In India, Boards of Public Sector Enterprises Need Transparency, Objectives and Professionalism
PSUs have to fend for themselves
Trying to stand up on their own legs
Indian Public Sector Enterprises (PSEs) are trying to stand up on their own legs. Gone are the days when they were pampered with huge money by the government at the expense of the taxpayers. Today, if a PSE does not function well, it will be closed down unceremoniously. The trade union clout, which once upon a time dominated at all levels, is today virtually gone. Also threats of privatisation have made the militant trade union leaders to become subdued. But some PSEs are shining, overcoming the private competition. Some PSEs enjoy monopoly status like Coal India Ltd.
Planning Commission criticises BHEL
The government has eased the norms for buying of raw material assets by PSEs. Profit making PSEs can buy their raw materials from abroad without seeking Cabinet approval. The new policy will benefit PSEs in manufacturing, power, mining and agricultural sectors. For the Central PSEs making profit, R&D has been made mandatory now. Planning Commission has produced a report criticising the quality of the power equipments supplied by the PSE BHEL (Bharat Heavy Electricals Ltd). The Communist Party of India (Marxist) has demanded withdrawal of the report. The Planning Commission had criticised BHEL for its alleged failure and incompetence in commissioning/timely execution of power plants under different contracts.
Government pumps money into sick PSEs
The government had decided to pump in Rs.60 crore into 10 sick PSEs for payment of statutory dues, wages and salaries of their employees. The ten companies are Hindustan Cables, HMT, HMT(Watches), HMT (CW), Nagaland Pulp & Papers, Triveni Structurals, Tungbhadra Steel Products, Nepa, Scooters India and HMT Bearings. Recently the government of India invited bids for its plans to disinvest 10% of its stake in Rashtriya Ispat Nigam (RINL). UBS Securities has submitted its bid at Rs.1. Other banks, if they want to bag this prestigious project, will have to match the low bid of UBS Securities. What is the reason for this low bid? In the past, investment bankers have bid for near zero fees to win PSE mandates for leading the table positions. That helped them to win larger share sales and M&A mandates through which they made huge money.
Disinvestment is difficult under the present circumstances
Government of India stated while presenting the Budget in February the plans to disinvest its holdings in PSEs and raise Rs.40000 crore in the current fiscal year. But with the volatility in stock markets, this plan has come as a cropper and the government is looking forward to spectrum auction to boost its financial position. The government is able to realise only Rs.1162 crore through disinvestment of PSEs this year so far. Metal stocks have dropped sharply, making it difficult for the government to disinvest its stake in Hindustan Copper and SAIL.
Merger planned among engineering PSEs
Bhaskar Chatterjee, Secretary, Department of Public Enterprises stated that PSEs are instruments of government policy. He demanded operational autonomy for the PSEs in order to fulfil their strategic objectives. But who prevented the government from giving this autonomy to the PSEs? The government is planning to merge engineering PSEs like Braithwaite Burn, Mecon, Bridge & Roof, Engineering Projects India, Engineers India and Jessop. The merger is planned in order to compete with the private sector players like Larsen & Toubro (L&T). The merged entity will become a Navaratna company and will enjoy greater autonomy. The merger proposal was mooted by the Board for Reconstruction of Public Sector Enterprises.
Public and private sectors colloborate
PSEs are now matching India Inc’s top ten in terms of market capitalisation. Coal India was able to pip even the giant Reliance Industries. The combined market capitalisation of all listed government enterprises is much more than Rs.200 lakh crore. Private sector and PSEs are collaborating in many areas. For example, they jointly bid for the Afghan ore reserve. Tata Steel, Jundal Steel and JSW among the private sector companies have joined with the public sector firms NMDC, SAIL and RINL to bid for the Hajigak iron ore deposits. Among the PSEs, ONGC, Indian Oil Corporation and other oil companies along with Coal India Ltd shine while Air India has become the sick patient in the government hospital.
PSEs can park their funds in private banks
Praful Patel, Minister for Heavy Industries and Public Enterprises, stated that the government is fixing new norms for Maharatna status for the PSEs. The new norms will elevate the status of companies like BHEL and GAIl to Maharatnas (Maharatna means master gem). The government is also considering allowing PSEs to call for competitive bids from banks before parking their surplus funds. This means PSEs may be allowed to park their surplus funds in private banks also hereafter. The government is also considering new norms for appointing investment bankers to PSEs issues in order to avoid conflict of interest between the public and private share sales issues. Four PSEs have been listed in ‘fast track’ sell off list. These are Hindustan Cable, HMT, Richardson & Cruddas and Tungabhadra Steel. The government will come out with sick PSEs disinvestment policy only after going through their revival plans.
Family-owned enterprises overtake PSEs
Once upon a time, the first Indian Prime Minister Jawaharlal Nehru initiated steps to pump in crores of rupees to create giant PSEs. But now in the modern world, family-owned business houses have outgrown PSEs. Tatas, Birlas, Thapars, Singhanias, Modis and TVS family have overtaken the PSEs. If the sick PSEs are revived, only the staff will gain and there is no benefit for the consumers or the public. This is because these enterprises cannot stand on their own legs and will again become sick. Government’s interference is also hindering their performance. The top ten PSEs are an exception and are performing profitably. They are ONGC, Coal India, NTPC, NMDC, BHEL, MMTC, IOC, SAIL, GAIL and Hindustan Zinc. Let these profit making companies be allowed to flourish and as regards the sick units, the government should implement euthanasia. The government is bringing stricter norms for Board appointments in PSEs. Around seventy posts of CMDs & full time directors and three hundred posts of independent directors are currently lying vacant.
PSEs can own assets abroad
Andhra Pradesh has managed to attract several PSEs including a refinery complex by HPCL in its State. The government wants to shed its entire stake in companies like Nepa and HMT Watches. Turnover of the PSEs has been declining over the years. For example in 2008-09, PSEs turnover was at Rs.1271529 crore which declined in 2009-10 to Rs.1235060 crore. At present the Central PSEs turnover is equal to 24% of the GDP of India. Interestingly, dividend has increased from Rs.25501 crore to Rs.33223 crore. The government has decided to map the land assets of its telecom PSEs like BSNL, MTNL etc. Now the Supreme Court has permitted the PSEs to move against the government directly in the courts. A panel will be appointed to clear asset buys of profit making PSEs abroad. This will enable Coal India to own coal mines abroad and oil companies like ONGC and India Oil Corporation to own oilfields abroad. Government needs to encourage transparency and professionalism in PSEs in order to make them to stand on their own legs. This will be beneficial to the government as well as to the country as a whole in the long term.
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