Making PSUs more resilient

Releasing the “Public Enterprises Survey' in New Delhi recently, the new incumbent in the Ministry of Heavy Industry and Public Enterprises, Mr Praful Patel, made it clear that some radical changes in the management practices of public sector undertakings were under consideration. For quite a while now action for reforms in the public enterprises has been put on the back-burner as India confronted the ripple effects of the world economy's meltdown. By negative example, as it were, the public sector in India — spread across almost every productive segment — seemed to have come out with fewer scars than its private counterparts that had more global links and so faced the withering heat of the crash more closely. While the private sector has recovered enough for policymakers to peg manufacturing output forecast at 8 per cent, perhaps it also time for them to renew efforts at making the public sector not just more resilient in the face of such challenges as the financial crash but also more capable of reaping incrementally higher profits when economic expansion takes wing.

At the press meeting after releasing the survey, Mr Patel virtually spelt out the string of measures being contemplated for public enterprises under his watch. The most important challenge is, of course, to fill board vacancies on an urgent basis to fulfil regulatory requirements; as of now 25 PSUs, including blue-chip ones such as ONGC, MTNL, NALCO and Coal India, do not have the requisite number of independent directors on their board to meet SEBI requirements. It is, of course, a shocking lapse on the Ministry's part that it has not been able to find the required number of independent directors, for whatever reason, for such valuable companies. Mr Patel's proposal of allowing the chairmen of the boards to appraise independent directors might take the load off the government and perhaps even quicken the appointment process but it would fly against all known norms of corporate governance. Independent directors selected by the chairman would obviously owe their allegiance to him and will rarely be the counter-point to the former as the law intends them to be. Mr Patel also spoke about a proposal to have the names of candidates for chairman vetted by the Central Vigilance Commission. This may be necessary to check, right at the entry point, the potential for graft in an undertaking subject to political patronage; but it is an indirect indictment of the baneful effects of government control over the leadership of PSUs that hinders them in competing with shareholder-driven corporations.

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