submit an elaborate Form laying bare his or her income and expenses, etc., agreed to the paisa, he should consider himself duty bound to lay before Parliament a detailed account of our Forex reserves, as suggested above. We the citizens have equal right to say that we have no faith in the Govt. managing the country’s affairs, finances, resources, etc.. in the best interest of the country.
If the reader kindly recalls the Quatrocchi Affair, the Oil for Food scam, the peak in the Bank Frauds during 2005-06 (as admitted by the Finance Ministry), the IPO Scam, the d-Mat Scam (the list is endless!), he or she will agree that it is dangerous to be complacent and leave matters such as these solely to the Govt. and other institutions.
There are any number of Institutes for Good Governance, Development Studies, Economic Studies and Strategic Planning (and what have you). Most of them are funded by Govt.. They `function’ as if their loyalty to Govt., and the tax-payer from whom everything comes is of no consequence. Therefore, we do not come across any reports on important fields in the public domain, where they have critically studied the performance of Govt./ Govt. institutions from the view of public utility and public good, and how far these have been served.
It is contingent on all concerned citizens of the country to demand answers to the questions raised here.
by C. A. Balasubramanian
(The author is a retired Additional Controller General of Accounts, Government of India ).