Empower boards to make PSUs competitive

Richa Mishra | Updated on October 16, 2020

Alongside, there’s a need to fix accountability and reduce intervention by political powers

The most commonly heard words in the corridors of power are restructuring, corporatisation and privatisation to increase efficiency in public sector entities. Sounds good! But will they just be words or taken to a logical conclusion?

There is always a passive ownership that remains in PSEs (public sector enterprises), according to critics who stress that this was one of the reasons for these entities not being able to take advantage of any external dynamics that can boost their business and compete effectively with their private counterparts.

Prakash Keshav Javadekar, who wears many a hat, including that of Minister of Heavy Industries and Public Enterprises, holds that the present government is laying significant emphasis on increasing turnover, efficiency and productivity of CPSEs. The overall vision with regard to public sector, he says, “is to have an effective, profitable and globally competitive central public sector enterprises” .

A step in this direction was the decision of the Appointments Committee of the Cabinet to allow a restructuring of the SAIL board. The CEOs at SAIL’s Integrated Steel Plants (ISPs) are to be elevated as functional directors, by designating them as Directors-incharge of Bokaro, Rourkela, Bhilai, and one Director-in-charge jointly for the Burnpur and Durgapur steel plants.

The approved restructuring of the SAIL board also involves merging the functions and duties of the post of Director (Raw Materials and Logistics) and that of Director (Projects, and Business Planning) with the post of Director (Technical), and its consequent re-designation as Director (Technical, Projects and Raw Materials).

The restructured Board of Directors of SAIL will consist of Chairman, Director (Finance), Director (Commercial), Director (Technical, Project and Raw Materials), Director (Personnel), Directors in-charge of ISPs, Non-official Directors as per the Companies Act, 2013 and two Government Nominee Directors as per the DPE policy.

The restructuring of the board will facilitate greater decentralisation and nimble decision-making with the Directors-in-charge of plants as direct ACC appointees, with their views having weight in the central corporate governance structure. This will also facilitate speedy modernisation and expansion programme of SAIL, an official statement said.

SAIL vision

SAIL has a vision of reaching 50 million tonne capacity through brownfield/greenfield expansion and this was considered while formulating the National Steel Policy 2017, which envisages 300 million tonnes capacity by 2030-31. Also, the policy says that Directors in-charge of ISPs would play a critical role in having the corporation respond with agility in a globally challenging environment

SAIL, once a monopoly, is now facing the heat of the private sector and is expected to get a booster shot by this restructuring. If one goes by what the Steel Ministry officials say, this was done to ensure that power and decision-making are not centralised in Delhi where SAIL is headquartered. This decentralisation will also ensure there is greater transparency, the Ministry claims. In fact, there was a time when the plants, headed by Managing Directors, had lot of autonomy in decision-making, especially on employee-related issues. This was done away with as it was found that the board had become too big.

The current restructuring is expected to restore that position, which was taken away by replacing MDs with CEOs. The Steel Executives Federation of India has always emphasised that the Head of an ISP should be a member of the SAIL board.

Restructuring is fine, but what is the guarantee that these empowered officials will stick their necks out and take decisions? Will they go ahead and do what they think is correct even though the political bosses may have a different view? How will this ensure there is no conflict of interest?

Let us step back and recollect the government think-tank, NITI Aayog’s comprehensive national ‘Strategy for New India’, which defines clear objectives for 2022-23. Strategy for New India @75 states that the government should continue to exit CPSEs that are not strategic in nature. Inefficient CPSEs surviving on government support distort entire sectors as they operate without any real budget constraints, it said.

“The government’s exit will attract private investment and contribute to the exchequer, enabling higher public investment. For larger CPSEs, the goal should be to create widely-held companies by offloading stake to the public to create entities where no single promoter has control. This will both improve management efficiency and allow the government to monetise its holdings with substantial contribution to public finances,” it argues.

Well argued. But these entities were set up with a purpose — to ensure that economic power is not in the hands of a few, discourage monopoly and enforce social commitments. So what happens to these commitments?

“CPSEs have always played a crucial role in executing the socio-economic development agenda of the government as an extension of the government apparatus. Even during the recent lockdown period due to the Covid outbreak, the spirit of CPSEs towards nation building has not dampened. During this period, CPSEs ensured that essential services such as power, fuel and foodgrain supply remain uninterrupted,” Javadekar said.

Acting as a catalyst

After the lockdown period, the CPSEs have already assumed the responsibility of boosting economic growth, Javadekar said, adding that “most of them are operating at about 90 per cent operational level.

They are carrying out capital expenditure works/infrastructure development activities of approximately ₹2 lakh crore in the sectors of petroleum, power, defence, mining, logistics, etc., which would not only act as a catalyst for other economic activities but would also provide informal employment during the construction phase. For FY 2021-22, CPSEs would be enhancing their capital expenditure activities to 200 per cent of the present level, that is, approximately ₹4 lakh crore.”

The Minister’s points are well taken. But the question remains: Why efficiency still remains an issue? Why is it that the same person when working in a PSU/PSE is less efficient and when with a private sector becomes more efficient? Surely, it has to do with the work culture. Is it because government jobs are taken for granted or is it because there is no difference between a performer and a non-performer when considering productivity?

A most important component in enhancing the performance of a PSU is reduced intervention by political powers and preventing misuse of infrastructure by all. This requires fixing accountability and loosening informal control.

Published on October 16, 2020

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