"PSEs should just do business. Govt takes care of social welfare"

jasleen

Jasleen Kaur | June 11, 2014


OP Rawat, secretary, department of public enterprises
Arun Kumar

Public sector enterprises (PSEs) were set up as instruments of self-reliant economic growth. Over the years, they have laid a strong foundation for industrial development of the country. But the sector is often seen as concerned less with profit-making and more with playing a key role in nation-building.

In an interview with Jasleen Kaur, OP Rawat, secretary of the department of public enterprises (DPE), which acts as the nodal agency for all PSEs, talks about the challenges the sector is facing today and the reforms it is undergoing to emerge as a winner. Rawat, an IAS officer [Madhya Pradesh cadre, 1977], was appointed as the DPE secretary in April 2012.

Edited excerpts from the interview:

Public sector enterprises (PSEs) were driven by socialist goals, but post-liberalisation, they have been forced to compete in the market. How do you reconcile your social obligations with the pursuit of profit?

In our country, even the gods are divided. The creator is a different god, Brahma, the nurturer is Vishnu and the destroyer is Shiva. Assuming that one person should be at the same time a creator, a nurturer and destroyer is really flawed. Similarly, the thought that someone who is in the business of earning profits will be engaged in social welfare, is flawed.

During the 1990s, opening up the public sector for competition resulted in their multiplying growth and profits. It rose dramatically. In the late 1980s, the total turnover of PSEs was around '42,000 crore; it is '18 lakh crore today. They did not even suffer due to the global recession of 2008. They were continuously making profits and growing at a healthy rate of 20 percent. Their profit was rising by 10 per cent year after year and they were hiring people as well, unlike the private sector.

PSEs provide a huge amount of money to the government as dividend and taxes every year. This contribution has been about '20 lakh crore in the last 20 years. In one year they pay about '1.75 lakh crore. This is used by the government for social causes. That’s the best way because the government uses that money for social welfare. PSEs should just do their business.

They should project themselves as model business in terms of compliance to the laws, environmental and employee issues, so that the private sector can take a cue from them.

Does this expectation of social obligation act as a hurdle for PSEs?     
It is acting as a hurdle because of lack of mature understanding between all the stakeholders. Lack of understanding on certain issues creates problems and that is what we see today. Like in CSR (corporate social responsibility), there is a lot of confusion. The government should make people aware of these concepts comprehensively. And then public sector can conveniently perform single-mindedly without having to face pressure from all corners.
 
Do you think PSEs have a clear understanding of the new rules of CSR? Should they do much more than mandatory guidelines?
CSR is a part of their mainstream business, and whatever difficulties they face in their mainstream business they face in CSR as well. We issued the CSR guidelines in December 2012 but the understanding has still not sunk in after so much effort. CSR should be integral to business, else it would not yield the desired results.

Many PSUs are not performing as efficiently as their counterparts in the private sector. Is there a scope to enhance financial management of the public sector companies so that their performance can come closer or surpass that of private firms?
This impression is very subjective. Out of 9 lakh private companies registered in our country, only 15,000 have been identified by the Indian Institute of Corporate Affairs as fulfilling the CSR criteria – that is, making a net profit of '5 crore or more during a financial year. On the other hand, almost 200 out of 268 PSEs qualify for CSR.
It is a wrong impression that the public sector is performing less than the private sector in any manner. The West has also realised that privatising wholesale is wrong. They are now looking at the public sectors of China, Brazil and India to bring in state-owned enterprises, or state capitalism, to have a stabilising factor in their own economies.
The public sector (in our country) has been healthy but it does not mean that it cannot improve. There is an enormous scope of improvement and a lot many things need to be done so that they can perform much better.   

There is this understanding that socialist ideas and free market cannot co-exist. What do you think?
Socialism no longer exists anywhere – even China has privatised businesses and are following what the West did. It has been proven now that the democratic form is the best form of governance. For creation and distribution of wealth, capitalism is the best form of the system.

But the best does not mean (it is) the ideal – we can still improve these systems. If we do not improve the inefficiencies then the stakeholders may have to devise something else.

Therefore, the responsibility for improving the democratic form of governance rests on people who  benefit from it. They should ensure that we reform the system so as to bring them near an ideal system.

Prime minister Manmohan Singh has mentioned that the government has encouraged the PSUs to adopt a robust and transparent performance management system (PMS). Do you think the government should get tough on PSU performance?
A lot of models are evolving but at present there is nothing ideal. We are continuously working so that we have a robust PMS. PSUs have a lot of accountability centres where they have to answer and therefore they refrain from any wrongdoing.
 
Does accountability to too many bosses acts as an obstacle in the decision-making process of the CPSEs?
There are both sides to it. ‘Too much’ accountability has ensured that there is absolutely no scandal which private sector firms, like Satyam, have faced. On the other hand, when problems created by vested interests in any of these fora (CVC, CAG and other agencies) retard the decision-making process in the public sector, it may affect their functioning, profits and turnover.

When you create a system, there will be some problems somewhere but you should continue to endeavour to resolve those problems and (ensure you) do not discard the system itself.

We are bringing in a lot of reforms, like the reconstitution of the SK Roongta committee and the constitution of a group of ministers which gave their recommendations that have been sent to the cabinet for final approval. We are trying to reform the system so that the public sector system works with autonomy. This kind of impression will always continue because of the system of checks and balances. But people have to change their perception, that it is healthy to ensure due diligence before taking decisions and perform with the desired accountability. One or two good decisions might be blocked. But as is (true) about our judicial system, you have to ensure that no innocent is punished.

The PM has also talked about de-bureaucratising the public sector. Do you think that is possible?
It’s a very big call. Administrative ministries should be concerned with only the policy matter of that sector. But handling policy alone does not give you any authority and that is where the problem lies. Even the legislature realised that just making laws does not help them. They have brought in the local area development fund for themselves so that they can also appear to be implementing development policies. Hence, if you have administrative ministries controlling the public sector then you are inviting bureaucratisation of the public sector. It is inbuilt in the system now.
The PM is right that de-bureaucratising may help. But on the other hand, in a country like ours where morality, diversity, poor and rich coexist, you have to live with this because the public sector has to employ scheduled castes, scheduled tribes, OBCs and minorities for inclusive development. Also, they have to appear as a model employer, which the PM has been saying that even the private sector should follow but nothing much has been done (on that front). We tried it in Madhya Pradesh, where Tata International recruited hundreds of SCs/STs, OBCs and minority girls, trained them and gave them jobs.

The public sector is following it efficiently because they (companies) are under government control. In that context, it becomes necessary that they have to have some sort of bureaucratisation.

There is a general feeling that political leaders interfere in working of PSUs, for example, by placing their favourite candidates in these companies. What do you have to say about that?

I don’t agree with that proposition because the appointment of CMDs is done by the public enterprises selection board (PESB), and it is done in a very fair and objective manner. Generally their recommendations are accepted. Only in a few cases, because of different reasons, they are not accepted. And in some cases it may be a political rejection of a recommended candidate. However, no political appointee can infiltrate (the system). But yes, there is a need to give them (PESB) a more robust status. The PESB chairman has proposed that there should be an Act so that the board becomes a statutory body like UPSC and we have supported it.     

What would be that one measure you would suggest for sound practices leading to better corporate governance, so critical in today’s competitive environment?

For the public sector, the most important thing is that the companies should continue to look into all systems and wherever they find any problem they should bring it to the notice of the department and the administrative ministry concerned. The environment of business is changing very fast now and we should keep analysing it continuously.

(This interview appeared in December 16-31, 2014 print issue)

 

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