Government Revitalising PSUs and Ensuring Ease of Doing Business for Private Companies

by September 7, 2018 0 comments

Government Revitalising PSUs and Ensuring Ease of Doing Business for Private CompaniesThe development of industrial sector in India after Independence was completely depended on the growth of the public sector units.

Prior to Independence, sectors such as railways, post and telegraph services and ordnance factories were entirely under the Government control and constituted the bulk of the public sector business. Yet, the manner in which these functioned then was quite different from what has evolved in recent decades. The Indian Railways, for instance, was a highly professional organisation with decision-making in the hands of competent and well-trained executives, which is still very much the case today. But in terms of future directions and major financial powers, the role of the executive has been curtailed over time. Significantly, on matters other than those involving broad policy, earlier there was no interference from above in respect of operational and management issues.

However, particularly since the 1970s, there has been a growing interference in the functioning of the Indian Railways, the state electricity boards as well as other public sector organisations, which were seen essentially as milch cows for the benefit of the politicians and the establishment in general. The result is that these organisations have become overstaffed with a decline in the calibre of employees and a reduction in the quality of human resources. The public sector has become a convenient place for providing employment to large number of people who are followers or constituents of those in power. This is one of the chronic problems ailing Air India as well, due to which the airline has been unable to attract any offers in response to the recent effort at privatisation.

The case of Air India is particularly pathetic. This was one of the finest airlines in the world and had a remarkable head start over several others which are thriving today, such as Emirates, Lufthansa and even Singapore Airlines. Among many factors on account of which this move failed is that the retention of 24 percent of stake in the hands of the Government of India scared away potential investors who were concerned at the possibility of interference by the Government.

But the main drawback to an enthusiastic response was the pathetic state of the financial state of Air India. Any potential investor would have been saddled with a huge debt burden, a large number of permanent staff who are perhaps of questionable value to the organisation and a decline in Air India’s share in the domestic market, partly as an outcome of the ill-conceived merger of Air India and Indian Airlines. Any passenger for whom Air India was the airline of choice in the 1980s, as in the case of this writer, would feel sad at flying the national carrier now. The class of service on board is nowhere near what it used to be.

The state of the aircraft and its interior are shabby, and even the cuisine served in every class, including business class, has declined. On a recent flight from New York to Delhi, happily, the punctuality at takeoff was perfect. But curiously what used to be a cabin only for business class now incorporates a row of first class, which was empty. No doubt this innovation must have been carried out to ensure that politicians and senior bureaucrats do not have to travel in the ignominy of humble business class. It was not long ago that politicians, both in and out of power, as well as bureaucrats of the rank of Joint Secretary and above, were routinely upgraded to first class along with their families.

Unfortunately, India has not allowed the public sector to reach the levels of excellence which would serve the country and the public well. The result has been a record of recurrent losses, an absence of innovation and vision which are the defining qualities of a successful business enterprise. Typically, it is much too often that the Government, official designated to serve on the board of a public sector enterprise, has the last word in decision-making, far above that of the chairman of the board. The entire body language and dynamics in the boardroom reflect that reality.

If we were to study the functioning of public enterprise in other countries, where success is evident, the relationship between the Government and the enterprise is distinctly different from what is evident in India. It is for this reason that organisations like, Électricité de France (EDF) and the Société Nationale des Chemins de fer Français (SNCF), the French National Railways, are shining examples of outstanding professionalism, world-class innovation and overall performance, which have been the pride of France and an emblem of economic success over a long time.

Significantly, in India too, there have been periods of notable success of specific public sector organisations but this was essentially the result of competent and influential leaders, such as V Krishnamurthy of BHEL and Maruti, Mantosh Sondhi of the Bokaro Steel Plant, Dr Verghese Kurien of Amul and Dr NB Prasad of ONGC. These were industrial managers and captains of enterprises who would not allow any undue interference in the organisations they headed.

Even more impressive than the two above-mentioned public sector organisations in France is the case of a developing country initiative in Brazil, which goes by the name of Empresa Brasileira de Aeronáutica (Embraer), which is now a world-class producer of aircraft and aeronautical equipment. Embraer was created in 1969, and by contrast, Hindustan Aeronautics Limited was established through the visionary initiative of Walchand Hirachand in 1940 in association with the Government of Mysore and one-third participation of the Government of India.  In 1963 the latter was established as a totally Government-owned company, and the rest, as they say, is history.

It is often said that business should not be the business of the Government. But given the large investments that we have in the public sector in India, a new dynamic is essential for defining the nexus between the Government and the public sector, by which accountability to Parliament and the people is not diluted. And it should be carried out in a manner that ensures innovation and success in the market are not compromised for any public sector enterprise. Is this an issue that perhaps Parliament needs to debate on the basis of enlightened analysis and global experiences? Even for privatisation of the public sector, its dynamism and success in the market are essential.

(The writer is former chairman, Intergovernmental Panel on Climate Change, 2002-15)

Writer: RK Pachauri

Courtesy: The Pioneer

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