If getting a private sector CEO can turn around a state sector behemoth, many of today’s state sector enterprises would not have been in the shape they are. Yet, the idea of someone like former Vodafone chief Arun Sarin heading public sector telecom firm BSNL does look like “out of the box” thinking. Certainly the search committee set up by the Prime Minister’s Office will recommend this name, or of somebody equally high profile and qualified — the committee is headed by Cabinet Secretary K M Chandrashekhar and has members like the telecom and personnel secretaries, a Stanford professor and HDFC chief Deepak Parekh. Both Parekh and the telecom secretary were members of the Sam Pitroda committee which had recommended an outsider, like Mr Sarin, be considered to turn around BSNL and be paid market salaries as opposed to the usual pittance that goes in the name of PSU grade pay. The problem, assuming that Mr Sarin does accept the offer, is that this is just one of the many things that needs to be done to fix BSNL, whose revenues have been falling steadily, from Rs 40,176 crore in 2005-06 to Rs 39,715 crore in 2006-07, Rs 38,053 crore in 2007-08 and Rs 35,000 crore in 2008-09. The Rs 575 crore of profit in 2008-09 got converted to a loss of Rs 2,611 crore in 2009-10, despite getting Rs 2,600 crore from the government to subsidise its landline business and another Rs 3,000-odd crore as interest on its bank deposits. For one, in order to change its PSU thinking, Mr Pitroda recommended a strategic stake sale of around 30 per cent and that is unlikely to happen given the government’s timidity on the issue of disinvestment — the PSU way of thinking, for instance, ensured that though BSNL got its 3G spectrum more than a year before the private sector firms will get it, it still hasn’t been able to get too many customers.
While BSNL’s public sector mentality and the usual political interference are a big reason for its lacklustre performance, as is the large workforce it has, there is another serious problem — public procurement policy. Apart from the headache of ministerial interference in the procurement of equipment, the fact that any aggrieved bidder for its tenders can go to court and halt the entire procurement process has hurt the company’s bottom line. This is thanks to the fact that various courts have interpreted public enterprises to be an arm of the state (“instrumentality of state”, according to Article 12 of the Constitution). But no aggrieved bidder can go to court against a private sector firm which, in any case, is not mandated to even issue tenders for equipment purchases. As a result, BSNL slipped to the number 4 slot in even rural connections — in December, it had 22.4 million rural subscribers as compared to Idea/Spice’s 26 million, Vodafone’s 30.3 million and Bharti’s 43.2 million. This definition of “instrumentality of state”, of course, affects not just BSNL but all other PSUs as well, and until the government petitions the courts successfully to remove public enterprises from this interpretation, the latter are always going to have a problem, with or without an Arun Sarin at the top.