Profit, not turnover to decide stable terms: Govt to tell 100 PSU chiefs

Written by Priyadarshi Siddhanta | New Delhi | Updated: Aug 5 2014, 13:46pm hrs
PSUsThe plan also entails slashing a number of other public sector units by merging them with the viable ones or closing them, eventually. Reuters
The terms of the chiefs of top 100 public sector corporations will be based on their record of showing profits instead of just expanding their turnover, according to a plan drafted by the government.

The plan also entails slashing a number of other public sector units by merging them with the viable ones or closing them, eventually.

The Prime Ministers Office has instructed the 25 ministries across which these 100 companies are located to send details of their performance under the current chief executives.

The re-organisation of the public sector space is meant to make them operate on a scale where they can take on global competition effectively.

The ministries have been asked to show whether the chiefs have only expanded the top line of these companies without any commensurate rise in their bottom lines. The exercise will draw out the performance of those CEOs who have expanded the turnover of their companies without a significant rise in profits, said a source connected with the exercise.

In view of the urgency of the exercise, the ministries were asked to furnish their replies by July 31 to the letter which was dispatched on July 25. The analysis will also decide if companies should be graded mainly on their turnover or of progressive autonomy the government has given the boardrooms of these state-run companies.

Currently, for a Navratna status, companies are scored on a scale of 100. A company gets the status if it scores 60 in the exercise. To reach it a company chief can either stress profits or turnover since both enjoy equal scores. This is likely to change.

The ministries have also been asked to provide the domain knowledge and academic background of the chiefs including whether the person was recruited from a government department or from the private sector.

Finance minister Arun Jaitley, too, has recently asked for comments from ministries about which PSUs can be closed or divested in.

He has also said the companies should start investing their cash reserves that as per their balance sheet of 2012-13 is about Rs 3,00,000 crore. A Crisil study has shown that as on 31, 2014, the top 20 state-run companies were sitting on about Rs 1,60,000 crore.

But the PMO exercise is a larger one to rework the public sector framework, a source connected with it said. The details will also include stuff like how long have the companies been functioning without a full time chief and the reasons for it. Correspondingly it also asks for names of those CEOs who hold more than one charge.

The department of public enterprises has often argued that CEOs on temporary charge avoid taking crucial decisions for fear of being questioned. Also, as they have limited financial powers they are hamstrung in taking investment decisions.

The PMO has also asked the ministries to also highlight the issues and challenges in their respective PSUs and the available scope to enhance their strengths.

As per the ranking of these companies by the government in terms of their profitability vis-a-vis turnover, Indian Oil Corporation has bagged the first position, while Metallurgical Consultants Limited (MECON) under the steel ministry has been ranked at the bottom.

State-run gas supplier GAIL has been ranked at 89th position, Indian Railway Catering and Tourism Corporation under the railway ministry at 93rd rank and consultancy services company RITES at 91st position.

Performance-linked

The re-organisation of the public sector space is meant to make them operate on a scale where they can take on global competition effectively

The plan also entails slashing a number of other public sector units by merging them with the viable ones or closing them, eventually

The ministries have been asked to show whether the chiefs have only expanded the top line of these companies without any commensurate rise in their bottom lines

The analysis will also decide if companies should be graded mainly on their turnover or of progressive autonomy the government has given the boardrooms of these state-run companies