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Strengthening the Public Sector in India

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O P Rawat
Secretary, Department of Public Enterprises,
Ministry of Heavy Industries & Public Enterprises,
Government of India

“The Department of Public Enterprises sees the public sector becoming the prime mover in the industrial and social development of the country,”

The Public Sector Enterprises (PSEs) in the country have on the whole been performing well. But there are issues regarding the performance of some of the PSEs. What is the mandate or vision of the Department of Public Enterprises (DPE)? In what ways is DPE contributing to the better management of PSEs?
DPE has been set up to ensure uniformity across the Central Public Undertakings in areas like corporate governance guidelines, target settings, performance related pay, CSR, and reforms. This department serves as a catalyst for improving the performance of Public Sector Enterprises. It helps in evolving policies, reform programmes, guidelines and other mechanisms for establish- ment of a strong and effective public sector. The Department of Public Enterprises sees the public sector becoming the prime mover in the industrial and social development of the country. In order to enable our PSEs to achieve that kind of success we are coming up with initiatives that will help them to transform and reform. Over the years, the DPE has taking many new initiatives for improving the management of the Public Sector through a process of professionalising management, goal set- ting, reviewing performance and development of a comprehensive Management Information System (MIS). Considerable amount of work has also been done in the area of strengthening institutional mechanisms for revival of sick public sector units.

The requirement of the market place can change abruptly; even the most well managed companies are at times caught unawares by the vagaries of the market place. How do you ensure that the public sector guidelines on corporate governance, targets and other aspects are in sync with what is happening in the market?
We have in place a system for constantly reviewing all guidelines to bring them in sync with the current requirements in the market. The PSEs are a major contributor to the growth that we are currently witnessing in the Indian economy. The policies and guidelines that we come up with are designed to bring seminal improvements in the competitiveness of the Public Sector.

Give us an overview of your plans for strengthening, re-organising and restructuring of the PSEs?
There is maximum amount of autonomy given to the PSEs for managing their operations. The areas of modernisation, re-organisation and other related aspects are being taken care of by the administrative departments of the concerned Public Sector Enterprises. The role played by the Department of Public Enter- prises is limited to target setting, evaluating the performance on the basis of those targets, providing incentives and disincentives on the basis of performance and for coming up with a broad range of regulatory guidelines. We are focussed on enabling the Public Sector to come up with strategies that can lead to improvement in capacity utilisation, increase profitability, generate resources and lead to the organisations becoming more efficient and competitive. The DPE also serves as an interface between the Public Sector and vari- ous government agencies and develops systems for long-term policy formulation. To make the operations competitive and viable on a long term and sustainable basis, the department also encourages restructuring of PSEs.

You spoke about giving incentives  and disincentives to the PSEs  based on their performance. Please elaborate on this.
The facility of performance related pay is  already there. If a PSE achieves its targets,  it receives excellent ratings, and the annual  appraisal report of the CMD is also excellent,  then he can get up to 200 percent of his basic  salary as Performance Related Pay or PRP. So  if the basic salary is `1 lakh per month, then  the same can go up to `3 lakh per month. The  company’s performance is calculated by taking    into account parameters such as financial performance, corporate social responsibility, R&D,    corporate governance and much else.

Disinvestment of government stake in PSEs always manages to raise a lot of conflicting opinions in the country. What is your view on the subject of selling government stake in PSEs?
It is not the idea of selling the stakes. In my opinion it is the idea of making them listed in the stock exchange. Unless a certain part of the company’s shareholding is there in the public domain, there will not be transparency to a large extent in the operations of the organisation. So it is primarily for getting the PSEs listed on the stock exchange, and thus bringing in more transparency, accountability and efficiency, that the policy of small disinvestments is being encouraged.

What are the guidelines for corporate governance that you have developed for sick PSEs?
We have published the corporate governance guidelines in a book form in the year 2010. Now again we have started reviewing the guidelines in context of the new Schedule VI of the Companies Bill. The guidelines are developed by the DPE after taking into account policies enacted by SEBI and other regulatory authorities.

How effective is the corporate governance policy in the PSEs? Are the standards of corporate governance that we have in the PSEs at par with what we have in the well managed private sector companies?
Absolutely. In fact, I would say that the corporate governance in PSEs is of much higher standard than what we have in other areas. In terms of peer review, all PSEs are impeccable in observing corporate governance. I would give them 10 out of 10 in the area of corporate governance. However, in absolute terms, there always exists enough scope for further improvement, more compliance and better mechanisms. We are constantly endeavouring to improve the systems that are in place in our Public Sector.

What about CSR activities of the PSEs? Many private companies that are highly profitable can afford CSR, but should we force PSEs to go into CSR? After all, many of our PSEs are not that profitable.
Corporate Social Responsibility (CSR) has been there for ages. Our private sector has been doing CSR for many decades. I personally feel that CSR is a very important aspect of any businesses or enterprises. It is the responsibility of the private companies to use part of their profits to bring further benefits to the society where they operate. You should not think that our public sector is very small or that the profits are very small. The fact is that our public sector has earned a profit of above `100,000 crore last year.

But there are also those PSEs that are in the red.
As I already said, the total profit of the PSEs stands at `100,000 crore, whereas the accumulated loss stands at around `35,000 crores. So on the whole there is a positive balance of `65,000 crore in the PSE sector. It is also a fact that the PSEs are making huge contributions to the national exchequer by way of dividends. So the total contribution of the PSU sector to the exchequer is in the tune of `150,000 crore. With these kind of profits, the PSEs must do CSR. For that we already have the guidelines in place.

What steps are you taking to turn around the sick PSEs?
The sick PSEs are those that have eroded their entire net worth. The DPE has taken several initiatives to ensure that these PSEs can be revived before their entire net worth is obliterated. When any PSE erodes 50 percent of its net worth, it gets referred to the Board of Reconstruction of Public Sector Enterprises (BRPSE). The BRPSE takes an overview of the entire scale of operations of the unit and then takes the necessary steps for the revival. I am happy to say that of more than 60 cases of sick PSUs referred, the BRPSE intervention has resulted in the revival of almost 17 or 18 of them. The latest case of revival are Konkan Railway and Hindustan Copper Limited. These two companies have been making profits continuously for the last two or three years. Once a loss making CPSE has made profits continuously for three years, it is termed as a ‘Turned-around CPSE.’

What would be the biggest success story when it comes to the revival of sick PSEs?
These would be the two names that I have already mentioned—Konkan Railway and Hindustan Copper Limited. These are very good companies that had started making losses due to some strategic issues. These have now been revived. The Konkan Railway has taken a very important initiative under which a truck can be carried to large distances on the rail, from Mumbai to Arunakualam. This is a very profitable method of transportation. Up to 30 to 40 trucks can be carried on one goods train. This method of transportation of trucks is making almost 25 percent of the revenues of Konkan Railway. It is a highly profitable enterprise.

Are you doing something to encourage the PSEs to make more usage of IT solutions for improving their efficiency?
Now it is well understood that IT and ICT are very useful for improving the efficiency of any organisation. PSEs are being encouraged to implement ICT so that their business process is more streamlined and transparent. In fact, within the DPE we are now focussing on making more use of ICT. We have asked National Informatics Centre (NIC) to create the  e-Office system, which is a paperless system.

By when will you be able to implement the e-Office system at DPE?
We have just received a presentation from NIC. They will soon be presenting us with an offer about the kind of e-Office that will be most suit- able for us. We will then evaluate the offer before giving them the go ahead for creating the e-Office solution. Once the work order has been issued it will take about six months for the project to be executed. There is a lot of work involved in bringing in the software and digitising the existing files and training the staff in use of the new system.

What are the biggest challenges that an organisation like DPE faces in reforming the Public Sector? What according to you are the solutions to these challenges?
The biggest challenge, to my mind, comes from the fast pace of modern society. All of a sudden the world has changed completely. The pace of change has been so abrupt that many individuals and even organisations are finding it difficult to keep up. What is good today, may be mediocre tomorrow – that is how fast we are moving. Therefore the guidelines under which the PSEs are structured have to be reviewed from time to time. The guidelines have to be geared to enable the public sector to meet the new challenges and keep growing in a changing market. We are also trying to revamp our CSR guidelines in order to improve their efficacy. The idea is to increase the visibility of the CSR projects and also ensure more benefits to society.

These days we have lot of negative news regarding Public Sector in our media. Do you think that media is generally unfair to the PSE space?
I would say that the media is media. The media feeds on information. It is the job of media to keep a watchful eye; they should report the facts as they are. Likewise, it is the job of government and private organisations to provide adequate information to the media. If such information is not provided, then that will give rise to rumours. If we want media to be fair to us, then we have to be proactive in coming forward and providing information. This is what we are telling all our PSEs. They have to reach out to the media and provide details of all their activities. They have to openly discuss the problems they are facing with the media. Once a problem is out in the open, a solution is easier to discover. This is a fact.

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