From the 50s till now, whenever the economy is in need of an investment push, the government appeals to its companies to take the cudgels. Not surprisingly, Prime Minister Manmohan Singh put forth the same demand earlier this week when he met heads of some 25 public sector companies.
“We must learn to swim and swim fast enough whatever be the circumstances,” Singh told the companies in a meeting. The message is clear they should not be satisfied with the status quo. Growth should not be maintained at the level of 8 to 8.5 per cent “regardless of what happens in the world economy”.
With a record profit of Rs 1,00,000 crore and a 6 per cent contribution to GDP, Singh’s expectation from the government-controlled companies is understandable especially since the very creation of these companies was intended to push economic development. But probably, the PSU heads and their representative organization Standing Conference of Public Enterprises had a different thing in mind when in their presentation they sought freedom from Article 12 of the Indian Constitution.
Ironically, the article is part of the chapter on Fundamental Rights that grants certain basic rights to individuals even if they are not citizens. The article defines the State as not only the government and the legislature but “all authorities under the control of the government”.
In 2005, the Arjun Sengupta committee on the autonomy of PSUs had highlighted the impact of article 12 in the changing business environment.
“The far-reaching mandatory legal implications of Article 12 inhibit the functioning of CPSEs as commercial entities like similar companies in the private sector,” the report said while refraining from making any specific recommendation but at the same time asking the policy makers to revisit the issue.
Besides, the Companies Act 1956 also creates a special legal framework for government companies. Under Section 620 of the Act, the Union Government can exempt partly or wholly the application of any provision of the Act to the government companies except Section 618, 619 (A) which relate to audit and accountability to Parliament.
This accountability to Parliament and the government along with Article 12 often comes into conflict with autonomy of these commercial enterprises creating inefficiencies and distortions. A case in point is that of Coal India that besides being a State-controlled company is a listed entity whose single largest non-government shareholder and independent directors have raised objection to the government diktat on fuel supply agreements. So, when Prime Minister cajoles these companies to improve the investment climate from 36% to 37% to achieve 8 per cent growth, he should probably be asking CIL for its investment strategy and facilitating a conducive climate for it rather than making the coal behemoth get into complicated agreements that enjoins upon it to import coal for private companies.
