Indias public sector represents assets of nearly Rs 300,000 crore, but with a return of 1.5 or 2 per cent, ranging from hotels to steel, hospital management to oil and gas.
Public sector undertakings (PSUs) today are the cynosure of all eyes, not so much because they includes the temples of modern India, but because divestiture of equity in them can bring the badly-needed resources. A sad denouement, indeed, that the crown jewels are not so much a beauty to behold as a source of funds.
Recent reports of the divestment commission recognise that even after divestiture a number of PSUs will remain so. The common minimum programme of the United Front also visualises that many PSUs will not be privatised. It is, therefore, important to ensure that these undertakings are managed well. In this context, the steps taken by the industry minister, Murasoli Maran, to upgrade PSU managements are worthy of mention. Especially, his announcement of the nine global giants the Navaratnas indicates a firm resolve to break with the past.
However, it seems that the conventional approach to reorganisation of PSUs may ignore certain essential aspects of their existence. The fact that the majority shareholder in them is the government is both their strength and weakness. While this gives them the equity, it also exposes them to intense scrutiny by vigilance agencies, audit and parliamentary committees which their peers in the private sector are exempt from. The enervating effect of these scrutinies, often taken for granted, tend to be disregarded by those within the system. Indeed, even those who should know better feel that the constraining effects of such scrutinies are often only alibis. This mindset itself prevents a further search for comprehensive solutions, which alone can enable PSUs to function on a level playing field with the private sector.
PSU governance per se has become a hurdle race for them. Even given the best of talent, PSU managements have many obstacles to cross, in addition to those faced by their peers in the private sector. To argue that these obstacles are incidental to and a price for the privilege of public ownership is to accept that PSUs necessarily have to run a handicap race. Given the pre-eminent role of PSUs, it is essential to work out a modus operandi which can make them accountable without being crippled.
This would require an acceptance of a code of conduct by the vigilance agencies, the bureaus of investigation and Parliament. The code should recognise the compulsions of modern business. Without going into too many details, it should suffice to say that guidelines for monitors of management should not get over-concerned with routine. Unfortunately, form and routine are dominant in the eyes of the vigilance agencies and investigators. As a result, the executives take refuge behind sheaves of paper and files. This, in turn, puts a premium on casuistry and delay. Not for nothing is it said that the successful executive in PSUs is one who does his paper work competently and covers his tracks rather than the one who does his work well.
This right of parliament to enquire into the working of PSUs in which government holds substantial stake cannot be denied. What should, however, be ensured is that such a desire for information does not translate itself into micro-management an enquiry into every detail of transaction and strategy. A self-denying ordinance on questions to be asked by MPs of public sector executives is already in vogue. It needs to be sharpened and enforced. In return, PSUs should be more transparent.
Above all, there remains the basic question of PSUs being treated as a State. Article 12 of the Constitution says, inter alia that the State, includes the government and Parliament of India and the Government and the Legislature of each of the states and all local or other authorities within the territory of India, or under the control of the Government of India. PSUs have, therefore, been brought under the definition of the States under Article 12. This, together with Article 14, which asserts the right of any person to equality before the law, invites the judicial scrutiny of many PSU decisions. Therefore, a PSU has to satisfy the tests of possible judicial scrutiny of every decision. The opening up of writ jurisdiction along with vigilance has been one of the principal reasons for much of note mania already referred to.
Obviously, PSU managers who have to be prepared for writs invoking Article 12. If they have to compete with rivals in the private sector, domestic or external, this handicap has to be removed in a manner which has the concurrence of Parliament and the judiciary.
Is there a way out? Obviously, there seems to be no legislative stomach for further amendments to the Constitution, even for ensuring PSU competence. Given this, we may have to see how else we can ring-fence PSUs from excessive litigation by disaffected employees, suppliers and customers.
A way out has been indicated by the judges themselves in their judgments in various cases concerning PSUs. In a landmark judgment on the Maruti Udyog case (1991), Justices Muhammed Shamin and S D Wad had pointed out that although Maruti had a majority of its directors appointed by the government, it was outside the purview of Article 12 to the extent of its agreement with Suzuki, since there was bound to be control by the collaborator. This would mean that PSUs which have collaboration with foreigners can find a way out of Article 12. But, this may not be the best solution in all cases. It may well mean exchange of one constraint for another.
In a judgment in a cognate matter in the Escorts case, the judges had observed: We do not construe Article (14) as a charter for judicial review of State Actions and calling upon the State to account for its action in its manifold activities. When the State or an instrumentality of the State ventures into the Corporate world and purchases the shares of a company, it assumes to itself the ordinary role of a shareholder. We should read this with the observation of Justice Wad in the Maruti case The new industrial policy envisages a major thrust in streamlining the public sector into viable and profitable economic undertakings. High degree of discretion and delegation will have to be conferred on the decision-making authorities of such authorities.
The judiciary itself seems to have hinted a way out of the Article 12 conundrum.
Therefore, it is suggested that the government appoint a high-powered commission presided over by a SC judge, including persons experienced in the public sector, private sector, economists and political scientists. This commission should set guidelines, the meticulous observance of which should free PSUs of the further tests under Article 12 or 14.
It is essential that even as the government sets about its reform of the PSUs, in particular the Navaratnas, they do not disregard the importance of taking action on various aspects of vigilance, enforcement and Parliament as well as the constitutional impasse posed by Article 12.
Unless these problems are handled, and handled carefully, we would be permanently crippling our PSUs, whatever other reforms may be. The dream of forming a set of Navaratnas from among them will remain just that a dream.
