THE CONTEXT: In his Parliament speech, PM Narendra Modi blasted the ‘babu’ culture in the country. He meant the steel frame of India, its civil servants. PM stressed the private sector’s vital role in the economy, the context was towards PSUs. To understand the essence of the PM’s criticism, we must understand the role, origin, and evolution of PSUs in India. This article discusses the evolution of PSUs, concerns, and challenges related to PSUs.
PUBLIC SECTOR UNDERTAKINGS IN INDIA
Definition:
- In India, a government-owned corporation is termed a Public Sector Undertaking (PSU). This term is used to refer to companies in which the government (either the federal Union Government or the many state or territorial governments, or both) own a majority (51 percent or more) of the company equity.
Evolution of public sector undertakings:
- After independence in 1947, Indian industries were in a dilapidated state. It was not able to compete with the existing industries of the time.
- Industries in India were in need of a policy thrust for rejuvenation and starting fresh.
- In this direction, the Industrial Policy Resolution of 1956 of the Second Five year Plan (1956-61) provided the required framework for public sector undertakings/enterprises.
- With this, the PSUs were expected to play a leading role in the economic development of the country, preventing the concentration of economic power and reducing regional disparities for the common good.
- In 1991, the role of the public sector was reviewed due to liberalization, privatization, and globalization, and the public sector was reduced to only six areas like atomic energy, coal, defense, railway, mineral oils, and transport.
- After this, every effort was made to increase participation of the private sector in the public sector for making it profitable and enable them to compete with the private sector companies worldwide.
Role of public sector undertakings in India:
- PSUs have laid a strong foundation for the Industrial development of the country as it is not interested in profit-making but nation-building.
- They leverage the government through major shareholding in the Industries to intervene in the economy in a major way thus helping in achieving the desired socio-economic objectives and long-term goals.
- They help in pushing the agricultural economy onto the progressive pathway and rural development as well as providing basic infrastructural facilities, educational and employment opportunities.
PRIVATE SECTOR VS. BUREAUCRACY
The performance of the public and private sectors is often compared in India.
- The framework is generally that if the MBAs in the private sector can produce efficient and profitable enterprises, why can’t the IAS officers and other “public sector professionals” do the same in Government Departments and Public Sector Undertakings (PSUs)?
- It’s also argued that there is no accountability whatsoever in the public sector scenario, whereas in the private sector the deadwood is immediately jettisoned, leaving only the efficient and performance-oriented executives to progress upwards and rise to the top.
- It is quite frequently advocated that the corridors of powers as well as huge Public Sector behemoths ought to not only be manned by the private sector management-cum-subject specialists but that even the modern management practices and philosophy should be transplanted from the private to the public sector.
However, we fail to appreciate that the working scenario in the two sectors is fundamentally different and what might be regarded as an award-winning innovator in the private sector, if transposed as a clone into the public sector without a detailed examination and scrutiny, may well lead to the initiation of departmental/ vigilance proceedings. Some, such practices as paying commissions and incentives, etc. Might even be a criminal offense in the PSU arena.
THE WORKING SCENARIO OF PSUs
1. Public Sector is inherently constrained
Constitutional obligations:
- Public Sector entities, whether in the nature of Government Departments or Commercial undertakings, including the PSUs, are “State” within the meaning of Article 12 of the Constitution of India. And, the Constitution casts certain statutory, nay constitutional, obligations on the “State”. For instance, Articles 14 and 16 are not applicable to the private sector.
- Thus, the Public Sector is inherently constrained, on account of these constitutional provisions, when it comes to recruitment and promotion (including the aspects of reservation in favour of SC/ STs) as well in granting performance-linked pay or bonus to the employees who are truly outstanding.
Human-resource obligations:
- In the start-up scenario and even in the established private entities, granting sweat-equity is a widely prevalent tool to acquire and retain good human resources.
- Where the 100%, or at worst a majority, of the equity is owned by the Government, such an incentive is unimaginable.
- Even on the side of firing and retrenchment, the Public Sector is limited by the provisions of Articles 310 and 311 of the Constitution and often the deadwood continues to burden the organization till their retirement.
Political obligations:
- Further, in routine administrative matters like transfers and postings, the bureaucrats are under formal and informal pressure of the political executive, and thus even in this aspect, the human-resource management is sub-optimal and below the desirable or achievable level of efficiency and effectiveness.
2.PSUs are not solely profit driven
Profit v/s social obligations:
- Profit is the supreme motive in the private sector. The maximization of the shareholder value is the ultimate objective, lip service to Corporate Social Responsibility notwithstanding.
- In Public Sector, the objectives are multiple and often in conflict with each other.
- For instance, in the State Transport Undertakings, while it is sought to maximize profit, one of the objectives is also allowing free and concessional travel to various categories of passengers.
Objectivity in the performance:
- The stated objectives of PSUs may really be mere rhetoric. In such a scenario, one cannot very rationally or objectively assess the performance of a Public Sector Enterprise, which is quite difficult and complex.
- Thus, it’s much easier for the Private Sector to be driven by a mission, whereas the public sector is more likely to be governed by rules and procedures.
3. Complex Decision-making
levels of decision-making:
- In the private sector, the levels of decision-making are crystal clear. The managerial and financial powers are delegated in a highly transparent manner and everyone in the organization is familiar with the same.
- In the public sector or governmental functioning, the “rules of business” may delineate similar policies and procedures, but often concurrence of independent units and Departments such as Finance, Law or Personnel may be required.
- The departmental decision-making is subject to, apart from the normal supervision by the political executive, by the Parliamentary and Legislative oversight through their Committees.
- Then, of course, the presence and working of the 3C’s — CAG, CVC, and the CBI effect, rather constrains, the decision-making in the ministerial or departmental scenario.
- External pressure groups, political parties, and Press also affect the public-sector decision-making. All this makes the decisions, slow, conservative and sub-optimal.
Accountability in decision making:
- In the Private Sector, those formulating policies or making decisions are also, in general, responsible for their implementation.
- In the Government, policies are usually formulated at a very high level and generally, the concerns and constraints of the cutting-edge staff or stakeholders are not taken fully into account.
- Moreover, the failure of the policy can very easily be attributed to poor implementation and thus the framers of the faulty policies are seldom questioned or called on to account.
- The private sector is not subject to any of these restraining circumstances. It may thus be very unfair to compare the decision-making in the two sectors.
Even though the working scenarios of the private sector and PSUs are very different, still there are challenges pertaining to PSU’s functions and operational efficiency. Though the working scenario of PSUs is very challenging we cannot ignore concerns related to it.
CONCERNS RELATED TO PSUs
Statism:
- PSU’s elevated status as drivers as the economy was romanticist in approach and thus led to issues like overstaffing, corruption, wasteful practices, lack of work culture, and motivation were unchecked and systematically ignored by the government and led to the subsidization of these concerns by them.
- This led to permanent drainage on the exchequer. Thus, instead of a socialist attitude, these PSUs were developing an attitude of Statism with all its dangers.
Political interference:
- Nepotism and favourability in PSU appointments by politicians lead to inefficiency and incompetency in functioning. Therefore merit should only be the criteria for selection.
- Directors appointed by the government to the Board of Directors of PSUs try to influence the decision-making process of the board without accepting responsibility at the end creating a lot of interference in their independent functioning and economical initiatives.
Delay and Authoritarianism:
- Control from above is a big impediment in the functioning of PSUs as whenever a new project is taken up by a PSU it has to go through the Expenditure Finance Committee and Project Investment Board which is very cumbersome and causes unnecessary delay and authoritarianism
Lack of profit-making attitude:
- Lack of authority in taking a commercial mode in areas where opportunities exist for profit-making and thus gets caught in bureaucratic and political red-tapism thus keeping it bureaucratic in nature instead of a complementing approach of profitability and social obligations.
- No proper retention policies for retaining competent staff from the lure of lucrative private offers.
What should be done?
- In the globalized world, times have changed, and India has new challenges, inviting altogether new approaches and processes to emerge as a global leader. It is time for path-breaking administrative reforms, and pump-priming entrepreneurship, innovation, and production processes in the Indian economy through liberal financing, cutting the red-tape, delays, and regulatory corruption. It is the moment for unleashing the fullest potential of all sectors of the Indian economy.
- There is an imperative need for bringing unsparing reforms in the prevalent PSU culture—operating upon them and replacing their bone marrow, without any loss of time.
- It is time to separate operational freedom and ownership. It is time to end the age-old colonial outdated governmental management hegemonies.
- A dynamic society needs a dynamic governance model; we should open up governance to draw expertise from the industry, academia, and society into the services. While further professionalizing the IAS and promoting domain expertise into the service will be a practical solution to the problem.
CONCLUSION
Comparing the performance of IAS officers and other civil servants in the Governmental setup with those of the Private Sector professionals is thus quite unfair as work scenarios are very distinct from each other. More importantly, one cannot prescribe a rather simplistic and naïve solution that would be the elixir of all the ills that plague the public sector performance currently — that is, mere transplanting the private sector policies and practices to the Public Sector. That’s not to say that IAS officers are Cat’s Whiskers and that their performance is par excellent. There’s always a scope of improvement and the same can come incrementally if all the stakeholders, including the bureaucracy and the political executive, take it as a pragmatic priority, in the right earnest.
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