In the last few weeks, three developments took place in different sectors, completely unrelated to each other. Underlining all of them, however, was a common factor. In each of the cases, the principal player was a public sector undertaking. And what distinguished the developments was the manner in which the public sector entities flexed their muscles.
This was unusual. A public sector undertaking in India is often seen as an extension of the government and, therefore, either pliant or unable to operate on commercial principles. In all the three cases, however, they were neither pliant nor willing to abandon the commercial logic of doing business. Hence, it is time to pause and understand the new trend that marked those developments.
Last week, the country’s largest power producer, NTPC Ltd, sent out a notice to two power distribution companies of BSES, an Anil Dhirubhai Ambani Group enterprise, threatening them with discontinuation of power supplies from September 6 if they did not clear their dues. This was unusual for a variety of reasons.
One, the two BSES companies distributed power to over 2.8 million consumers in the national capital city of Delhi and met almost two-thirds of the two companies’ total peak power demand from NTPC supplies. It is true any disruption in power supplies by BSES would not have affected New Delhi’s VIP zone, where central ministers and Parliament members live, since this area’s power distribution comes under the charge of NDMC.
In spite of that, the threatened NTPC action would have provoked sharp reactions from close to 70 per cent of Delhi’s electricity consumers and directed their ire largely against the two BSES companies, creating chaos and confusion in its wake. Good sense prevailed on the BSES management and NTPC as they agreed to a revised schedule for payment of the dues and the crisis got over a day before the deadline.
More From This Section
Now, step back for a moment to reflect what really happened. A state-controlled company used basic commercial principles to force two private sector companies to see reason, pay up part of the dues and agree to settle the balance by March 2012. This is the new face of India’s public sector — not supine or allowing its dues to keep mounting, but taking proactive penal measures and then settling a dispute showing pragmatism and business sense while dealing with a customer.
A similar thing happened a few weeks ago when state-controlled oil refining and marketing companies refused to fuel the planes belonging to Air India and Kingfisher Airlines as the two companies had failed to clear their dues. This led to the grounding of several planes belonging to the two airlines for a few hours and they could take off only after the airlines entered into a pact with the oil companies on a payment schedule to clear the dues.
Similarly, the Railway Board, seemingly liberated from the stasis that had gripped it when Mamata Banerjee was the railway minister, has now sought a mid-year fare hike of eight to 12 per cent. This is almost unheard of. It is true that in the last few years, the Indian Railways has quietly rationalised fares and freight rates to improve its earnings, but it has never dared to moot a proposal to raise fares. Now the Railway Board has put before its new minister, Dinesh Trivedi, a proposal to raise fares so that its finances remain in shape.
While the rise of the public sector organisations as entities enforcing commercial principles in their business operations deserves unqualified endorsement by everybody, it is equally important to recognise how the transition came about. First, disinvestment of government equity in public sector undertakings, though in small doses, has forced them to think commercially and worry about their bottom lines. Second, the policy of allowing private sector companies to operate in areas hitherto reserved for the public sector has given rise to competition and forced every other entity dealing with them to operate on commercial principles. This, no doubt, has changed the market dynamics of today.
Imagine a situation where the government has not disinvested its equity in any public sector undertaking and there is no private sector player in the areas of power distribution and civil aviation. Could NTPC have actually sent out a notice for discontinuing power supply to the Delhi Vidyut Board, which was the state-owned body that distributed electricity in the capital before its privatisation? That kind of action would have been unfeasible. Similarly, the state-controlled oil marketing companies could stop supplying aviation turbine fuel to the planes belonging to Kingfisher Airlines and Air India, because the market environment has changed. The entry of private sector players in civil aviation and the oil marketing companies’ status as entities listed on the stock exchanges have made them more sensitive to the need for shoring up their revenues.
It seems the new mood has become infectious since the Railway Board, which continues to operate as a government department, has become more conscious of the need to raise revenues through a fare increase. After all, the Indian Railways now faces the prospects of paying service tax on its ticket sales and incurring a higher fuel bill because of rising diesel prices. If indeed the mood has changed and public sector bodies are showing greater commercial sense, some credit should go to the idea of economic reforms. The pace of disinvestment may have been slow and the process of allowing private sector entry into areas earlier reserved for the public sector may have been half-hearted, but the dividends are beginning to flow in.