What if governments were run like companies?

There are some cases of abysmal corporate governance such as the case of non-disclosure by the management of Raymond of an agreement between the company and some family members (including its CMD Gautam Singhania), signed years ago but not disclosed, under which some members of the controlling family were to be allotted apartments in a building constructed by the company, using shareholder money, at a fraction of the prevailing market value. SEBI is investigating why the agreement was not revealed when it was signed as it ought to have been.

By and large, though, cases of poor public governance are worse than poor corporate governance. Consider a few examples.

Mark to market: Everyone knows of the ‘ghost cities’ built by the Chinese governments, which are, largely, unoccupied and are called ghost towns. Building of the cities, financed by banks, led to employment, demand for steel, cement, sand, etc, and economic growth. But if it was a company, the closing (unsold) stock would be marked-to-market (MTM), and valued at the lower of cost or market value. Governments don’t do this. So the balance sheet of governments are unreliable, grossly exaggerating the value of the assets.

These assets were built with bank credit, and Chinese banks now need to recover $3 trillion of credit which is doubtful of recovery.

In India, government procures foodgrains from farmers, and adds this to the GDP. Yet a lot of the foodgrain is ultimately destroyed, either by weather or by rats, because it is stored in open fields. An MTM method of accounting ought to reduce GDP growth, but is not followed.

Arms’ length transactions: Companies need to have an arm’s length relationship in their transactions and disclose if any of these have been done with persons/entities related to the management. In the public domain this is never done. Benamis are used with impunity and the political class protects its own, never investigating shenanigans.

The allegation by Sushil Modi, former Deputy CM of Bihar, that a former ‘cowshed’ employee of former CM Lalu Prasad had ‘gifted’ the latter’s daughter and wife plots of land needs to be investigated to determine if it’s a genuine arm’s length transaction or a benami one. The allegation surely needs to be investigated. Were it a corporate transaction, the government would have investigated it. Why is the political class exempt?

There are several other examples of investigating agencies turning a blind eye. The tax exemption given for any income declared as ‘agricultural income’ is so full of holes it would make a sieve blush.

Good public governance is an absolute necessity to get the country out of several problems. The NPA woes of the banking industry are known, but are about to get worse because of the poor state of the telecom industry.

According to a statement by Reliance Communications, the telecom industry needs a cash flow of ₹1.62 lakh crore to meet debt servicing, capex and spectrum acquisition costs. But the EBIDTA, according to the company, is only ₹43,000 crore. One can expect more stressed telco assets.

It’s time this government adopted the same standards of justice for all.

(The writer is India Head — Finance, Asia/Haymarket. The views are personal.)

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