Central to Growth

Central public sector enterprises (CPSE) are getting a fillip but many legacy issues still remain.
Central public sector enterprises (CPSE) or public sector units (PSU) as they are more popularly known, have played a major role in India's economic growth in the Independent era.

Their existence can be broken down into three distinctive periods, namely post-Independence, post-liberalisation and the present times.
During Independence, state involvement and creating a public sector was thought to be crucial in order to develop the economy. The main problem lay in solving the problem of achieving economic development with fairnesswhile dealing simultaneously with concerns related to widespread poverty, doing away with regional imbalances, huge inequalities in income, expanding employment prospects and building industrial infrastructure for overall growth.
The private sector then was neither capable of making such large investments for achieving the desired goals, nor were they expected to involve themselves in projects requiring long maturation periods with only anemic returns. Consequently, the country chose to follow a path of a centrally-planned mixed economy and the public sector was positioned as an instrument for achieving self-reliance along with inclusive growth. PSUs took up the mantle of nation-building with projects in industrial development and physical infrastructure with an overarching emphasis on the social facets. Since those early days, over the decades, the public sector has evolved into a force to reckon with, and not just within the country. The presence of Indian PSUs in the prestigious Forbes 2000 annual list 2014 is a testimony to their rising status. In total, 54 Indian companies are on the list of the world's 2,000 largest and most powerful public companies, 30 of them from the public sector, comprising 14 PSUs and 16 public sector banks.

Rewind to a time when the First Five Year Plan began on April 1, 1951, there were about five public sector units (PSU) with an investment of nearly Rs29 crore. Fast forward to 2017 and there are 290 PSUs (234 operating) with a combined investment of over Rs9.92 lakh crore (as per latest data). PSUs have shown excellence in all physical and financial parameters and Dr. U D Choubey, Director General, Standing Conference of Public Enterprises (SCOPE), believes PSUs can contribute much more. He says, “If you increase the efficiency by just a per cent more, you can beat the proceeds that the government of India is getting through disinvestment. Disinvestment is not the only way to raise money.”

The ruling government of the day over the years have long contended that disinvestment would improve efficiency and management but it has largely been done to meet fiscal deficits. Dr. Choubeypoints to the fact PSU companies have contributed Rs25 lakh crore in the last ten years to the public exchequer by way of profits, taxes and dividends. In contrast, the government has invested just Rs9.5 lakh crore. “What other business can give you these kinds of returns?” he asks rhetorically.

IS Jha, Chairman, Power Grid Corporation, concurs. “PSU companies may look slow from the outside. That is because they have to follow procedures. For instance, private companies do not bother about L1, L2 or L3, but we need to follow them,” he says.
Moreover, citing examples in the power sector, Jha further points to the fact private companies in the sector are mostly headed by ex-public sector employees. “Whether from NTPC or PGCIL, our personnel are the finest. For instance, you will not find hydro engineers anywhere like those at NHPC,” Jha says, underscoring his point. Nonetheless, this is not to say that PSUs do not have any concerns. In fact, the outstanding performance is in spite of a number of serious issues and not because of them! Problems related to governance top the list of ailments. Experts that Construction Times spoke to, declined to come on record due to the sensitivity of the matter but pointed to the fact that for such issues to be dealt with, nothing short of policy changes are required. For instance, they said, creating an ownership policy whereby an owner (read government) could be held accountable and answerable would be in line with best practices of many of the developed economies of the world.

“There is a lot of backseat driving by the government,” said a former secretary who declined to be identified. “Public sector companies that have government directors are likely to see them dictating what course of action should be taken. In many case, the ministry dictates,” he said.
Other issues exist with regard to autonomy of a company's board of directors, succession planning, conformance versus performance vis-a-vis multi-regulatory mechanisms, appointment of independent directors and board level positions, etc.

To be sure, the current government has been proactive. On the country's 70th Independence Day, from the ramparts of the Red Fort, Prime Minister Narendra Modi said, “The PSUs that come up in our country either fall in ditches or tumble or are locked or sold off. This has been the history of PSUs so far. We have tried to bring in a new work culture. And today, for the first time, I can say with satisfaction that Air India that was notorious, in the past year we have succeeded in bringing operational profits.”

If governance is indeed improving, then one hopes the pace picks up sooner rather than later. It is only with the introduction of a professional approach and removal of the long-standing interference of the political class that the meaning will truly be restored to the country´s much coveted public sector ratnas (jewels). Or they will continue to be run as government departments, rather than as companies.