A K Bhattacharya: Towards a strong public sector

NEW DELHI DIARY

There are many stories of how the state-owned Indian Airlines has improved its customer service after facing stiff competition from airlines in the private sector.

A few weeks ago, a colleague chose to fly Indian Airlines after a fairly long gap of time. He was surprised by the improved on-board service and the general care the crew took of the passengers.

He was impressed with the service and called for the suggestion book to say a few nice things about the airline staff on duty. The suggestion book arrived promptly. And soon thereafter an airhostess too came to check with him if all was well and what could be done to make him more comfortable.

The story does not end here. A week later, the colleague received a letter from the customer relations manager, thanking him for the nice words he wrote in the suggestion book. Now, that surely was a flawless example of a company taking its customers very seriously.

Another colleague received a call on his mobile phone a day before he was to take an IA flight. It was from an IA executive, who requested the colleague to consider joining the frequent-flyer club of the airline.

"Once you reach the airport, please get in touch with our assistance desk and the formalities of your joining the club will be completed. And you don't have to pay any fee for participating in the loyalty programme, sir!" she said.

Again, this is the kind of customer care and marketing drive that so far one has been associating with private sector airlines like the Jet Airways.

How did IA manage to transform itself, even though there was no change in its ownership? Not surprisingly, most critics of state-owned enterprises are pleasantly surprised by what has been happening to IA in the last few years.

They had thought that the airline would not be able to show the flexibility and promptness in decision-making required to take on the challenges posed by the private sector airlines.

It should be admitted that IA has indeed lost market share over the last 10 years, when it has had to face competition from Jet Airways. But after the initial setback, it has recovered and has begun giving Jet Airways good competition. It has not shied away from taking part in a price war to gain a larger share of the market.

You may still complain about Indian Airlines, but today both the airlines have cornered for themselves almost an equal share of the market. Both of them are in the red. In fact, Jet Airways' losses are reported to be a little more than those of IA.

The IA story has a lesson for the United Progressive Alliance (UPA) government. And the lesson is that even a public sector enterprise can face competition from the private sector, provided the government allows it to function independently and the management of the enterprise is competent.

Government policy-makers would do well take note of this lesson particularly because it is now clear that privatisation is off their agenda. And if the UPA government wants to prevent the gradual decay of the huge public sector assets created over the years, a pragmatic strategy needs to be adopted to optimally exploit the strengths of the existing public sector enterprises and make them more efficient even while retaining them within the present system.

A chief executive of a profit-making public sector undertaking was recently asked if the government interfered in his functioning. "The government interferes only to the extent I allow it to do," the chief executive shot back.

A senior and responsible minister in the UPA government also admits that government interference in the functioning of public sector undertakings (PSU) has declined considerably over the years. So, in an environment where the government would not go for privatisation, what should be the strategy for the public sector?

One, the government should focus on the management of the public sector undertakings. Since the ownership cannot be changed, the goal should be to attract the best management to run the public sector undertakings.

If that means changing the rules governing pay and perquisites or giving the public sector companies more autonomy, the government should simply accept those changes and implement them.

The concept of designating profit-making public sector companies as Navaratnas and giving them operational freedom should be tried out with more companies.

Two, all public sector undertakings should be shifted to the finance ministry. Even better, these should be made to report to the Prime Minister's Office. At present, these PSUs function under the administrative control of different ministries.

For instance, IA operates under the civil aviation ministry and Indian Oil Corporation under the petroleum and natural gas ministry. The biggest threat to PSU autonomy comes from the minister and the bureaucrats of the ministry under whose administrative control a particular public sector unit functions.

That is the real problem. If Prime Minister Manmohan Singh wants to realise his dream of creating a strong public sector, he must strengthen the managements of the PSUs and free them from the clutches of his ministers and the babus.

akb@business-standard.com