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In public service…

A public sector undertaking has no ultimate, permanent management whose shoe pinches, if not bites, in the event of a loss. All sick units should be sold and if not saleable, should be closed.

Prafull Goradia | New Delhi |

In his article, ‘Withering Heights’ (21 January), Govind Bhattacharjee has highlighted India’s most gigantic scam. Privatization is not its panacea. How many private industrial houses do we have who would be “liquid” enough to pay and acquire public sector units? And even the “liquid” ones might not have the confidence to get involved in units which could be overstaffed. Private sector managements will find it difficult to change the work culture cultivated in para-governmental organisations. So what then is the way out? The beginning can best be made by making all interested Indians aware of why the country embarked on this journey of public undertakings.

The root reason was twofold. One was the ideological inclination of the then Prime Minister Jawaharlal Nehru whose faith in socialism, whether Soviet or Fabian, made it easy to push state ownership of the means of production. Apart from the former Prime Minister and several leaders of the time, the academic environment too was Left-leaning. Capitalism was associated with the West as well as imperialism. Many were psychologically anti-West due to British rule. Marxists, whether Soviet or others, churned out and distributed a great deal of eco-political literature. The capitalist leaning polities on the contrary took much less interest in propaganda. All in all, in India, it became fashionable to be a socialist. Even top industrialists in Kolkata in their social conversations would not hesitate to say that we all have to be socialist. How else would the better off people survive in such a poor country?

Such was the growing milieu in which the party in power introduced a socialistic pattern of society as the national policy at its Avadi session in 1955. There was no significant opposition either by the industrialist classes or chambers of commerce. No political party, except the Bharatiya Jana Sangh, had a contrarian view. Jawaharlal Nehru was thus able to unfurl the banner of socialism without any let or hindrance. From the viewpoint of industrialization, there were a few resourceful entrepreneurs who in due course did establish large factories but these were for products of their commercial choice. There was hardly anyone with funds, inclination or knowhow to build infrastructural units, like steel plants. Such contributions had to be made by the public sector funded entirely by the government.

Awareness of one particular aspect could have saved the country and its economy, i.e. that investment and management are two different ball-games. This cardinal difference is yet to be recognised. Almost every entrepreneur believes that his offspring, preferably son, is best suited to succeed him. In most cases, he genuinely does not see the difference. His idea of professional management is to employ managers and give them powers but which are subject to the authority of the family member, who is the chairman- cum-managing director. It is true that over the past two decades, it has been realised that non-investment management skills are necessary. But this awareness is still limited in the private sector and even less in the government, where possibly every officer might presume that he is as suitable a manager as he is a bureaucrat.

An officer knows the rules of engagement and meticulously follows the procedures; he has no yardstick of performance and can afford not to think about it. His major interest would be in the number of steps in the ladder of promotion that he has climbed and in how many years of service. There are of course exceptions, but these are by chance and not by choice of career or training. On the other hand, the average ministry would have no hesitation in placing an IAS officer as chief executive if one is needed as well as one is willing. It does not matter if procedure overbears profit so long as the rules are obeyed meticulously.

If this could be the flaw at the level of management, lack of accountability is likely to have been the bane at the top. Ministers are liable to change and the secretaries are prone to transfer or eventually retire. In the ultimate analysis, there is no constant factor to ask for answers; unlike the nag of dividend or the return on investment (ROI) beyond the dividend. So long as the auditor passes the annual accounts, he is happy. His is not to question ROI but only to clarify that the procedure has been adhered to. For him, profit or loss is a matter for the management to worry about. And a PSU has no ultimate, permanent management whose shoe pinches, if not bites, in the event of a loss.

What is the way out of this paradox of the need for results and the paucity of many giant and “liquid” entrepreneurs? The answer should lie in the President of India not owning the PSUs except financial institutions like the LIC, GIC or public sector banks. Ideally however, even these should be inter-held amongst themselves rather than the President of India. Let the government appropriately fund these institutions, and even more of them if required, and let them invest. Let them be among the shareholders with the public as well. And why not foreigners as well as Indians? Let today’s PSUs be converted into such corporate entities with professional managers appointed by their shareholders. And leave it to each shareholder being responsible for checking how his corporation has done every three months or so. Let the stock exchanges reflect the performance; the prevailing price of the share would be an important measure of how things are ticking in each PSU, whether central or state patronized.

If the government chooses to give a subsidy or offer a concession for a public cause, so be it. But that must be granted as a sum of money from the state or central budget as the case may be, so that PSUs do not run either as zamindaris or as orphans ending up “as everybody’s business is no one’s concern”.

An example in action of governmental majority investment and yet the company being run as a commercial venture by professional managers was Larsen & Toubro until say, three odd decades ago. For years, the public institution held some 54 per cent of the shares but otherwise ran like a normally successful company and there was hardly any wide awareness of who exactly owned it.

There is little doubt that the country still needs substantial industrialisation, especially of an infrastructural nature. The Ministry of Industries can invite Indian managers of proven record or even successful industrial houses, as well as foreign and multinational corporations of renown, to propose industrial as well as infrastructural schemes. Individual managers, if acceptable, would be asked to invest or find investment of up to 5 per cent, whereas corporations should be expected to find up to 26 per cent investment. Thereafter, if any more investment is required, the institutions should be approached by the promoters.

This would be one way of achieving rapid development without the need of the traditional public sector. With schemes suggested by professional managers of corporations, whether Indian or foreign, and approved in principle by the financial institutions, there should be a safe enough check on the merit of the proposal. With the Indian public also joining in to invest, it would be further reasoning.

Coming to the state PSUs first of all, local governments should be persuaded not to involve corporate or commercial enterprises in primarily welfare or charitable activities. State governments too, should be discouraged from investing directly in their PSUs. They could develop their own financial institutions as well as be free to approach central institutions, including public sector banks. Meanwhile, all sick units should be sold and if not saleable, should be closed.

We more or less began this article with an exhortation that investment and management are different ball-games. It should be made clear more emphatically that business and politics or ministries must remain separate. They should restrain themselves from interfering with the other. The total losses made by public sector units, state as well as central, as listed by Mr Bhattacharjee, would total up to enormous figures. Add the cost of carrying these losses, and that would be another colossal sum. If only most of these monies had been deployed more constructively, imagine the progress the Indian economy would have made!

(The writer is an author, thinker and a former Member of Parliament)