The Hindu Business Line : Wages of freedom

For all the pious statements the Government makes about encouraging the public sector units to higher levels of performance, the fact remains that PSUs, particularly those listed, have been making heavy weather precisely at a time when the private sector has been cresting the high-growth sentiment of the past four years. Nothing illustrates the contrast better thatn the following data: the BSE Sensex has more than trebled since September 2003; the BSE PSU Index has barely doubled. In the real economy, giants such as ONGC, BHEL and the oil majors, like their financial sector counterparts, keep reminding their owners — the Government — that they could have become global entities, like their private sector peers anywhere in the world. So why haven’t they?

The reasons are to be found in the fact that risk-taking for innovative business strategies, evident in patches, has been such an avoidable exercise for most PSUs. Government ownership and ministerial patronage impose restrictions on initiative at every level of management. The history of the PSUs so far has really been the history of initiative stifled by the desire to play safe. Responsibility without power to exercise effectively the functions of office, makes the manager unwilling to innovate. Listed PSUs have all the pressure points to make them fare well and earn tremendous value for their shareholders, including their largest owner, if only the magic of freedom can work on the managerial skills. The limited elbowroom they have in corporate governance has come at a price and, often, as in the case of ONGC in recent times, the heavy hand of the government has tended to smother it. Now the Standing Committee on Public Enterprises (SCOPE) has suggested freedom for PSUs to decide staff salaries. Decades ago, in its wisdom, the single largest owner had thought it fit to fix a uniform compensation structure for all PSUs. That practice continues even today, when salary variations on the basis of need and ability drive the skilled labour market.

The SCOPE is right in pointing to an impending crisis for PSUs with high labour turnover in the midst of skilled labour shortage. The Indian Railways are already feeling the pinch as joint ventures pull away experienced managers with higher pay and more challenge-driven assignments. But the Committee is wrong in assuming that autonomy on this count can work without professionalism at the very top. Making PSU managers accountable to their professional boards rather than departmental masters is the first place to start reforms. Pay revision committees alone will not staunch attrition in PSUs.

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