Bad move

Updated: Apr 20 2005, 05:30am hrs
The governments move to extend the purchase preference policy (PPP) for PSU suppliers is not a step forward in a liberalising economy. Especially since we are aspiring to become globally competitive and a manufacturing-led economy.

A couple of issues, if answered, will throw up the impact of the scheme. First, is it WTO-compliant Second, what has been the past experience of this scheme And, third, is this addressing the limited issue of reviving sick public sector units

Historically, PPP has resulted in reduced competition in global contracts, since private companies need to quote a price that is over 10% lower than the public sector bid, in order to win the contract. This is virtually impossible. So, this has encouraged public sector units to jack up their rates and become complacent.

How does one marry the political mandate to revive sick units and the goal to develop the manufacturing sector

One way is to ensure that only sick PSUs are eligible for PPP. And that, too, only where the value of the contract is less than

Rs 30-odd crore. This way, competition is ensured in the big deals.

The need of the hour is to bring out a study on the contracts awarded by public sector units, their competition scope and the winning price. Anything less will be detrimental to health of the consumer industries like power, etc.

Unless we ensure adequate competition, we cannot get to the next leveltransfer of technology/ processes, which will enable global competitiveness and self reliance.

If at all the government decides to allow PP for all PSUs, it must not exceed the 5% mark, down from the prevailing 10% level.

The writer is former CMD, NTPC