The Draupadi Syndrome

THE United Front Government will help to make the public sector strong and competitive...Public sector enterprises...should conduct their business on commercial lines...They should show a healthy return on the capital employed. "—The Common Minimum Programme. India's gigantic public sector, which came into existence in the post-independence era of Nehruvian socialism, is today clearly at the crossroads. What began almost 50 years ago with massive investments when the prevailing philosophy of the government was that the State should control the commanding heights of the economy, has today become a haven for complacency, inefficiency and low productivity with India's overnight change from socialism to free-market economy.

No one in the early 1950s would possibly have disagreed with the noble aims and objectives of setting up the public sector: to build a strong core State sector, social service, upliftment of the standards of living along with an improvement in the status of the economy. But the dream has long soured. There are 246 Central government public sector undertakings (PSUs)—including six under construction—which represent an investment of over Rs 1,60,000 crore. Of these, over 104 are sick (over 42 per cent), and out of these, 56 have been deemed "chronically sick" and are under the purview of the Board for Industrial and Financial Reconstruction (BIFR).

It is not that the PSUS never performed. In the early decades of independent India's development, the public sector did play a prominent and pioneering role in the economy and continues to be an extremely important component of the Indian industry. In 1993-94 (latest figures available), Central government PSUS had gross sales of Rs 158,192 crore, or around 16 per cent of the country's GDP. But somewhere along the line, vindicating Murphy at every step, everything that could go wrong went wrong.

According to the latest Public Enterprise Survey (1993-94), only about 120 of the 246 (220 in operation) PSUS made profits while the rest were either making losses or were sick. Three PSUS just about broke even. The growth in PSU sales has also slowed over the years and has come down from 13.89 per cent in 1989-90 to only about 7.42 per cent in 1993-94. The percentage of sales to total capital employed too declined from 125.14 per cent in 1989-90 to 105.11 per cent in 1992-93 and further down to 99.30 per cent in 1993-92. The situation after that is no better despite a marked improvement in the overall performance of industry.

However, there remains a school of thought that PSUS running up losses is no big deal. Says a technocrat from a leading PSU:"The decision to set up large PSUS was not totally economical and a large part of this decision was influenced by social obligation and other factors like employment, core sector development, building up indigenous industry and balanced growth. Profit-making was perhaps nowhere in the horizon. The PSUS were seen by the government as an institution to channelise investment for future returns."

The question then is why are the PSUS in such a shoddy state when they should have improved with the improvement in the economy? Many point towards stringent labour laws and the lack of freedom to reduce staff which bred complacency and in turn inefficiency. But surely, there is more to this than just labour laws. Says career bureaucrat N. Vittal, currently chairman, Public Enterprise Selection Board (PESB): "Our PSUS are 'organisa-tional Draupadis'. There are far too many masters to dance attention to. These include the Board of Directors of the PSUS, the administrative Ministry, the Department of Public Enterprises, and of course, the PESB as the body that selects the chief executives and the full-time directors. The Bible says that one man cannot serve two masters and here we are trying to force our units to serve and please many many masters over the years." 

And these masters have clearly not done their bit for these Draupadis because as of today, there are at least 37 PSUS which do not have a chief executive officer and at least 56 PSUS which do not have one or more full-time directors on their board. This apart, the Government's efforts in putting in place an exit policy and a voluntary retirement scheme have resulted in a catch-22 situation: the best talent have left, while the more complacent have stayed behind. "Since you can't sack anyone in a PSU," says Vittal, "it has to be done in some other way. Give the excess employees something like a privy purse, and ask them not to come to work. Alternatively, reverse the retirement scheme, so that the management can select the beneficiaries and prevent competent people from leaving."

 Similarly, the Government's bid to privatise the PSUS through disinvestment have not yet yielded the desired results. While in the initial year (1991-92), the Government realised more than what it had targeted through disinvestment—Rs 3,038 crore against a target of Rs 2,500 crore—in 1992-93, against a target of Rs 3,500 crore, the realisation was only of Rs 1,912 crore. In the five years since 1991, the Government realised about Rs 9,743 crore against the target of Rs 13,500 crore.

The bane of the Indian public sector, clearly, has been the Drau-padi syndrome: backseat driving by various ministries and interested politicians, and the preponderance of objectives other than commercial ones. Says Communist Party of India General Secretary A.B. Bardhan: "Some of the PSUS that are now sick were not set up by the Government, but were taken over in a sick state, in order to save people from unemployment. The biggest example of this is probably the Indian Iron and Steel Company (IISCO) which is fight-ing a losing battle for many years and, of course ,the classic case of the National Textiles Corporation (NTC). The second type of PSUS are those which were set up with an avowed objective of not running them as commercial ventures but as a social service." How can one expect profits from State Electricity Boards which are forced to supply electricity to the agriculture sector for as low as 37 paise per unit or even free against a normal rate of one rupee a unit, he asks.

However the situation is quite different from what the objectives were, he says. Most of the PSUS are today highly bureaucratised and under the direct thumb of the administrative ministries. "There is no shred of autonomy for these units to function and any sarkari babu can contribute to deciding the fate of such large organisa-tions," he says. Bardhan, like several others, complains that instead of putting professionals at the helm of affairs, the Government has repeatedly placed the "jacks of all trades" IAS officers on top of the PSUS, who with their lack of sufficient technical and management expertise, have taken these units to such dismal depths.

Today, there are plenty of PSUS which have not only not performed according to expectations but have become classic cases of corruption, complacency and misuse of funds and resources. Take for example the case of Haldia Fertilisers, which was commissioned in 1979 at the cost of Rs 600 crore with a capacity to produce 1.5 million tonnes per annum of urea apart from other products. Even senior officials of the fertiliser ministry enjoy pointing out that "not an ounce of fertiliser was produced at Haldia". The problem: in an unholy haste to cut costs, incompatible parts were used, leading to design anarchy so serious that rejuvenation will entail near-total reconstruction. The Government has till date set up nine committees to suggest solutions. A few years ago, claim insiders, a revival package of around Rs 70 crore was worked out, but the Government has refused to approve it.

The case of NTC has also gracefully illustrated the ills of sick industry and the Government's apathy towards it. But probably the more recent case of the National Fertilisers Limited, which apparently paid a sum of Rs 133 crore for urea imports without getting even one sackful of urea, takes the cake.

And the worst possible thing for PSUS was 'India's overnight transition from closed neo-socialism to free market economy with the advent of modern thinkers in the Government', as a senior bureaucrat puts it. While this has helped the private sector to improve tremendously and allowed the consumer to have the best of both worlds, its poor cousin—the PSUS—have been left in the lurch as the benefits passed on to the private sector or transnational corporations were never offered to them. "Why can't the PSUS compete commercially with TNCs and private sector in key areas in India? Today a profitable Bharat Heavy Electricals Limited (BHEL) has to compete and make profits outside India as the conditions within the country are not at all conducive to its functioning, and the Government is doing nothing about it," says a top official from the Standing Committee of Public Enterprises (SCOPE). He says that while a lot is being offered to the private sector and TNCs, the PSUS are being unfairly denied a level playing field.

But what then is the solution to bring these big boys of Indian industry back on the rails? According to Vittal, there should be a stringent code of conduct, much in the line of what T.N. Seshan put in for the election process. At the same time, three things have to be done: remove the leadership vacuum in PSUS and fill vacancies with professionals; stop interference from administrative ministries and the Government and induce accountability which would prevent misuse of resources—widely prevalent now.

Sure, but how does one do all that? The much touted Common Minimum Programme (CMP) of the United Front Government, announced with much fanfare recently, talks about growth with social justice along with self-reliance. It promises to make the public sector strong and competitive and in a departure from their social bit, the CMP pronounces that PSUS, being essentially commercial enterprises, would have to conduct their business on business lines and show a healthy return on capital employed, which, at present, is abysmally low.

While the new Government seems to have woken up to the problem and has made a lot of promises in its CMP and even otherwise, it is likely that nothing will happen till the policy-makers take a strong stand and remove sickness from its roots. That is, separate politics from business.