Considering the critical role played by PSUs vis-à-vis the profit-oriented private entities, there is a need to strengthen the public sector to enhance its competence
Improving the public sector's performance has been a big challenge. The report of Comptroller and Auditor General (CAG) of India, 2021, revealed that Central Public Sector Enterprises (CPSEs) have incurred losses up to Rs 1.5 lakh crore between 2015 and 2020. The number of profit-making companies reduced from 233 in 2018-19 to 224 in 2019-20. However, a substantial reduction in losses from Rs 44,239 crore in 2019-20 to Rs 14,586 crore in 2020-21 was also achieved. Power, petroleum and coal, and lignite companies were the major contributors, accounting for 67.61 per cent of the total profits of government companies; and seven CPSEs — ONGC, Coal India, Power Grid Corporation, NTPC, GAIL, Mahanadi Coalfields, and Power Finance Corporation Limited — were the leaders, with 45.65 per cent of the total profits earned by the 224 CPSEs in 2020. The performance has been bittersweet but is indicative of resilience of the public sector to bounce back.
However, the flipside is that 64 CPSEs made continuous losses for five years, out of which 33 are in the stage of either winding up or strategic disinvestment, while the net worth of 90 out of 188 loss-making companies has completely eroded due to accumulated losses. Though it is, of course, a cause of worry, it’s not at all surprising, since the vision behind the public sector is governed more by the socialist obligations of the Constitution of India rather than by calculations of profit and loss. The public sector, in the last seven decades, has made pioneering contributions towards building infrastructure for development, reduction of inter-regional disparities, employment generation, and addressing socioeconomic inequalities — the true values of India's vision of development, from which the private sector stays miles away. The frugal spending on CSR by the private sector vis-à-vis the public sector says it all.
There has been a constant endeavour to improve the performance. Let's not forget that amid global competitiveness, 14 PSEs and 16 PSBs of India found a respectable place in Forbes list, 2004. Most of around 8,000 recommendations by the Committee on Public Undertakings (COPU) in the last six decades, with regard to financial and physical performance, corporate governance, capacity utilisation, and human resource development, were translated into action. Reforms introduced through the Industrial Policy, 1991, such as opening of shareholdings to equity markets and workers, MOUs with the government, autonomy to Boards etc., paved the way for research and development, growth in consultancy services, and skill development. In 2009, the categorisation of PSUs into Navratnas, Maharatnas and Miniratnas on the basis of net worth, business turnover, and profits, facilitated financial autonomy in terms of capital expenditure, joint venture formation, strategic alliances, subsidiary formation, merger & acquisition etc. It enhanced competitiveness in the public sector. However, unfortunately, the Industrial Policy of 1991 was also responsible for discrediting the public sector in the name of reforms, including removal of reservation for PSUs in most sectors, restructuring through market-oriented practices, disposal of loss-making units, and disinvestment. Apparently, the ideology of Laissez Faire sneaked into the policy formulations under the garb of liberalisation. In the process, even profit-making PSUs like BALCO were 'privatised'. Likewise, the classification of PSUs in 1999 into strategic and non-strategic units for the purpose of disinvestment, and restricting the public sector only to strategic areas have, far from empowering, downgraded the competence and credibility of the sector.
The public sector will, however, continue to enjoy its commanding position even after disinvestment, since the state's equity will never be below 51 per cent in the new entities. Moreover, the 'disinvestment' has been so elusive that out of 33 loss-making PSUs, shortlisted years ago, not even half a dozen could reach the logical end. Besides, the private sector is no Moses either to help the Exodus cross the Red Sea since most corporate companies owe more than Rs 9.5 lakh crore outstanding debt to banks, that too against NPAs, not to mention growing monopolies and oligopolies plaguing the sector. Ironically, it was the SBI, a public sector bank, which came to the rescue of a bankrupt private bank — the Yes Bank — last year. So, leaving disinvestment to take its natural course, we can do well by rejuvenating our very own public sector.
Firstly, the PSUs need protection from a multitude of agencies of control. Due to the status of PSUs as 'state' under Article 12 of the Constitution of India, and not independent business entities, they are subject to same liabilities on par with the government departments, including parliamentary accountability, performance reviews by the ministry, audit by CAG, and answerability to vigilance commissions. Secondly, direct ownership of the public sector by the government stymies the conduct of businesses on professional lines. We need to create separate ownership bodies like the State-owned Assets Supervision and Administration Council (SASAC) in China, the State Investment Corporation in Vietnam, and Khazanah in Malaysia. The benefits are: a) creation of sovereign wealth fund along with state equity; b) non-interference from ministry; and c) independent committees to select directors. TEMASEK of Singapore is also worth emulating for its effective corporate governance. In view of sustainable development initiatives and corporatisation in the world economies, such a reform is overdue for the Indian public sector.
Thirdly, a structured evaluation system with a competent board and full operational autonomy is necessary to ensure professionalism in the public sector. It will help draw a clear line between the government and the management. Fourthly, a level-playing field between the public and private sectors is necessary to ensure fair play in all respects. For instance, RTI applies to the public sector but not to the private sector. While it costs time and effort for the machinery, disclosure of crucial information will be to the advantage of competitors, and to the detriment of PSUs. Finally, to strike a balance between passive ownership and excessive interference, it’s equally important to spell out clear objectives of the ownership policy in order to shed light on commitments to entities, public, and markets, along with equitable treatment to all stakeholders. For example, in France, the objective is to contribute to better valorisation of government shares in PSUs, while in Sweden, it is to create value for the owners. In the UK, it is to ensure that shareholdings by the government yield sustained returns.
With a golden track record, the public sector has been a matter of national pride for India. It is a countervailing force against the private sector, given the mandate in Article 39 of the constitution which emphasises control on material resources of the community to subserve the common good and to ensure that the economic system does not result in the concentration of wealth and means of production. Empowering the public sector is a logical recourse to enhance its competence and performance, long before capitulating to defeatism of disinvestment.
The writer is a former Addl. Chief Secretary of Chhattisgarh. Views expressed are personal