A K Bhattacharya: Imparting real autonomy to PSUs

NEW DELHI DIARY

It is a little odd, but perhaps understandable in the Indian context. There was no jubilation, nor any positive reaction from any quarter to the Union government's decision last month to impart greater autonomy to profit-making public sector undertakings (PSU), also known as Navaratnas. These measures allowed the Navaratna PSUs to disinvest their equity in the subsidiaries they may have floated, as long as their public sector character remained intact. Also, the chairpersons of all PSUs were mandatorily made members of the search committees to identify and appoint independent directors on their respective boards.

It is odd because the two steps had indeed given profit-making PSUs the kind of operational freedom that they deserved long ago and public sector reformers in the country have been demanding for ages. What's more, the decision paved the way for PSUs to mobilise more resources through sale of their assets, without seeking recourse to government funds. And the inclusion of the chairperson of a PSU as a member of the search committee for its independent directors meant that he could no longer be bypassed by ministers or the secretaries in this matter. Yet, the decision went almost unnoticed.

But such indifference is understandable because it is almost universally acknowledged that most public sector managers in India are willing to crawl when the government asks them to only bend. It is widely believed that even after getting the freedom to sell stake in its subsidiaries, public sector managers may not actually exercise that right. They will continue to get such moves cleared by the ministry. And even if the chairperson of a PSU may be appointed on the search committee to nominate independent directors on its board, it is doubtful if he will have the courage to assert himself or differ with other committee members from the ministry. Most public sector managers believe in the old saying that their best safety lies in fear and in ensuring a ministerial stamp of approval of everything they do.

This assessment may appear harsh. There may be exceptions. A few public sector chairpersons may well have the stature and courage to assert themselves and take advantage of the liberalised rules to sell stakes in their subsidiaries. A public sector chief executive once said that PSU chairpersons can function as autonomously as they want to be. But the question is: How many PSU chief executives are there like him who would like to take full advantage of the relaxed policy?

There are of course good reasons why PSU chief executives are reluctant to assert their independence. Most of them realise that they are appointed by the government and an unhappy minister or the secretary in the ministry can ruin their tenure or further prospects. The problem is that while the PSU chief executive is held responsible for the performance of the company he heads, the minister or the secretary in the ministry is hardly accountable to anyone for the manner in which their actions may have undermined the PSU chief executive's functioning.

The hard reality is that there is no level playing field in this game. To stress the point, the PSU chief executive knows that he cannot annoy the minister or the secretary, but at the same time he is held wholly responsible for the PSU's performance. On the other hand, the minister and the secretary (or even the joint secretary who is nominated to the board of the PSU) can interfere in the public sector unit's functioning as and when they choose to do so. But are these ministers or bureaucrats responsible to anybody for their actions with regard to the way a PSU is being run?

A minister in the Vajpayee government, when asked why the ministry should interfere in the functioning of a PSU, had a counter question. "Why should I not interfere in the functioning of a PSU if I am expected to explain its performance on the floor of the House," he asked. It is clear that ministerial interference in the functioning of PSUs will continue as long as ministers are held accountable to Parliament for the performance of public sector units.

So, if the objective is to eliminate ministerial interference in the functioning of PSUs, an option worth consideration would be to exempt PSUs from the purview of Parliamentary scrutiny. If that sounds too revolutionary an idea in the present context, the performance of PSUs could be scrutinised only by a committee of Parliament members and the ministry should not be held responsible for its operational performance. Ministers can come in at the time of setting annual or medium-term financial goals. Once that is done, the PSUs can be taken outside the administrative purview of the minister as well as the ministry. The Parliamentary committee can scrutinise its performance against the goals set out at the start of the year. This will impart much greater autonomy than what steps like allowing Navaratna PSUs to sell their assets and equity in their subsidiaries may hope to achieve.