The 'babu' question

Appointment of bureaucrats as PSU heads is illogical

Prime Minister Narendra Modi’s impassioned defence of the private sector in Parliament earlier this month included a critique of the practice of appointing bureaucrats to head public sector undertakings (PSUs). Describing private entrepreneurs as “wealth creators”, he wondered what could be achieved by handing the nation over to the “babus” (government officials). “Just because somebody is an IAS officer, he is running fertiliser and chemical factories to airlines,” Mr Modi said. Removing bureaucrats from the ambit of corporate management, he went on, would open up opportunities for youngsters to prove their mettle. There is some merit in Mr Modi’s suggestion, assuming most of PSUs will eventually be privatised under the new policy.

But the bigger immediate issue perhaps is why PSU governance has stubbornly remained the domain of the bureaucrats. No government, not even Mr Modi’s, has been notable for reaching out to the private sector to manage PSUs, some of which operate in similar industries. Why do political leaders appoint bureaucrats to head PSUs such as Air India, MTNL, BSNL, or ITDC, to name a few? There is, in fact, no rule or law preventing the government from appointing non-bureaucrats or executives from the private sector to head PSUs. But examples of such private-public collaborations are scarce. The best-known example is Prakash Tandon, the first Indian chairman of Hindustan Lever, as it was then known, who chaired the State Trading Corporation and served with distinction as chairman of Punjab National Bank.

One cynical and popular explanation has been that the power of the bureaucrat lobby ensures that all plum posts — whether in PSUs or in powerful regulatory institutions — remain within its domain. But this theory assumes overweening powers of the bureaucracy over the political dispensation, which is clearly not the case. That leaves the question of the proclivities of the political class. It is an open secret that few ministers are willing to forego the not inconsiderable benefits that control over a PSU confers — from access to its resources and the distribution of jobs to the direction of policy, even if it is at the expense of PSU profitability. Few chief executive officers from the private sector, even those inured to the practices of hands-on promoters, are likely to countenance this level of political interference for any length of time. Nor are they likely to willingly subject themselves to ex-post enquiries from vigilance agencies, the bane of every bureaucrat in a position of power.

Therefore, for the government to leverage the managerial expertise of the private sector in any meaningful way within any department of government will require a paradigm shift in political thinking. How far this can happen remains an open question. The Modi government’s modest proposal to allow for lateral entry from the private sector for specialised positions, first mooted in 2017, has not moved beyond eight joint secretary-level appointments. The plan was to hire 40 professionals for their domain expertise. This recent history makes it unlikely that the government will consider the issue, suggested many times in the past, of widening the recruitment net for sector regulators from outside the bureaucracy. Berating the practice of “babus” heading PSUs in Parliament makes for good optics. Moving to change that practice is the bigger challenge.