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Plan panel
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Kabul’s
expectations
Power
pangs of Punjab
A true
friend and soldier
Reforming
to enhance productivity
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Health insurance
The
financial cost of a medical exigency is prohibitive, all the more so in a poor country like India. Yet the safety net of health insurance is very limited, with inadequate penetration of group policies. Even those who do want to go for it are restricted by the prevailing situation. The insurers make tall promises while luring the customers to buy a policy but when it comes to delivering, they turn shy. By then, the buyer is stuck. Many people were frustrated by the games that the insurers played. One, they were reluctant to switch insurers because of the fear that they would lose benefits – like lower premium — of a good track record. Two, there was no certainty that the new insurer will be any better. So, the captive customers were unduly harassed by unscrupulous insurance companies. All that is set to change with the introduction of health insurance portability that came into operation from Monday. Companies will be on their toes to offer the best possible service lest they end up losing customers to their rivals. As had happened in the case of phone number portability, the success of the scheme will depend on how faithfully it is implemented. If the companies manage to put hurdles in the way of those seeking transfer of the policy from one firm to another, then the very purpose of having the scheme will be defeated. The users would also want the cost of cover to come down but that seems unlikely. Also on offer are several other features which will make the life of the policy buyers somewhat easier. Many innovative products and packages are likely to be introduced. Certain areas of operation are still hazy. Under the guidelines, insurers are bound to issue individual policies to those whom they cover under group policies. Many insurers cover parents of employees up to 80 years under group mediclaim policies but have a maximum entry age of 65 for individual health insurance. Such teething problems will have to be sorted out.
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Kabul’s expectations
President Hamid Karzai
of Afghanistan must be ruing the day he decided to engage the so-called “good” Taliban with a view to normalising the situation in the war-torn country. Initially, India had been opposed to this idea, which involved the induction of sections of the Taliban in the government at a later stage. The idea had the backing of the West (the US, for all practical purposes), which saw a major role for Pakistan in fighting terror in the post-troop withdrawal phase in Afghanistan. However, the sharp rise in the incidents of violence involving the Taliban for the past few months, leading to the assassination of former Afghanistan President Burhanuddin Rabbani, has strengthend the view that the Taliban factions of any variety do not deserve to be associated with the ruling dispensation. They deserve to be physically eliminated or rendered irrelevant in the Afghan society by exposing their misdeeds. How to go about this must be discussed by Mr Karzai when he meets Indian leaders during his current visit to New Delhi. Most Taliban factions like the Haqqani group have had Pakistani backing. They believe that once the US-led NATO forces leave Afghanistan no one can stop them from capturing power in Kabul. Pakistan has been investing on them considerably for realising its geopolitical objectives, ignoring the dangerous consequences of its dalliance with the Taliban. India and Afghanistan need to impress upon the world community to prevent this scenario from becoming a reality in the interest of peace and stability in the region and beyond. India, in the meantime, will have to find more resources for the reconstruction of Afghanistan. New Delhi, of course, is spending liberally on infrastructure and other development-related projects in that country. But it has to gear up to play a role in the exploration of Afghanistan’s mineral resources too. The landlocked country has precious minerals hidden in its landmass. The exploration of mineral resources can help spur economic activity, leading to Afghanistan’s all-round development. This can also distract people from the destructive activities of the Taliban, which has made their life more and more miserable since its birth in the tribal areas of Pakistan in the nineties.
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By and large, language is a tool for concealing the truth. — George Carlin
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Power pangs of Punjab
Uninterrupted
quality supply of power is one of the crucial determinants of growth and development of any economy. The other factors are efficient transport and communication facilities, adequate and timely availability of reasonably priced credit, availability of workforce and the managerial staff equipped with relevant education and skills as well as easy access to affordable medical services. If the quality availability of power at affordable prices is ensured and efficient transport-communication infrastructure is developed in any area, region, state or country as a whole, this will have complimentary effect and will provide a primal push for the development of other determinants of growth such as production credit as well as access to education and health services. Within these two crucial pre-requisites — power and transport-communication — the former provides the ignition to the development process and all components of the investment game start falling in place. For example, in Himachal Pradesh, no doubt, tax concessions along with promotional policies of the government did play a role in attracting industry, yet more important for industrial investors was the adequate and low-priced quality supply of electric power that played a crucial role in expanding the industrial base in the state. In the absence of adequate quality power, no other consideration or concession would have made the difference that we are seeing today. This is not to deny the role of the Central package, a better promotional climate, lesser corruption, a comparatively more responsive bureaucracy, etc, that otherwise compensate considerably for the handicap of accessibility in the hilly terrain. The availability of reasonably priced quality supply of power has served as irresistible attraction for the investors in the state both in the industrial and services sectors. This is the reason why in the Eleventh Five Year Plan, emphasis was placed on the creation of an additional public sector power generation capacity in the states. Whereas all the states in the country created substantial power generation capacities, unfortunately Punjab lagged dismally on this aspect. For instance, Haryana increased its power output by 1770 MW in 11th Plan, and 1860 MW capacity projects are under construction in the public sector. The adjoining state of Rajasthan effected an increase of 1270 MW, and another 1320 MW capacity will be added when the projects under construction are complete. The situation is not different in other states of the country. In contrast, Punjab added only 500 MW from Lehra Mohabat during the plan period and that too from the project initiated by the previous government. No other plant is under construction in the public sector at this stage. In principle, the major part of power production should be in the public sector, because it is the basic necessity of all the sectors and sub-sectors of the economy, and this crucial input cannot be left to the vagaries of the private sector alone. In fact, the private sector should play only a supplementary role in this sector. Heavy dependence on the private sector can lead to a deliberately created mismatch between the supply and demand for power, and prices can be escalated in a coercive manner during critical periods. Otherwise even the private sector supply of power cannot be cheaper than public sector production if management is made equally efficient and the plants operate at their optimum capacity, as there is no element of private profit involved. Further, the Punjab government has allocated power production projects to the private sector through the signing of direct MoUs, bypassing the mandatory requirement of the open global tender system. Such allotments through MoUs have all the leeways and potential for resorting to corrupt practices, whereby undeserving concessions can be granted and higher prices can be negotiated to the advantage of private operators. For instance, the Gidderbaha plant was demanded by the PSPCL to be constructed in the public sector for which the Power Finance Corporation was prepared to finance 90 per cent of the capital cost of the project. Yet the project was sanctioned to the National Thermal Power Corporation through a direct MoU. The project is in limbo, because the NTPC is dragging its feet on one excuse or the other. In fact, the Punjab government, bypassing the requirement of competitive global tenders, has adopted the direct MoU mode as its policy on the production of electric power in the state and has made provision for abolishing the stamp duty on land transfer deeds with exemption from taxes and charges for the change of land use. So much so that the charges for electricity use during the construction phase of the project is reduced by half. It could be understandable if such concessions were provided under the open bid system and announced before inviting tenders/bids and the contracts negotiated for a lowest price of power supply. Yet, as it is, it does not look pleasant under the system of direct MoUs and with undue concessions provided by the government. It is unfortunate that the successive governments, right from the early nineties, have not given due priority to power production in the state. Yet the demand for power has been escalating constantly. During the last five years, in spite of scheduled and unscheduled cuts and inadequate allocations to the agriculture sector, the consumption of electricity in Punjab jumped from 33651 million units in 2005-06 to 40648 million units in 2010-11 (more than 21 per cent increase). As a consequence, to meet the demand, the state resorted to the purchase of power from outside with its purchase cost increasing from Rs 2405 crore in 2005-06 to Rs. 5300 crore in 2010-11. Imagine for a moment if this amount was spent on the production of power in the public sector, how easy the state would have been on the power front! No doubt, a portion of this cost has been realised as user charges, yet the state suffered a net loss on every unit purchased. Further, dependence on outside sources leads to uncertainties on supply and prices. The state had to hire the services of middle men in the short term for the additional supply of power from outside resources. As a consequence, prices of such supplies increased from Rs 3.24 in 2005-06 to Rs. 7.12 in 2008-09. Even in 2010-11 the unit cost was Rs 6.29. The claims of creating surplus power within three years from taking over the reigns of the government by the ruling political combine has fallen flat and with private sector plants being in limbo, there is no hope for the state to become power surplus in the near future. The plausible answer lies in revamping and increasing the production capacity of the existing plants, which is a less costly proposition per unit of power generation and to put some major projects in the realm of the public sector. The Power Finance Corporation can be approached for finances. The Punjab State Power Corporation has the needed capacity to build new projects alongside revamping and increasing the capacity of the existing plants. More than 40 per cent dependence of the state for power on external resources is not a tenable situation. Yet the basic question is if the Punjab government will apply its mind to the problem dispassionately and ever adopt such a rational approach in the interest of the
state. The writer, a former Vice-Chancellor of Punjabi University, Patiala, is a well-known agricultural economist.
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A true friend and soldier Twentysix-year-old
Lt. Sushil Khajuria, who got martyred while fighting militants in a fierce encounter in the border district of Kupwara in Kashmir on September 27, was one of my dearest friends. At Government MAM College, Jammu, during our final year in 2006, Sushil, Chander and Vijay shared a room with me in the hostel where we laughed together and cried together, raised toast to our successes and failures, made plans for the future, argued emphatically and convinced each other on issues dear to each of us. Till Sunday September 25, four of us were together planning arrangements for his wedding that was fixed for the coming February. On Monday he left for Kupwara, his place of posting. The next day, he joined the ongoing encounter and laid down his life for the country. During his short service of one and a half years he redefined the parameters of bravery besides setting an example of officer-subordinate relations.The way he got killed after killing two militants shows the kind of person he was. He was trying to save Havaldar Ravi, whom he had mentioned to me recently, when he got fired upon from just 10 metres. He possessed exceptional leadership qualities, courage and a compassionate heart that made him a human dynamo and a role model for NCC cadets. He was a level-headed person. I never saw a frown on his face. I clearly recall a strong crowd of nearly 200 NCC cadets and friends at the railway station, Jammu, shouting patriotic slogans. All of them had converged to see him off when he boarded a train for OTA Chennai after clearing the CDS exam. I also remember the fine morning when I threw his luggage out of our room as I was quite irritated over his endless friends frequenting the room round the clock. He, accompanied by Chander and Vijay, instead of taking refuge somewhere else took shelter in an adjacent store room. A little later, I felt sorry and brought them back after a little persuasion. In the evening when I entered the room, I found my effigy hanging from the ceiling fan with a ‘suicide note’ while three of them laughed their heart out. The ‘suicide note’ was a justifiable satire on me being a loner despite good friends. Most significantly, the way they convinced me appealed to me immensely. In his first attempt at the CDS exam he got rejected in the medicals. I tried to cheer him up though he was inherently resilient: “Next time I will definitely make it,” he said. He worked at Indira Gandhi airport as security officer but soon quit the job describing it as “not of my kind”. Hundreds of comments on his Facebook account after his death bear testimony to the fact that he was widely loved. As his body was brought, I was all the time present during his funeral but I could not dare to look at the face of my dear brave friend. A bullet had hit his left eye. I could not bear to bring any bruises amongst the memories of his smiling face deep in the recesses of my heart. Sushil will live with me for the rest of my life with the same twinkle in his eyes that defined his laughter in our
togetherness.
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Reforming to enhance productivity
India
has established nine Defence Public Sector Undertakings (DPSUs) whose responsibility is to provide state-of-the-art equipment to the Armed Forces and enhance the country’s self-reliance in defence production. However, the performance of these undertakings, controlled by the Ministry of Defence, is not up to the mark, resulting in import of arms worth billions of dollars every year. Most of them are over-dependent on external sources for their production needs, and have very low labour productivity levels, negligible exports, and a low research and development base. Bharat Electronics Limited (BEL) is the premier defence electronics company, with nine production units, that has evolved high-tech radars, sonars, communication equipment, electronics warfare equipment, opto-electronics, tank electronics and many new products including electronic voting machines. Among the four shipbuilders under the defence ministry, Mazagoan Dock Limited (MDL) is the largest in terms of product range, value of production and the number of employees. The company was just a ship repair yard when it was taken over by the government in 1960 and since then it has expanded its activities to ship building, ship repair and construction of offshore platforms. Bharat Dynamics limited (BDL) was carved out of DRDO as a separate DPSU in 1970 and it builds strategic and tactical missiles and allied equipment, with technologies supplied by the DRDO. The company got into prominence with the launch of India’s Integrated Guided Missile Programme (IGMP) in the early 1980s. Among others, Midhani was incorporated in 1973 to achieve self-reliance in areas of special steels, super alloys and titanium alloys that form the core needs not only of defence but also of space and atomic energy programmes, while Bharat Earth Movers Limited (BEML) with its three product segments of mining and construction, defence and aggregates and railway rolling stock, caters to the core needs of the industry.
Role and Performance of DPSUs They are largely responsible for India’s poor achievements in self-reliance. The poor contribution of DPSUs are also reflected in their decreasing share in India’s capital acquisition budget. India is heavily dependent on foreign suppliers, with the Russian contribution accounting for more than 70 per cent. Three parameters -- value addition, export performance and labour productivity are relevant for assessing their performance. The value addition (VA) of all DPSUs as a percentage of their total value of production (VoP) has, in last 10 years decreased, from high of 51 per cent to a low of 38 per cent, notwithstanding their near continuous growth in VoP. HAL’s turnover has increased from Rs 1,166 crore in 1997-98 to Rs 13,489 crore in 2009-10. However, its VA as percentage of VoP has decreased significantly to just 31.6 per cent in 2009-10. The foreign exchange outgoes are mostly on account of “import of production requirements”, the high dependence on external sources could be due to several factors, one being the little in-house R&D efforts. Among the DPSUs, three - HAL, BEML and BEL have been successful in entering into defence exports. In value terms, HAL’s exports have grown from Rs 104 crore in 2009-10 to Rs 205 crore in 2009-10, which is only 1.51 per cent of its volume of sales. BEL’s exports have increased from Rs 48 crore in 2002-03 to Rs 208 crore. BEML has the unique distinction of exporting to more than 50 counties, including the United Kingdom, South Africa and the Middle East. BEML’s exports have touched Rs 218 crore. The low export base of DPSU can be ascribed to a number of factors, such as quality of products offered and marketing strategy among others. The shipyards are way behind other DPSUs. All government run PSUs suffer from low labour productivity – a malaise for which they have to find a lasting solution.
Need for Foreign Investment As of now, the private sector is allowed to seek foreign direct investment (FDI) up to 26 per cent. Disinvestment has also been permitted in three defence PSUs namely BEL, BEML and now HAL to the extent of 10 per cent. A lot of controversy has been generated that this step is likely to compromise the security of the strategic defence sector. The policy of 26 per cent cap on FDI has failed to attract any substantive FDI in the defence sector. ASSOCHAM and CII have propagated its raise to 49 per cent. The Parliamentary Standing Committee on Defence has also supported enhancing the FDI cap to 49 per cent. Most major defence manufacturing units need a transfer of technology, but no foreign major is comfortable with transferring proprietary technology to a company in which it does not own a major share. India is losing out on a number of foreign companies that would be keen on developing India as a “home market” i.e. both as a major domestic sales market and a global manufacturing hub in its supply chain. The Ministry of Defence’s position is influenced by the interests of the DPSUs. The latter were instrumental in blocking the proposal, initiated in 2006, to grant Raksha Udyog Ratna (RUR) status to select well-performing private Indian companies in defence manufacturing. The RUR status would bring private companies on par with DPSUs like HAL. Although offsets amounting to 30 per cent for contracts exceeding Rs 300 crore have been made mandatory, they provide a poor alternative for greater FDI flow. India ostensibly does not have the industrial capacities and the know how to absorb the offsets’ obligations, estimated to be about $9 billion by 2012.
The Global Overview The defence production establishments all over the world are under going an overhaul. The UK has advocated Public Private Partnership (PPP) to address the problem of declining funds and increasing competition from the civil sector. In South Korea, defence R&D has transited to the civilian sector. In USA, especially after the cold war, spending on defence was cut down substantially. From 22 major players in defence production this sector now has only four, viz Boeing, Lockheed Martin, Raytheon and Northrop Grumman. In India this policy reform has gained momentum after the submission of the Kelkar Committee Report, which recommends a 15-year long-term perspective plan, information sharing on the requirement of the Armed Forces with the industry, accreditation and fostering of RURs, evolving policy framework to promote participation of small and medium enterprises in defence production, providing defence research and development opportunities to both DRDO and the industry and to work out Request For Proposals (RFP) that include an offset clause for contracts valued at Rs 300 crore and above. The complete process suffers from indifference, apathy, inefficiency and lassitude. Doing business with the defence continues to be a highly complex and daunting task for the industry. Companies are treated as adversaries. Long-term perspective plans have remained as classified documents. Centralised registration of vendors does not exist. Vendors are expected to register for product specific registration to become eligible to receive tender enquiry. Offset policy continuous to be ambiguous. Purchase preference is given to the public sector thus denying level playing field to the industry. Vendors are expected to make huge investments without assurance of defence business. Presently, the Department of Defence Production (DDP) in the defence ministry looks after the public sector enterprises only. The private sector remains neglected. There is an urgent need to have an agency that the aspiring companies can approach to obtain clarifications and guidance. The DDP should be reorganised and could perhaps be christened the Department of Defence Industry (DDI), with a much wider mandate to integrate the private sector as well.
The Road Ahead The DPSUs have matured enough to meet Indian defence requirements in full provided they are structurally reformed. Transfer of technology is mandatory which could be availed through the FDI and offset routes. PPP route has successfully demonstrated tremendous growth in relevant PSUs. Private sector must be given full opportunity to provide healthy competition to DPSUs and DRDO in production and R&D respectively. The economic reforms instituted in the early 90s made India globally competitive and has brought about tremendous growth in the GDP, which is still continuing in spite of the global meltdown. If similar innovative reforms are adopted in the management of our PSUs in general and DPSUs in particular, we can expect spectacular changes that can make India not only self reliant in Defence production but also a major exporter of defence supplies the world over. The writer has commanded an IAF Base Repair Depot and also served as CEO of a Public Sector Undertaking
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Hindustan Aeronautics Limited (HAL) is the largest DPSU, accounting for nearly half of the DPSUs’ total production. It is involved in the manufacturing of Su-30MKI and Jaguar aircraft, the indigenous Light Combat Aircraft (LCA), Dornier-228, and Advanced Light Helicopter (ALH) among other high-value items.