On a strong pitch

It should be no surprise that PSEs emerge right on top when it comes to efficiency and performance, given their inherent rather than acquired advantages. But, writes Maya Sinha, the flip side is that they have not redefined their own strengths to achieve better productivity the very accountability that defines PSEs is hampering speedy execution.

Before independence, the only Public Sector Units (PSUs) worthy of mention were the Railways, the Posts and Telegraphs, the Port Trusts, the ordnance and the aircraft factories and a few government managed undertakings like the government salt factories, quinine factories etc. After independence and with the advent of planning, India, led by Pandit Jawaharlal Nehru, opted for the dominance of the public sector, firmly believing that political independence without economic self-reliance was not good for the country.

The passage of the Industrial Policy Resolution of 1956 and adoption of the socialistic pattern of the society led to a deliberate enlargement of our public sector. It was believed that a dominant public sector would reduce the inequality of income and wealth, and advance the general prosperity of the nation. The planners also seemed to believe that by placing the management and workers in public enterprises in a position of responsibility and trust, they would be so imbued with a sense of public good that their actions and aspirations would naturally reflect what was best for the country.

The main objectives for setting up the Public Sector Enterprises (PSEs) as stated in the Industrial Policy Resolution of 1956 were:

• To help in the rapid economic growth and industrialization of the country and create the necessary infrastructure for economic development;
• To earn return on investment and thus generate resources for development;
• To promote redistribution of income and wealth;
• To create employment opportunities;
• To promote balanced regional development;
• To assist the development of small-scale and ancillary industries; and
• To promote import substitutions, save and earn foreign exchange for the economy.

In tune with the widespread belief at that time, the 2nd Five Year Plan stated that ´the adoption of socialist pattern of society as the national objective, as well as the need for planned and rapid development, require that all industries of basic and strategic importance, or in the nature of public utility services, should be in the public sector. The state has, therefore, to assume direct responsibility for the future development of industries over a wider area.´ Over the years, Central PSEs have not only grown in number but also in the range of activities, including oil and gas, manufacturing, engineering, steel, heavy machinery, petrochemicals, power, etc. Further, those industries which need to be developed, but in which private sector is unwilling or unable to invest would also be in public sector.

In fact, public sector was expected to play a dominant role in shaping the entire investment pattern in the economy and private sector was only expected to play its part within the framework of the comprehensive plan accepted by the community.

During the global economic recession in 2008-09, the Indian economy demonstrated remarkable resilience, while a slew of factors were the underlying reason for this resilience, by far the most important reason was the resilience of Indian PSEs.

It is no small feat for India to pursue its unique model of public and private enterprises for sustainable economic development, under open and unhindered scrutiny of the public and various stakeholders. Global economy is once again passing through deep trouble and this time, India too, is having a testing time.

Indian PSEs, which have come a long way from being ´temples´ of newly independent India to competitive business entities of modern India are once again expected to prove their mettle and contribute their tremendous might in terms of investments, manage¡ment practices and high quality personnel, to the mammoth exercise of pulling the Indian economy out of the woods.

To understand how they are going to do this, it is necessary to analyse how the PSEs have reached their present glorious heights.

Handicap startCompared with private sector enterprises, PSUs have had many inherent advantages which gave them a head start over Indian private sector.

Funding benefits: The greatest advantage they enjoy is absence of funding pressure they have been funded by equity from government. In the matter of raising debt, too, they have been in a favoured position. This bestows a great head start to any commercial organisation and enables decision making in an environment where financial considerations are not overriding in nature. This is not to even remotely suggest that financial prudence is absent in decision making in PSEs.

On the contrary, the standards of fiscal prudence, accountability and transparency are the highest among PSEs. Since the enterprise is funded by the state, if a particular proposal is based on sound judgement and is articulated properly, there is hardly any chance of it not receiving funding, unlike in the private sector, where funding decisions are not always based only on the soundness of a proposal. Another important corollary is the fact that PSEs are not subjected to the pressures of demonstrating quarter-on-quarter (QoQ) performance in the same manner as a PSE.

That brings us to another very important reason for PSEs to have been able to reach the heights they have as they are not subjected to the QoQ pressure to the same extent as private sector, they are able to take a long term view of money, enabling sustainable growth and attainment of glorious heights. This not to suggest that PSEs operate in a an environment bereft of pressure to show results very quarter but while a PSE can choose to give secondary importance to profitability and pursue other goals of employment generation, reduction of regional disparities, promotion of small scale and ancillary industries as well, a private enterprise can seldom afford to give any other factor, except generation of profit, any importance.

The human factor: The second important distinguishing factor as well as contributory factor to PSE success is the quality of manpower deployed. The selection processes for manpower in PSEs is far more rigorous than any private sector process. The heads of PSEs are selected by the Public Enterprises Selection Board (PESB), which is manned by seasoned bureaucrats who, in the routine course of discharging their day jobs for over 30 years in various government departments, have honed the ability to take a 360 degree view of any situation and are therefore able to assess persons for selection for top jobs at PSEs. The necessary qualifications prescribed for these jobs are extremely stringent which ensures that PSEs are manned by very well qualified persons, selected through a rigorous, well defined process of selection by specially created, constitutional bodies such as the various Public Service Commissions and the PESB. Entry level jobs are almost always filled through All India open competitive examinations which are structured such that only the very best qualify. (In fact, it is this author´s considered view that not much is done by way of educating and creating awareness amongst educated youth about the prospects of a career with the public sector and as a result, many talented youngsters are landing up in frustrating and limited roles in the private sector).

Once recruited, the nature of duties ensures that all of middle management learns the art of multi-tasking and excelling in the routine course of a workday. Process-driven: The third distinguishing factor are the processes, systems and work ethics that define PSEs. Their Standard Operating Procedures (SOP) are very clearly defined and leave little scope for ambiguity or ad hocism in decision. Further, decision making is not individual driven but is consensus decision made within strictly defined hierarchical structures. This is combined with very clearly enun¡ciated principles of accountability and transparency. All the above features ensure decision making is not individual centric, is as per clearly laid down SOPs and would fulfil tests of accountability.

Collective ownership: Possibly the most important factor that contributes to the PSE success story is the lack of the concept of owner/promoter which, sadly for private sector corporates in India at least is a very strong, possibly strongest factor determining decision making in every aspect of corporate management.

The CMD as well as Board of Directors are professionals appointed to the particular post through a rigorous process of selection .While they are driven by the mandate to make maximum Return on Capital Employed, their drive cannot be compared with that of the owner/promoter CMD of the private sector. The above are some of the main reasons/factors contributing to the towering heights that Indian CPSEs have reached in the last 60 odd years of post independence India. While all the above factors have contributed to the growth story of PSEs, there is a flip side to each of them which are becoming stumbling blocks in the transformation now required for these nationally acclaimed Enterprises to become globally acclaimed enterprises:

The flip side
The fact that PSEs are funded by central/state governments naturally implies a curtailment of financial autonomy. PSEs do not enjoy financial independence unlike their Private Sector counterparts which often leads to delay in decision making. Formulating a business case for fund raising, seeking approvals etc can be an arduous task for PSEs. In fact, there are many glaring instances when other welfare measures that governments have to take reflect in restricting PSEs from taking pure commercial decisions in matters of pricing etc. The managements of PSEs find their hands are tied in many critical matters where decisions, based purely on business prudence are not possible.

Again, the fact that their manpower is recruited through rigorous, transparent selection processes, which has been one of the strengths contributing to PSEs´ growth story, sometimes becomes a limiting factor. While recruitment processes ensure that very talented people are recruited, there is little emphasis in PSEs on re-skilling in keeping with current market needs whether in terms of innovative technology or marketing. As they enjoy job security and assured career progression, the manpower is not motivated or incentivised to reinvent themselves by learning new skills.

The well defined processes and systems epitomizing work ethics in PSEs which has contributed positively to their growth so far are now sometimes becoming the very stumbling blocks in the road to transformation, that is to say, these processes and systems and SOPs are sometimes preventing very critical decisions from being taken as they have become rigid over time.

The backbone of PSEs-their accountability to public and various stakeholders-is fast becoming a noose around the necks of PSE decision makers and robbing them of the agility required to transform themselves from nationally acclaimed enterprises to globally acclaimed enterprises.

In other words, the very strengths of PSEs, which helped them reach the towering heights of the Indian economy, now need to be redefined so as to be leveraged in an effective manner to help transform PSEs into globally acclaimed enterprises and once again discharge their responsibility to contribute substantially to pulling the Indian economy out of the woods, in a manner of speaking. Over time, the very strengths, the defining and differentiating features of PSEs have degenerated into the stumbling blocks on the road to transformation and growth to the next level.