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Saturday, October 5, 2019

The indian public sector

With many public sector undertakings steadily losing their relevance due to sliding market share or becoming financially unviable, the rationale for their existence has indeed weakened over a period of time. This scenario has often necessitated disinvestment, an exercise that would enable tapping the full inherent potential of the undertakings in the national interest.

The emergence of the public sector in the country just after independence was with the avowed objective of enhancing manufacturing and services, especially in areas where the private sector either did not exist or was unable to enter on commercial considerations. The public sector units then fulfilled a very vital need and were also regarded as the temples of modern india.

It was in 1948 that India got its first CPSU in the form of ITI (Indian Telephone Industries Ltd) and their numbers grew thereafter with now almost 300 of them operating across a wide spectrum of sectors such as banking, coal, engineering, power, oil, steel, textiles, airlines, hotels etc. in addition there are also many state level public sector units.

CPSUs were set up to play a pivotal role as envisaged in the economic model adopted by the country in the post-Independence era. Their contribution in terms of job creation, social welfare, and overall economic growth of the nation has indeed been substantial. The policy for setting up of CPSU’s was not only guided solely by profits but was primarily inspired by the need to spur growth in remote and backward areas of the country and generate employment. 

It is however since the eighties that public sector rapidly started losing its sheen due to lack of relevance or financial losses or both. Lack of professionalism compounded by the ever increasing complexity of processes, excessive oversight and over indulgence by the investigative agencies triggered this downslide.

CPSU’s were formed under the companies’ act same as that for private companies with the underlying intent that they should function commercially like the private sector, regardless of the ownership. With passage of time however, the intent got confined to paper for the bureaucratic and political classes could never truly accept a scenario where a flourishing commercial enterprise is under the ministry but not under the thumb.

Another instrument to ensure commercial and administrative freedom, something so vital for running businesses successfully, was the “presidential directive” that can be issued by the concerned ministry to the undertaking only in exigencies, not on normal commercial and administrative matters. Unfortunately over the last few decades, the spirit of this directive has been held more in breach.

PSU’s have unfortunately also often suffered an overdose of oversight, when actually it was neither envisaged nor meant to be. Too many cooks spoil the broth is so true.  

Selection of people for leadership positions in public sector undertakings needs to be based on assessment of leadership qualities and not merely subject expertise. The private sector that on the other hand is finicky while undertaking the process of selection, subsequently gives a very long rope for the selected guy to perform quite unlike the scenario where even the top management lives under the shadow of mistrust from day one. 

Governmental tendering systems that the public sector is mandated to follow while their competition in the private sector is not, cripple creativity and timely deliverance. The system focussed on the L1 is the same for purchasing potatoes, ideas, machinery, IT and in fact anything under the sun. The massive trust deficit coupled with emphasis on processes as against deliverance acts as the biggest road block to implementation. And with investigative agencies glued to finding faults that too in hindsight and treating mistakes as malafide, the process has also achieved the dimension of fear.

The fear of taking a wrong decision, judged wrong in hindsight of-course generally by unconcerned officials and then paying the price thereof has engulfed the managements of the public sector who have generally turned risk averse. Many realize that the best way to avoid making mistakes is to avoid taking a decision and this thought has spelt doom for many enterprises.

Selection of people for leadership positions in public sector undertakings is also an exercise that leaves much to be desired. The brief exercise generally focuses on knowledge rather than the leadership capabilities of the guy under consideration. The private sector that on the other hand is finicky while undergoing the process of selection, subsequently gives a very long rope for the selected guy to perform quite unlike the scenario where even the head honcho lives under a shadow of mistrust from day one.  

The abysmal financial condition of many CPSU’s in most of the cases is not because of lack of effort or capability, but because the rules and procedures mandated are not suited for running enterprises on commercial lines.

The below par realization of the potential and the downhill slide of the public sector is indeed not an acceptable scenario. Disinvestment has emerged as an inescapable administrative compulsion and perhaps the only option. After all governments are not meant to be in the business of running businesses.