After months of prodding through the media, finally the Government of Goa made a very important announcement of banning all government recruitment, even if it was taken for political and not financial reasons. Unfortunately just about the same time of banning recruitments, came the announcement that the government had approved the 7th Pay commission recommendations. Money that was to be saved on banning recruitment unfortunately splurged on existing government employees. A cost neutral decision like this is hardly going to make any positive change on Goa’s pathetic financial position, unless there is some surgical strike planned in the near future, awaiting government employees soon after the implementation of the 7th Pay recommendations.
Nobody is against government employees but when the citizen to government employee ratio turns 1:22, it means either the government is very rich or it cares about it citizens so much that is ready to employ that many people to pamper the population. Since both the above cases are not true, it means there is a structural fault that has developed in the working of government departments, that if not taken care immediately has the potential of making Goa bankrupt. Add to that, excess government staff is almost always the major cause of rampant corruption and drains government finances through official and unofficial channels, which at the moment are minus Rs 15,000 crores. A government that is neck deep in debt and broke to even pay salaries to its staff without taking on debt has got its math wrong. Here’s why Goa needs to get its act together in cutting its costs on war footing, employee reduction being one of them.
The Indian corporate sector is reeling under unmanageable debt taken during times when most companies were on an expansion drive of their businesses. Unfortunately for them the positive story turned negative, earnings did not catch up or hit flimsy government hurdles or sometimes genuine environmental roadblocks, resulting in a badly bruised balance sheet to deal with. While many infrastructure or real estate companies created genuine assets along the way, they did by taking huge amounts of debt which now they have difficulty servicing. This has seriously affected their profitability and performance. For example a debt ridden company makes a profit of Rs 15 on an investment of Rs 100; their profitability is severely impacted because they need to pay interest rate of Rs 14 or Rs 16 for example. If their interest payment is Rs 14 then they scrape through with a profit of Rs 1 and if Rs 16 then they go minus. The company’s profit is severely dented not because it is not doing its work well, but because all the profits it makes is neutralised by large interest payments.
Smart companies always adapt though, while some are still in the rut of interest payments, others have worked a way around debt by taking the bitter pill of selling some of their assets, which are not part of their core business, in the hope they pay off their loan commitments and bring their interest payments to manageable levels. No point making profits and giving them away to the bank. Also it is better to sell assets before the company turns bankrupt and assets are sold by bankers or lenders as part of a fire sale.
Goa is a state and not a company, but the people that are lending money will always do what it takes to recover their principal amount and interest. Being a state and that too with powerful contacts at the centre, there will be some bulldozing of the lenders and pressure applied for better terms or waiting period, but if there is no definitive plan to bring down the interest outgo then whatever revenue the government generates will be given away as interest payment. In other words banks and lenders are going to eat away the tax we pay just because our government decided to take loans that have now gone out of control.
Even if Goa takes loans and creates assets unlike a corporate company they cannot sell these assets to bring down their loan commitments. So the only way to save Goa from bankruptcy is by cutting cost, not cosmetically but by drastic cuts. Cutting government employees to half within 6 months is absolutely necessary and doable by using the carrot and stick policy. A VRS carrot could be announced and at the same time followed up with the announcement that those that do not take it will have to undergo the anticorruption and performance stick. For those that work honestly and their performance is there to see, there is no fear, but the lazy and corrupt will see the writing on the wall and take the VRS escape route with benefits rather than risk getting caught and lose everything.
If something drastic like this is done on an urgent basis, then Goa’s state will be like the way our Chief Minister accurately depicted when the Prime Minster visited Goa last time. A video clip doing the rounds showing the Chief Minister with folded hands might have amused many, but at least the Chief Minister was polite enough hoping the Prime Minster allocates some funds or writes off some of the loans Goa is reeling under. Unfortunately the opposition opened their big mouth and talked of something like disgracing the honour of the Chief Minister’s office. Goa must invest in a saner opposition so we don’t have to listen to insane statements like these. The honour they were referring to was automatically thrown out of the window the day they started borrowing when they were in office. At least we have a Chief Minister now that does not put up an act and pretends everything is ok when it is not.
Any entity that is staring at bankruptcy will have its assets sold by lenders in a fire sale for a song. While politicians might give it fancy names like privatization, they will be sold nevertheless. Cutting costs rather than having a fire sale if its assets, looks like a better option.
(The author is a business consultant)
