Creating efficient enterprises

Written by Noor Mohammad | Updated: May 21 2014, 14:00pm hrs
The role of central public sector enterprises (CPSEs) may have shrunk in the economy in the liberalisation era, however, they still form the backbone of sectors like oil & gas, mining, power and steel. Their investments are also growing at a decent rate. CPSEs, for example, reported a 17% growth in their investment in 2012-13.

What is needed to boost their economic role is to delegate more functional autonomy to these entities so that they could compete with private and multinational players on an equal footing in India and abroad.

Fortunately for the NDA, which is set to form government at the Centre next week, the blueprint for further public sector reforms is already in place. The Roongta committee, which was set up by the Centre in 2010, had given its recommendations last year. Besides, some of the recommendations of the Arjun Sengupta committee, such as allowing CPSE autonomy to raise equity from the market without government approval, which appeared a bit radical at the time when the report came in 2004, now merit consideration.

UD Choubey, director general, Standing Conference of Public Enterprises ( Scope) feels, There is a need to completely restructure CPSEs by giving them autonomy, integrated with accountability, to ensure an efficient decision-making process.

The Roongta panel has stated that having a business development committeein addition to the audit, human resources and remuneration committeewould help strategise and evaluate business development proposals and guide a companys diversification, acquisition, JVs, new business entry, the review of organisational structure, etc.

The committee also recommended that the Comptroller and Auditor General of India (CAG) publish an annual report on the best practices in different CPSEs, as observed by it in the process of doing the oversight functions, to be shared with other CPSEs. This, according to the Confederation of Indian Industry,is expected to not only help CPSEs learn from each other and improve their performance, but also create a positive mindset around the role of the CAG among them.

The Roongta committee recommended that at least 30 additional CPSEs be listed in the next three years. Additionally, where there is a specific need to enter a partnership in line with the boards approved strategy, an in principle clearance should be taken from the administrative ministry.

To reduce government intervention, the panel suggested segregation of the government nominees role on the board from his position in the GoI. This would empower the government nominee to suggest perspectives in line with other independent directors without prejudice. Any official views of the government could be conveyed to the board during board meetings. This ensures that government views are taken into consideration along with the other stakeholders.

The panel recommended increased autonomy for CPSE boards in the selection of consultants, vendors with proprietary technologies, technology partners, joint venture partners and acquisition of companies. It is necessary to give CPSEs more flexible selection/search processes and the provision to negotiate settlements. However, such autonomy will bear fruit only when managements are provided with clear guidelines.

The committee further observed that the CPSEs have little say in board composition. Boards often lack domain knowledge, and there are delays in appointments. The report suggested that the department of public enterprise/public enterprise selection board (PESB) should formulate a panel of approved names from where independent directors can be selected.

This panel of directors should be updated every six months. Apart from administrative ministries, CPSE boards should be allowed to suggest names of independent directors to the panel. The nomination committee should identify knowledge gaps in the board and recommend candidates from the approved panel. The Central Vigilance Commission should examine the database of directors/personnel and make vigilance clearances to them available online.

The committee recommended that a separate body should be constituted within the PSEB specifically for the selection of CMDs/CEOs of Maharatna and Navratna CPSEs.

In addition, a vigilant framework should be developed in discussion with the CVC. However, internal vigilance clearance should not be the responsibility of the central vigilance officers (CVOs) of CPSEs. Instead of assigning CVOs on short-term deputation, the CVC should maintain a panel of CPSE executives--at the level of executive directors/directorswho could be evaluated for the positions of CVOs in CPSEs.