Against public interest

It is unfortunate that the Centre has rejected the Parliamentary Standing Committee on Finance’s recommendation to incorporate a provision in the Companies Bill, mandating public sector undertakings (PSU) to disclose the impact that implementation of government directives have on their finances. There is no formal structure now for such disclosure. Hence, even if companies choose to report at all, they are usually tucked away in the ‘notes to the accounts/significant accounting policies’ sections, as opposed to the Board of Directors’ report or some other prominent statements. Nor is there any prescribed format under which the financial implications specifically resulting from government directives are reported. The need for providing such information in the director’s report — and including this as part of the Companies Bill now in Parliament — is something that even the Comptroller and Auditor General of India had earlier proposed. The Centre’s reaction to these suggestions is strange: According to the Ministry of Corporate Affairs (MCA), a large number of disclosures are already provided for inclusion in directors’ reports and, hence, no purpose is served by “adding further requirements for a particular class of companies in a general enactment on companies”.

But the fact is PSUs are not just any ‘particular class of companies’, just as the government is no ordinary promoter. When oil marketing PSUs are forced to sell diesel or kerosene at below their realisable market prices, or a Coal India is directed to ink fuel supply agreements with power plants on terms it would not ordinarily enter into, these companies are only doing the bidding of the government. While doing so, they forego revenues or even incur losses, thereby affecting the interests of minority shareholders. Even in the event of their not being listed, the public is entitled to know the financial burden that companies set up with taxpayers’ money are having to bear on account of following official directives — for good or bad. Such information when presented in an upfront and transparent manner — without recourse to confusing terms such as ‘under-recoveries’ — may even lead the public to seriously weigh the trade-offs between persisting with populism and compromising the very existence of companies that they ultimately own.

The Parliamentary panel has rightly argued that mandatory reporting of the financial impact of following state directives is a step towards ensuring greater functional autonomy and operational efficiency of PSUs. These eventually would lead to minimising government interference in their management. This position is in refreshing contrast to that of the MCA and the Department of Public Enterprises, which believes that any such disclosure requirements be ‘administratively prescribed’ rather than have statutory backing through legislative enactment. It only demonstrates the sheer reluctance among ministers and bureaucrats to let go of their powers to ‘direct’ PSUs — and not account for it either