There is no denying the fact that Public Sector Enterprises (PSEs) have taken the Indian economy to new heights and have demonstrated global competitiveness and market leadership. They are considered as being responsible for canvassing India's growth story and are veritably economic cornerstones. Nonetheless, the empowerment of these enterprises by the government has been a key enabler that has allowed them to overcome some of the operational constraints, critical for the successful functioning of such an organisation. Pradeep Pandey and Purnendu Chaubey highlight the performance of the state entities while also delineating the initiatives required for greater autonomy.
A few months ago, a Chinese daily remarked about the public sector in India alluding that they are largely responsible for the infrastructure bottleneck since they are 'inefficient and impotent'. However, contrary to these claims, records reveal that public entities are actually the catalyst for sustained growth of the Indian economy. Nevertheless, government officials, responsible for these entities, believe that with the participation of private players in most of the strong government held sectors, such as energy and banking, has created a competitive edge. For example: after the opening of the economy, the classification of public enterprises under grades like Maharatna, Navratna and Miniratana has paved the way towards creating a sense of autonomy for operations and management at a higher level. Power Today approached a number of former and current top government officials, analysts and global advisory bodies to find out how these models have worked so far. Most of them advocated the view of more autonomy and goal setting exercise for the public enterprises in order to remain on the top. In other words 'autonomy with accountability'.
"These classifications-- Maharatna, Navratna and Miniratana--have helped the state run entities to set a target and work towards that goal. And, we are happy to admit that but it could have been much better if top officials of public enterprises were spending more time on formulating and implementing a growth strategy rather than running around the ministries," says a former chairman of a giant public sector utility.
Analysts and global advisory bodies to the government bodies also believe that broader prospect public entities has led the growth in their respective sector. However, this autonomy should not be without check and balances because the observation states that the set models have not worked uniformly for each and every one. "For some it has just remained as a status symbol and they have failed to achieve the set targets in the past. So, there should be some kind of accountability of managing authorities, if the entity fails to achieve the set target," said R K Goel, former director finance of GAIL. Though, there are many angles of observations and one cannot just be assumed to be true to the fullest extent but this classification model has definitely given us a recipe to introspect the way public sector has performed after independence and what are the changes imminent to ensure that they compete and perform with the best of the companies. It has also been true that its core operations are still wrangled in the hold of political clout at many levels. For example, the appointments at top positions in the public enterprises are not purely based on the qualifications and performance of the individuals. "If we see at macro level, public enterprises have gained autonomy. However, operational issues have been totally different," said Harish H V, partner India Leadership Team at Grant Thornton.
The Chinese also acknowledged India's success in the private sector, saying that is something China could learn from. However, all the success of the private sector in India may be attributed to the resources groomed and matured in Indian public sector which are normally the breeding ground for the best resources available in the country.
The fact remains that many PSUs particularly the Maharatnas and Navratnas have performed exceptionally well in the wealth creation for the country and are already able to compete with top tier organisations internationally in their sector.
The post-1991 period has brought about significant changes in the public sector policy. The areas reserved for public sector were reduced. PSUs were expected to look for internal resources and borrowings and concentrate on improvement in operations and efficiency on commercial lines of operation aimed at earning profit. Detailed guidelines on the composition of Board of Directors were issued by the Department of Public Enterprises (DPE) in March 1992. These guidelines interalia provided that at least one-third of the Directors on the Board of a public enterprise should be non-official directors. A Memorandum of Understanding (MoU) based performance mechanism was adopted to improve their performance during the mid to late nineties.
In line with the philosophy of the Government to refocus public entities onto select sectors or industries, more than 30 public entities were divested during the period from 1991-92 to 2000-2001 through a combination of strategic sales to private partners as well as initial or follow on public offers. The exercise has continued till date leading to the significant monetisation of government investment in the public entities being disinvested and enabling sharing of the value created with the public at large through listing public entities on stock exchanges.
Performance of public enterprises
Many public entities have performed admirably well after the post-economic reforms and liberalisation phase which is reflected in their robust growth and development. While there were only five public sector entities with a total investment of Rs 29 crores on the eve of the First Five Year Plan (1951-1956), there were 249 public entities with a total investment of Rs 580 thousand crores, as on 31st March, 2010. However , there are a number of other public companies that started well in the license permit raj before 1991 which protected it from external as well as internal competition but then could not cope up with the changing times and increase competition. Few of them had a long history of making losses but the government kept on writing off loans. To some even the BIFR (Board of Industrial and Financial Reconstruction) was declared as being sick and beyond redemption but the government kept dragging them due to politics and other problems.
Efforts by the Government
One of the important reasons for the good performance of central state run companies in recent times is the empowerment of their board by the government to take decisions in the area of capital expenditures, organisational restructuring, resource mobilisation, mergers and acquisitions etc subject to the defined limits depending on the category of the PSUs. PSUs ave been categorised by the government in different groups like Maharatna, Navratna, Miniratna I amd Miniratna II depending on parameters like turnover, profits, dependence on government financial support.
In 2009, the government established the Maharatna status, which raises a company's investment ceiling from Rs 1,000 crore to Rs 5,000 crore. The Maharatna firms can now decide on investments of up to 15 per cent of their net worth in a project; the Navaratna companies could invest up to Rs 1,000 crore without explicit government approval.
Navratna was the title given originally to nine Public Sector Enterprises (PSEs), identified by the Government of India in 1997 as having comparative advantages, which allowed them greater autonomy to compete in the global market. The number of PSEs having Navratna status has been raised to 15. The government is likely to accord the coveted status to Mishra Dhatu Nigam Limited, which is under consideration.
In addition, the government created another category called Miniratna. Miniratnas can also enter into joint ventures, set subsidiary companies and overseas offices but with certain conditions. In 2002, there were 61 government enterprises that were awarded Miniratna status. However, at present, there are 68 government enterprises that were awarded Miniratna status.
However, in spite of all the claims by the government having given more autonomy to the PSUs there is still a lot of bureaucratic interference and instructions by the related ministry in their day to day workings. When the chairman and managing director of a profit making Navratna PSU was asked how he has been able to manage a technology driven company in the power sector despite coming from a personnel background. He remarked ô80 per cent of our time in the office as CMD is consumed in managing the ministry and its officials. We look after the affairs of the company only 20 per cent of our available time. So it hardly matters who sits at top." This is indeed a fact that public sector management is based on strong systems and processes which has evolved over a period of time and things happen on its own. Individual charisma of the leadership sitting at top is not being utilised fully as it is being mainly sapped by the ministry and their vested interest. Their boards have become the resting ground for the retired bureaucrats.
The Road Ahead
As discussed above, there is no denying the fact that Public Sector Enterprises (PSEs) have taken the Indian economy to new heights and have demonstrated global competitiveness and market leadership. They are considered as being responsible for canvassing India's growth story and are veritably economic cornerstones. As highlighted earlier, the empowerment of these enterprises by the government has been a key enabler which has helped them in overcoming some of the operational constraints, critical for successful functioning of these organisations. However, much needs to be done to make them resurgent as detailed below:
• Government should limit their involvement in PSUs and start behaving like a promoter shareholders ensuring the reasonable return invested in such organisations. Board shall consist of eminent professionals having minimum representations from the government who may act like a change agent.
• Though performance based incentives within PSUs has been incorporated after the sixth pay commission, there is a need to strictly implement it. A sense of insecurity amongst the employees if they do not perform shall prevail to enhance their efficiency and hard work.
• PSUs shall be allowed to hire requisite manpower from open market especially at medium and top level. They shall conduct a training need assessment every three years in order to up-skill the existing manpower.
• Obligations and responsibilities that a PSU is required to undertake in terms of public services beyond the generally accepted norms should be clearly mandated by laws and regulations. General public shall me made aware of it and related costs should be covered in a transparent manner.
• More investments shall be done in R&D efforts, inhouse development of products and services with leadership involvement to remain globally competitive and productive.
• Decision making shall be more participative rather than Top - Down as has been the culture in PSUs and CMDs/directors shall be more accessible and down to earth rather than acting as a feudal lord.
Let us make public sector undertakings the temples of modern India in true sense with the capability to outperform other private players with the sole motive to accelerate the socio economic changes for the welfare of society which private sector has always exploited in the past.
Bharat Electronics India (BEL)
BEL produces electronic communication equipments such as HF/VHF communication transmitters and receivers, HF/VHF microwave radio relays and radars, electronic components needed mainly by defence services and also by the entertainment industry like radio, TV, etc. Towards the end of 2012, the company signed an agreement with Israel Aerospace Industries (IAI) for cooperation on future Long Range Surface to Air Missile (LRSAM) Ship-defence Systems.
Bharat Heavy Electricals (BHEL)
BHEL is the largest engineering and manufacturing enterprise in India in the energy-related or infrastructure sector. In early February 2012, the firm bagged a Rs 2,854 crore contract from Nabinagar Power Generation Company for supply of Steam Generator Package for three coal-fired thermal units of 660 MW each in Bihar.
Coal India (CIL)
Coal India (CIL) is the largest coal miner in the country and produces around 80 per cent of the total coal output in the country. Recently, the firm extended the deadline to supply coal to power producers under the MoU route till the end of March. The last deadline set by Coal India for the MoU-based coal supply had expired on January 31, and once again the company has extended the time as several companies, including NTPC, are yet to enter into FSAs with the coal PSU.
Engineers India (EIL)
Set up in 1965, Engineers India (EIL) mainly provides engineering and related technical services for petroleum refineries and other industrial projects. As part of its move to raise Rs 30,000 crore through disinvestment in 2012-13, the central government decided to reduce its stake in EIL from 80.40 per cent to 70.40 per cent.
State-run GAIL India is the largest gas transmission and marketing company in the country. Recently, the union cabinet approved the participation of GAIL in the $9 billion Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project. The 1,680 km-long pipeline project would be implemented by the four countries by forming a consortium.
Neyveli Lignite Corporation (NLC)
Neyveli Lignite Corporation (NLC) undertakes mining and processing of lignite, generation and distribution of power, manufacture of fertiliser, chemicals, etc.áThe state-run firm, which has an installed capacity of 2,740 MW installed power generation capacity, plans to raise it to 10,000 MW in the next 10 years. The current 2,740 MW capacity includes three thermal power stations in Neyveli, Tamil Nadu and 250 MW capacity located at Barsingsar in Rajasthan.
Incorporated in 1975, NHPC is a hydroelectric power generating company focusing on planning, development and implementation of an integrated and efficient network of hydroelectric projects in India. On February 1, 2013, the fourth unit of the company's (4 x 11 MW) Chutak hydro electric project was declared under commercial operation with the demonstration of peaking capability corresponding to installed capacity of 11 MW. It may be noted that the first, second and the third units of the project have been under commercial operation since November 29, 2012.
Incorporated in 1958, state-run NMDC is engaged in the exploration of a range of minerals including iron ore, copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond, tin, tungsten, graphite, and beach sands. The firm produced 13.3 per cent less iron ore during the April-December 2012 at 175.56 lakh tonne from 202.79 lakh tonne produced in the year ago period. The sales of the firm declined 13.47 per cent during the same period.
Set up in 1975, NTPC is the largest power generating company in India both in terms of installed capacity and generated output. On January 29, 2013, it signed a $250 million loan agreement with State Bank of India (SBI), New York branch and Mizuho Corporate Bank, Singapore branch in order to finance its capital expenditure for procurement of goods as well as services for the company's ongoing as well as new projects.
Power Finance Corporation (PFC)
The non-banking finance company funds power projects in order to promote integrated development of the power and associated sectors. The central government, which holds 73.72 per cent stake in the company, received Rs 792 crore or 60 per cent on the equity share capital as interim dividend for 2012-13.
Power Grid Corporation of India (PGCIL)
The state-run transmission firm owns and operates over 95 per cent of the country's interstate and inter-regional electric power transmission system. It incurred capital expenditure of Rs 12,908 crore between April 1, 2012 and January 07, 2013 as against Rs 8,834 crore in the year-ago period. The firm's total outstanding borrowing as on January 07, 2013 stood at Rs 63,356.15 crore as compared to Rs 53,401.91 crore as on March 31, 2012. Power Grid issued ten-year bonds worth $500 million in the foreign currency market with a coupon rate of 3.875 per cent per annum. This bond shall be listed in Singapore Stock Exchange, the firm said in a press release.
Rural Electrification Corporation (REC)
Rural Electrification Corporation (REC) is engaged in the financing and promotion of transmission, distribution and generation projects throughout India. REC Transmission Projects (RECTPCL), the wholly-owned subsidiary of REC, recently incorporated four project Specific Purpose Vehicles (SPVs), namely, Kudgi Transmission for transmission system required for evacuation of power from Kudgi TPS (3x800 MW in Phase-I) of NTPC, Nellore Transmission for transmission System for connectivity for NCC Power Projects (1,320 MW), Unchahar Transmission for ATS of Unchahar TPS-Fatehpur 400kV D/C line, and Baira Siul Sarna Transmission for Baira Siul HEP - Sarna 220kV D/C line.
SJVN is the largest operational hydroelectric power generation facility in India based on installed capacity, with an aggregate generation capacity of 1,500 MW. The company would jointly set up a 2 X 660 MW super critical power project at Chausa in joint venture with Bihar government.
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