Minister forced to resign,"too honest."

[Matthew X]

http://timesofindia.indiatimes.com/articleshow.asp?artid=20080935
Power minister Prabhu and Simple Simon

SWAMINOMICS / SWAMINATHAN S ANKLESARIA AIYAR
[ SUNDAY, AUGUST 25, 2002 12:01:02 AM ]
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 an enormous sum of almost Rs 30,000 crore 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 two per cent per month on overdues. But the 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. They then 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 even pay staff salaries on time, 
could Prabhu seriously have believed they would suddenly start paying all 
future dues to suppliers? And if they failed to pay, could Prabhu have 
believed that the Central government would get tough with its own coalition 
partners who ran 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 the 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 the 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 states 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 the 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.