PSUs should not be treated as an extended arm of the government

Dr UD Choubey, Director General, Standing Conference of Public Enterprises (SCOPE) says PSUs can perform better in the right policy environment.

To what extent has the image of PSUs changed, if at all, of slow and ponderous to proactive and efficient?
The public sector was set up on the premise of economic development with social justice. To build strong infrastructure for the country and to meet social objectives, PSUs were established in backward regions and employed a large number of people – 25 lakh people till 1989. During the eighties, PSUs were synonymous with ineffectiveness mostly because of reasons beyond their control. However, after the liberalisation of the Indian economy, PSUs were confronted with real challenges as they encountered a competitive domestic and global paradigm. The sector strode to take these challenges head on and demonstrated excellent performance. Today their presence has become even more relevant and significant with dominance in major sectors of the economy.

During the year 2013-14, the contribution of central public sector units (CPSUs) to the central exchequer increased by about 35 per cent from Rs.1,63,212 crore in 2012-13 to Rs.2,20,166 crore in 2013-14. The overall net profit of 234 CPSUs during the year stood at `1,29,109 crore showing an increase of 12.29 per cent. The number of profit making PSUs has increased to 163 from 151 in the previous year. The aggregate turnover/gross revenue from operations of all PSUs during 2013-14 stood at `20.62 lakh crore compared to Rs.19.46 crore the previous year. This translates to 18.2 per cent of the GDP. PSUs have built their brand image in the national and international arena. It is a matter of pride that out of seven Indian companies amongst 500 largest companies in the Fortune 500 List, five are PSUs and one is a public sector bank.

Earlier in July 2015, you had a meeting and brainstorming session for helping companies adopt better management culture, etc. What was the outcome?
It is right that efficiency and performance are interlinked. However, to bring professionalism into these entities and equip them to compete with the changing environment of business, ownership structure needs to be redefined. PSUs should not be treated as an extended arm of the government. The board of any company has to be professional and guide the functional management on the right path. The owner should provide the broad guidelines and risk management. Vision, strategy and execution should be the responsibility of the board. Moreover, board structure of PSUs is complex and a typical combination of three layers, functional director, government-nominee director and independent director. All the three layers require training for their orientation to the board. Hence, there is need for larger emphasis on capacity building for strengthening their skills, leadership and ability to confront challenges.

To help PSUs in their professional management, SCOPE, from time to time, has been organising interactive sessions and brainstorming sessions to look into the issues concerning PSUs. The outcome of these sessions is being forwarded to the government for necessary action.

The top ten profit-making companies are all from the energy and resources sectors. What sets these companies apart?
The energy sector, being the building block of any economy, holds a strategic position. Hence, world over, governments have been giving greater thrust to this sector, including in our country. The sector, being technical and labour intensive, has, over the years, developed skilled manpower, adequate infrastructure, expertise and other capabilities. While many enterprises in the sector are cutting their capital expenditure, PSUs are expanding their operations. They have leveraged all possible opportunities and built a strong foothold on the global front. With the professional management and reform initiatives by the government, PSUs have been able to compete with their counterparts in the private sector and carve out a niche for themselves.

Do you believe there is a case for privatisation of any sector that may improve the overall metrics of the sector and the companies therein?
I don´t believe that privatisation is the solution to every problem. The problems are diverse in nature and we will have to look into each and every problem separately and avoid looking for a myopic escape by putting the solution of privatisation. In the post recession period (after 2008), it has been realised that consolidation of sovereign holding and capital in the hands of the government appears to be a better option for the economy. Secondly, the recent trend is to create a sovereign wealth fund to consolidate capital in the hands of the sovereign government. I believe reforms in the right direction might show us the way. To accelerate the development process, a public private partnership (PPP) model should be explored.

Outside the top ten profit-making companies, what are the sectors or companies that are doing well and have growth potential?
Smart Cities, Make in India, Digital India and similar plans are in the pipeline and some progress on these has already been made. I think it will open a vast horizon of opportunities for sectors such as construction, consultancy, manufacturing, etc. We also have the highest growing service sector and I think PSUs should tap the opportunity in front of them. In order to achieve sustainable energy systems, the power sector is also diverting its resources to renewable energy. Therefore, new innovations will lead to a brighter future of the energy sector. PSU contribution towards corporate social responsibility, viz., drinking water, health and sanitation, education, infrastructure and skill development is next to none.

With respect to R&D, are PSU companies investing in order to be better prepared for the future? Do you have any data in support?
PSUs have been investing aggressively in R&D and technology development. They have a robust institutional mechanism and during the last three years, from 2011-12 to 2013-14, CPSUs spent as much as Rs.19,324 crore on R&D to upgrade their technological capabilities. In 2013-14, BHEL led the way by spending Rs.1,114 crore on R&D, which works out to 32 per cent of the company´s net profits. HAL spent 40 per cent of its profits (Rs.1,083 crore).

Last but not least, how does one deal with a problem like Air India?
I am not in disagreement that every business needs to make economic sense but there is a need to understand the social commitment attached with Air India. Being the national carrier, the airline is required to fly on unprofitable routes in India to maintain air connectivity. It may be noted that even private players in the aviation industry have failed. There has been lot of interference in its operations. The organisation should be allowed to function on professional business lines. It is not different from any other sector, and it requires a firm commitment at all levels. I am happy that Air India has started reflecting better results of late.

– Rouhan Sharma