Read a nice article on PSU's - the original purpose to establishing them, their current state, and why they are still needed. Some of the facts were good to know.
Full article is available on eco-times' website, but I thought I'll keep this on my blog for future reading too.
(Source: http://economictimes.indiatimes.com/opinion/comments-analysis/psus-can-be-the-beacon-that-will-show-the-way-to-development/articleshow/12944548.cms?curpg=1)
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By Kiran Karnik, Independent Policy & Strategy Analyst
LPG is widely seen as the magic potion that gave India's economy a
phenomenal boost.
Liberalisation-privatisation-globalisation, or LPG,
was welcomed by many as the recipe that not only injected new energy
into the slow-growing Indian economic plant, but one that would also be
the death knell of the public sector parasites that were inhibiting its
development.
Some did die, some are on oxygen, and a few have
seen rebirth in a privatised avatar. Many, though, are yet alive. It is
in this context - as the new, LPG India turns 21 - that the role of the
PSU merits discussion.
Born out of a planned-economy model, underpinned by a Nehruvian-Fabian
socialist philosophy, PSUs were conceived as torchbearers of a resurgent
India. The economic rationale was that the private sector was unlikely
to invest in large, capital-intensive, long-gestation projects with slow
returns or high risks. PSUs were, therefore, set up for steel
plants, oil refineries, aircraft manufacture, heavy machinery and
such-like; over time, they got into a range of other fields too.
PSUs
were also intended to secure the 'commanding heights' of the economy, so
as to guard against any monopoly, cartelisation or market manipulation
by the private sector. Now that the private sector is able to
raise substantial funds, aided by the fact that foreign investment is
permitted in most sectors, what - if any - is the raison d'etre for the
public sector? The surprising efficiency of PSUs, given the constraints
and interference that they have to live with, is generally not
recognised, even as the whole government sector has been vilified as
being inefficient, slothful and corrupt.
With this background
and in new economic scenario, the role of PSUs has obviously to be very
different from the days of monopoly. Today, they must act - where they
can - as market shapers and influencers. PSUs in hi-tech areas must be
leaders in R&D, and invest in long-gestation developmental
programmes.
Some of the country's best talent - especially in
the engineering domain - is in the PSUs; also, with the exception of the
pharmaceuticals sector, the quantity and quality of their R&D is
far ahead of that in the private sector. PSUs must leverage this.
Unlike private sector companies, they do not have to worry as much
about the day-to-day reactions of the stock market, nor be driven by the
QSQT, or quarter se quarter tak, mentality of their private-sector
peers. The relative independence from these pressures means that they
can afford to focus on the long term.
PSUs should be leaders
in environmental issues: conserving energy, water and resources in their
processes; recycling waste and water; minimising their carbon footprint
and promoting environmental consciousness amongst employees, suppliers
and the community.
PSUs should set benchmarks for customer
service, transparency, corporate governance and ethics. In sectors where
they have a substantial presence, PSUs can ensure that no cartelisation
or exploitation of customers takes place, especially when there are
demand-supply mismatches.
The airline industry is an example of such trends, and it is disturbing that some time back, there were market rumours of
Air India too colluding with private operators to capitalise on temporary seat shortages.
PSUs are commercial undertakings, but the very fact of their being
'public' implies a larger social responsibility. As many instances
around the world have shown, public good and commercial viability are
not always in conflict. As a matter of fact, the flavour of the day is
doing well by doing good.
The roles and
responsibilities of PSUs require appropriate managerial frameworks, and
these will be impossible without a major revamp of the overall
governance paradigm of PSUs. Reform at the board level is the first
requirement. PSUs must become truly board-managed organisations, with
the government stepping back and giving full power to boards.
At most, the government could retain a say in very large investments
entailing debt or raising of new capital, and any fundamental changes in
the stated objectives of the PSU. Like any promoter in a private
company, the government can nominate board members, but - like listed
companies - it must have independent directors and these must be
selected by the board, through its nominations committee, rather than
nominated by government.
Also, it must be the board - and not
the government - that selects and appoints the CEO. The board and
professional managers must run the PSU, not the owner or promoter.
One vital lesson of the last half-century is that interference by
politicians and bureaucrats is the touch of death for a PSU; this must
end. Apart from this, a few simple reforms at the level of the board are
all that are required to begin a transformation of PSUs.
This, though, is possible only if there is a change in the mindset of
the government. It must recognise that building and strengthening
autonomous institutions is a necessary element for a
smoothly-functioning society, and a vital part of the economic
infrastructure.
It is on this premise that institutions were
built in the early years of the Republic. Those that were given - and
guarded - autonomy, continue to do well (a few educational institutions,
sci-tech organisations, the Election Commission); others that began well have been destroyed through interference.
Sadly, many PSUs, such as Air India and BSNL, are in the latter
category. In the new, competitive context with dominant private players
threatening to dictate terms in many areas, PSUs are needed more than
ever. It is time to reinvigorate them and use them as guardians of
public interest and engines of development and economic growth.
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A couple comments by readers of this article. (Source: same as above)
Reader#1
Even in private companies, if there is a junk CEO he will try to have
all controls and make things be the way he want them to be. Many CEOs
and owners of companies have killed the company for some gain of theirs.
Kiran Karnik is asking government to pay money but not have any say. Ask
Tata or Premji to do that - that they pay money and not interfere in
the running of the company - will it happen ?
PSUs are run by public money and politicians are public's
representative. If we let managers run everything, what is the guarantee
that they wont do something for their personal glorification with least
consideration to what happens in the end after they are gone.
Reader#2
The author has been very generous, in listing just Air India and BSNL.
The majority of PSUs are lacking any autonomy, and are run contrary to
business principles. I am just listing two - the oil marketing
companies, that are compelled to sell petrol, kerosene, diesel etc.
below cost, and are not adequately compensated; and companies like ONGC
and OIL, which are forced to pay a cross-subsidy to partly compensate
the losses of the oil marketing companies. I can also add the fuel
supply agreement that was forced down CIL's throat by a Presidential
Directive, even though the Board of CIL, including independent
directors, refused to sign such an agreement. These are all traded
stocks, where the interest of the minority private shareholder is
completely disregarded by the majority government ownership. The
so-called independent board members are dummies, being largely retired
bureaucrats or "social workers" who are beholden to the government for
the perks of office. The temptation of the bureaucrats and politicians
to force non-commercial behavior of PSUs under their sphere of influence
is very strong. They have no compunctions about killing the PSUs in the
process, so long as they get their pound of flesh.
Reader#3
Truely indeed, Rusi Modi once commented that PSU's are like gold mines
but unfortunately, the government (the key stakeholder) doesn't know how
to mine gold. It is an opportune time to rediscover the worth of the
PSUs and nurture them to excel in the resurgent India. The talent of
PSUs are sourced from the premier institutions, the employee attrition
is at a low and hence the human resources pool of these PSUs should be
leveraged effectively to bring transformation.
