Suresh Prabhu and Simple Simon

Even cynics were shaken when Shiv Sena supremo Bal Thackeray ordered Power Minister Suresh Prabhu to resign on the ground that he was too honest. We are used to the notion that politicians should resign if caught extorting bribes. Never before has a Minister been sacked on the ground that he did not make money at all, and so was unfit for high office.

Many supporters of Prabhu moan that the power sector reforms he championed will now be shelved. In fact his reforms were well-intentioned but too timid and half-baked to work.

On assuming office, he found that State Electricity Boards (SEBs) owed the enormous sum of almost Rs 30,000 to various suppliers—Coal India Ltd, the Railways, GAIL, BHEL, NTPC and others. This was more than the entire GDP of some countries. The suppliers levied penal interest of 2 per cent per month on overdues. But SEBs ignored the penalties as blithely as the dues.

For many years, some overdues were recovered by Central suppliers (like CIL, NTPC and BHEL) as deductions from central Plan assistance to errant states. The Planning Commission said no more than 15 per cent of Plan assistance could be deducted in this manner. Soon the states crossed the 15 per cent limit. After this, they suffered no additional penalty at all.

At many official meetings, the states agreed to slash power subsidies for farmers and check theft. Then they went back and did nothing, or even increased subsidies.

This surely proved that commitments made by financial and moral bankrupts had no value. Yet Prabhu sought to solve the problem through a fresh set of commitments. He proposed a scheme whereby states that agreed to reform could convert their overdues into bonds. They would also be forgiven part of the penal interest, which they were not paying anyway. If after this they still defaulted on fresh dues, these would be deducted from Central Plan assistance without any ceiling. He hoped this would induce states to pay all future dues.

Only an honest man can be foolish enough to believe that rogues will reform so easily. The States will promise anything for a little cash, and then return to politics as usual. When so many cannot pay even staff salaries on time, can Prabhu seriously believe they will suddenly start paying all future dues to suppliers? And if they fail to pay, can Prabhu seriously believe that the central government will get tough with its own coalition partners who run so many states?

When I first talked to Prabhu on this subject, I said he was ignoring the obvious solution: cut off supplies to all defaulting SEBs. After all the most elementary principle of commerce was “No payment, no supply.” Every child in Kindergarten knows this from Mother Goose.

“Simple Simon met the pieman

Going to the fair.

Said Simple Simon to the pieman

Let me taste your ware.

Said the pieman to Simple Simon,

Show me first your penny.

Said Simple Simon to the pieman,

Indeed, I haven’t any.”

Did the pieman keep supplying pies month after month, while levying imaginary penalties on Simple Simon? No, for he knew that to ignore default would be to induce further and further default. The same logic applies to the States.

Prabhu told me I was being unrealistic. If he cut off supplies to SEBs, he said, many states would be plunged into darkness, and there would be riots. You cannot treat this as just a commercial matter, he said, it has major political implications.

But surely that is the problem. As long as the issue is treated as political, there is not the slightest reason for State to reform. If, because of politics, they can keep getting supplies without payment, why should they ever pay up? They will stop only if they find that they cannot get any coal from Coal India, any power from NTPC, any machinery from BHEL.

Prabhu is afraid of riots. In fact urban riots can be a solution. Often in the past, farmers have rioted against higher power rates, and forced politicians to lower these. State governments claim it is impossible to charge farmers realistic rates, impossible to sack corrupt linesman, impossible to stop power theft. But if supplies to SEBs are cut off and irate citizens riot, the States will at last find it politically expedient to reform. They will at last find it politically feasible to raise rural tariffs, sack corrupt linesmen, and crack down on theft.

By now, I think Prabhu must have realised a fundamental truth. A polity that cannot stomach an honest Power Minister also cannot stomach the thought of paying its debts honourably. Only when it is forced to bear the full consequences of non-payment will it pay up.

What do you think?