Home » Of the public, for the public but not by the public

Of the public, for the public but not by the public

Of the public, for the public but not by the public

What is it that was just 29 crore in 1951 and has now grown to 10 lakh crore? It is the amount of public investment in 290 public sector units in India today. This huge investment made over half a century, today generates a revenue of Rs.21 lakh crore, with a net profit of Rs.1.3 lakh crore per year. If you owned a chunk of such a hypothetical company, you may not be very highly enthused by this pedestrian performance – it is likely that you as a demanding shareholder will demand a change in management of the company, seeking a better RoI.

Two important points to be made here; one – this current level of ´so called´ indifferent performance of the sector has come about after a series of reforms in the last two decades, during which efficiencies have been improved, manpower has been shed, and attempts have been made to increase accountability and highlight the role of the boards. So, the current state of affairs in the matters of our public sector entities is, in itself, a vast improvement on the lows it had reached previously. The other point to be made is, we know aggregates and averages hide more than they reveal, and the fact is that a few high-performing units lift up these aggregate numbers, which would otherwise be pulled down to the abyss by the other mostly loss-making companies.

Given the legacy, purpose and premise of our PSUs, in that they were conceived to provide public services and generate employment with a ´not so much´ focus on profitability, it may be sacrilege even today to criticise this sector for its inept management and lackadaisical performance at the gross level. But every rupee that our government today earns as revenue, has many competing avenues for spending in priority areas like healthcare and education and many other urgent projects like ´Swachh Bharat´, while the loss-making PSUs are absorbing 2.5 per cent of the funds as budgetary support. This is inopportune use of tax-payers´ money, begging for an urgent review.

What ails our Public Sector? Simply put, it does not have the ability to withstand competition. Examples like Railways, Postal Dept., Telephones, Airlines, Coal India, LIC, BHEL, HMT, Public Sector Banks, and many others demonstrate that in a monopolistic situation, or in an uneven playing field with protective regulations, these public sector entities make good, only to be run down at the slightest whiff of competition in a level playing field. This has been seen to happen time and again, in fact so many times, that this hypothesis is now an axiom.

The next question is, why can´t PSUs compete? The managerial talent in our PSUs is in no way inferior to their private sector brethren. This is due to a simple combination of two reasons – lack of autonomy and lack of meritocracy. Today, most PSU companies are run as fiefdoms of respective ministries. A semblance of autonomy is awarded to those companies which are performing well, without realisation that this is a Catch-22 situation where performance improvement will come from autonomy. Investment decisions, senior level appointments, business strategies, board appointments and all such major governance matters are decided sub-optimally. It is wrongly assumed that a middle level bureaucrat sitting in the ministry, with no relevant specialisation, is more competent in making crucial decisions than the CMD or the board, and this feeds into a vicious cycle of deterioration.

Everyone seems to agree that all PSU companies should have complete autonomy and should be completely board-run, and not to be run like an extended arm of the ministry. There has to be an ownership policy in India for PSU companies where one can evaluate the owner (the ministry) on how he is performing his obligations and duties. Also, independent directors are really not independent as they are appointed at the mercy of the ministers and ministries, not on merit, and this must change. Lastly, there is need to have an independent ´holding Company´ like body, fire-walled from the ministries, to consider and approve appointments and investments, purely on merits of the cases.

It is likely that all these wishes and expectations may remain pies in the sky. But this is one of those instances, when I would be mighty happy to be proved wrong!

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