The Hindu Business Line : PSU viability

With his usual finesse, the Prime Minister, Dr Manmohan Singh, has provided a new dimension to the contentious issue of public sector undertakings in an economy witnessing private sector-led rapid-fire growth. Inaugurating the modernisation of the public sector steel plant IISCO in West Bengal, Dr Singh stressed on the need to ensure the viability of PSUs and the fact that the Government was committed to their modernisation as was evident in the funds it had spent on revival of units such as IISCO. The issue, he seemed to say, is not simply rehabilitation but growth of the enterprise. To the extent that public money is to be spent on this objective of ensuring that the PSUs set themselves on an incremental growth path, one major issue of debate that has often divided the policymaking elite, divestment, would seem to have to become secondary. Or, such is the sub-text of the Prime Minister's message aired in a State ruled by his Left allies, proverbially against any dilution of public ownership.

From a strategic point of view, it would be erroneous to assume that the answer to divestment is public-money intervention for viable growth of PSUs. Given its limited resources and other, more pressing, social objectives, the Government must plan its intervention prudently, keeping in mind that viability and growth are a matter not simply of financial intervention but corporate governance and accountability. To the extent that some dilution does take place in favour of shareholder democracy, viable growth becomes more feasible. History has shown that to be the case with PSUs such as BHEL, ONGC and SAIL that made shareholder value the cornerstone of their mission and became more than just viable units waiting for government handouts.

In retrospect, equity dilution not only inspired growth of these firms but also turned them into pace-setters for their private sector counterparts. No other industry showcases the extent to which the private sector improved on services and products on the basis of pioneering experiments by PSU firms than the telecom sector. Reduction in telecom rates first announced by listed PSU firms set the pace for the rest of the industry to follow suit. In effect, shareholder accountability enabled PSUs to adopt and set the benchmarks for the edge in innovation and lower prices for newer products precisely because they competed for the same space with their private sector counterparts unlike those PSUs that continued to live off the kindness of their ministries. The latter have no incentive to benchmark performance against any competitive standards. At the IISCO function, the Prime Minister also exhorted the steel industry to follow global standards. Surely Dr Singh knows that incentives and not funds alone motivate standards for profitable growth.

More Stories on : Editorial | PSU | Steel

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Three pillars of sustainable urbanisation

PSU viability

Re-crafting the Indian economy

Humour in House

The vice-grip of finance

`India has to get stronger with Japan at the political level'

Piped natural gas

Rehabilitation of farmers