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Tuesday, October 8, 2013

State firms fail because of inept management

(This article was published in the HT of 17/10/2013)

On October 10, civil aviation minister Ajit Singh told a private TV channel that the national carrier - Air India will have to make itself  “profitable or a subsequent government will have to explore at privatising.” The statement created a flutter reminiscent of the era of disinvestment when the hospitality sector giant India Tourism Development Corporation (ITDC) and many others were sold off.

As the head of ITDC, I was often amused at the irrationality of the excuses trotted out for justifying the sale of the family silver — governments should not be in the business of running hotels, the company facing huge loss and the government needs money — were the three major excuses trotted out, but without substance. The counter-arguments were: if the government can’t run even hotels profitably then can it run the nation, give us time and the company will be as profitable as those in the private sector; and if the aim is to maximise sale proceeds why not sell through an open auction and why attempt restricting post-sale operations.

Major properties were palmed off at prices that would not fetch even a decent house in the outskirts of Delhi. Unfortunately, the tremendous enthusiasm over selling the family silver overshadowed the need for sanity.
The theory that governments should not be running businesses and, therefore, get rid of them is inherently faulty. Running a business enterprise requires sound commercial sense. That is why private enterprises burn the midnight oil while selecting their chief executives. Had the same diligence been applied while choosing CEOs for State firms, the story of even the national carrier could have been different. With the might of the State behind it, the public sector has an inherent advantage over the private sector. Unfortunately, this advantage is now being frittered away.
Also, the latent strength of the Indian public sector enterprises lies untapped even after 66 years of Independence. It defies common business sense why many of these commercial enterprises set up with public funds and backed by the State perform so badly.
The reason lies in inept apex management as often the criterion for appointments lack merit. That the kinds of ownership and technicalities are mere peripheral issues and what matters is the commitment, zeal and integrity of the person in charge of these enterprises.
Air India and ITDC are textbook examples of inherently profitable business enterprises brought to the mat by inept managements.  Contrary to public opinion, blaming political masters or the external environment for the ills of a company merely diverts attention and shrouds the real causes. The fact remains that the ‘companies act’ and the ‘memorandum of articles’ sufficiently empower the chief executives to ward off any hostile threats to the efficient working of the enterprise, yet in many cases the chief executives lack leadership traits besides showing undue eagerness to succumb.
Any commercial enterprise, be it the local paan shop or a multinational corporation, is only as good as its leader, or in other words the officer who heads it.
Unfortunately, most of the senior officers only look upwards and display extreme keenness to be identified as the blue-eyed boys of the powers that be. They achieve that goal but in the process the company they head often lose out.


  1. Lohani. U ask the question why sell family silver. And you have yourself given the reasons why. Yet u argue that the rusting silver should not be sold !
    The nation is starving for productive assets under the government's wings. We can continue to argue and justify the continuance of bleeding organisations because they are fed by taxpayar's (which means nobody's) money who have no say in the matter.

    My take is simple. Where private sector is willing to, and has demonstrated their prowess, Govt. should not enter, or exit if it is there. Air India, ITDC (hotels in locations like Delhi), Wagon Building, Scooters India etc. fall in this category.
    Perhaps MPTDC still does not fall in this category!
    Keep writing.

    1. I partly agree. No organization bleeds on its own. It is made to bleed by inept CEO's. Either the govt should get out of public sector completely or run it well. In no case a "sell off"like what happened in 2002-3 is justifiable. Air India can also be run well. Either run it well or privatize it, but as things are it is always a sell off with vested interests. That is just not acceptable.

      My take is also simple. If the Govt is capable it will run the public sector as well as the nation well. If it is not it will screw up both as has been happening. I simply dont'' accept that getting out of the public sector would help governance. It will only help some politicians, bureaucrats and corporates.