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BW Businessworld

Failure by Design

PSUs need to be privatised. If that is not palatable, they need full autonomy. Status quo will mean few dying suddenly, most will face slow death.

Photo Credit : Bivash Banerjee


PSU losses: Rs 30,000 crore.

Let us put this in perspective. 30 thousand crores can school every child or provide health to every destitute or food to every deprived.

Bad ideas are a result of populist mind set and tend to stick. It takes loads of courage and wisdom to rescript and ‘correct’.  

Treasure till, public pays the price  
The public sector suffers a structural frailty. The ‘owner’ i.e. the government neither has the expertise nor the motivation to run business. PSUs are a treasure till, till they are; and then consume everything.

Most PSUs struggle and survive on public largess. Some serve no one; produce nothing or at a cost higher than they can charge. Monopolies or a few which are run well ‘return’ less by any yardsticks. A few set up for specific purposes like agri, power or rural electrification etc. have lost relevance. Most non-listed declare results only when they must.

While enhancing governance, operating efficiency and accountability should have been the goal, the government has been meandering to disinvest or merge; even ‘right- pocket-to-left-pocket transfers’ (ONGC and HPCL) depending on the national mood.

As people in the know say, the governments inject the ‘poison pill, waiting until the enterprises ‘go under’ and then bemoan the lack of suitors. Air India and MTNL are good examples. There are many more.

Mergers and disinvestment are not solution centric. It is problem avoiding.

It should let go
Except for areas like defence, currency, nuclear energy, it must cede.

Air India serves the elite and has INR 50,000 crores in accumulated losses. The government holds on. In the meanwhile it privatised health and education services.

Disinvestment is a bad idea. Privatisation is the solution. Either you run the business and create stakeholder value or sell it outright if you cannot.  Build safeguards for exceptional circumstances with a ‘golden share’.  

India should look no further than BRICs. Brazil will sell everything including the mint. China and Russia the mecca of socialism are designing similar plans. Similarly, France is selling even defence serving units. Smaller economies like Chile, New Zealand, and Poland could guide us too.

Alternatively imbibe the Singapore (Temasek Holdings) model. Own and nourish the government owned enterprises, shielding them from political interference, running them on commercial terms.

The erudite readers will recall the market cap of MTNL was higher than Reliance 20 years ago. Today one can buy all the listed PSUs by trading Reliance.

This says it all.

Straddled & saddled 
The politicians just love the idea of ownership.

A Crux insight on the working of the government owned enterprises paints a dismal picture. The PSU boards just want to be ‘left alone’, and interference and meddling  is the cause of frequent floundering and chronic failure.

The ministry must induct leading skill and domain experts and ensure quality of boards by appointing people with integrity, strategic competence, and independent thinking.

Public enterprises are straddled with poor administration, ill designed policy making and ineffective execution. Most suffer the challenges of over-staffing, high operation costs, poor (often irrelevant) capital expenditure. They under-utilise resources, sometimes even mismanage.

Strength & talent not leveraged enough
Contracts as a result of procurement policies are skewed heavily in their favour. But this very mind-set denies them effective vendor partnership, deteriorating outcome and lowering yield. Similarly a lack of a realistic and proper pricing policy alienates the market and indifferent consumer relationship with the existing ones.

The strength and talent is not leveraged as a result of government interference. It takes a year to recruit in the PSB.

While the junior functionary has little ‘invested’ in the organisation, the senior ones lack the motivation to make decision and courage to make the right decisions

Adding to the woes is the huge technological gap that they endure compared to the competition. Investment in technology is ‘postponed’ because they lack resources or the fear the unions. If they get around to it, they invest low, procuring at L1 and suffering the outdated or even the superfluous.

Leadership is simple. Not easy
Every public sector board lacks autonomy and suffers political interference & official ‘overreach’. Unfortunately, the board selection is based on several other criteria.

The owners i.e. the government and the management often seem to have contradictory goals.

Today’s business is global and complex. Competition is intense and ever mounting. Varied stakeholders make it more. Technology often is the business. Customers’ needs are ever evolving and ‘delight’ is the base. Shareholders are demanding, and need ‘appeasing’ every quarter. Regulatory pressure and compliance is the ‘normal’. Challenges from start-ups are real. Vendors are partners and play to win. Employees are associates and need motivation.

Leadership is not a title anymore.

PSUs were set up with a visible social orientation. They have made a phenomenal contribution in building up a strong economy and the ecosystem that was required for the private sector to step in and invest.

Missing the wood for the trees 
To paraphrase Friedrich Hayek ‘the idea of the government running business has been of human creation, (but) not of human planning.

PSUs need to be privatised. If that is not palatable, they need full autonomy. Status quo will mean few dying suddenly, most will face slow death.
The government has no business to be in business. India is a resource scarce economy. Money can be better utilised. Governance should be fair, just, and inclusive. It must serve by providing affordable and effective healthcare, quality education, and social security for the denied. And focus on enabling industrial ecosystem.

How and why did we get here? The goal was noble. The idea was to bridge the ‘capital and technology’ gap, provide jobs, support the fledging businesses, kick start the economy and create an enabling business environment.

Build & pass on the baton

This goal is relevant even today. And the resources must be better utilised.

The policy makers must foray into new sectors to build the platform for the private businesses. The industry may lack the resources, may not have the technology, expertise visibility and even the vision to invest in sectors like aerospace, new-generation drugs, microbiology and infrastructure with high gestation.

However once the platform and the infrastructure are created it must pass on the baton, play the role of a nourisher, and partner the industry for success.

The grateful industry will not grudge pay-out for the service rendered and the support provided

‘Privatise’ in Policy-making lexicon

Privatisation will correct the well-intentioned but badly implemented wrongs of the Nehruvian (socialism) model.

To Nehru’s credit he started with only 5 enterprises, and then populism, bureaucratic overreach devoured the idea. Interference, meddling, and cronyism buried whatever good it had done.

Policymakers interpret disinvestment as selling a part here, a chunk there. It entitles them ‘ownership and control’ while the proceeds goes to meet fiscal numbers.

The PM needs to insert ‘privatisation’ into policy-making lexicon. But that alone will not do. He needs to induce a more critical and defining word i.e. ‘performance’.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Dr. Vikas Singh

The author is a senior economist, columnist, author and a votary of inclusive development

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