The Indian public sector is proving to be a case study the world over for its competitive position and performance. It has shown itself to be an effective means to attain higher growth, spur planned development and generate wealth for the government and people. However, there are some lessons to learn from China that came to light during a recent interaction between a Chinese delegation headed by Huang Shuhe, vice-chairman, State Owned Assets Supervision and Administration Commission and the Indian CEOs, executives and directors of the member enterprises of Standing Conference of Public Enterprises (Scope).
China started its reforms process nearly a decade before India. Today, Chinese state owned enterprises (SOEs) have autonomy and are run on market economy principles. They have done well, and no SOE is expected to be running losses by the end of 2007.
For the better functioning of its central SOEs, it has separated ownership from management. The government?s overarching policy for industry is to provide a level playing field to both the public and private sectors. At SOEs, boards take the key decisions and the management is responsible for execution.
The way Indian PSEs are managed needs to change. This is not a new proposition. Jawaharlal Nehru, in his speech for the Second Five Year Plan in May 1956, had said, ?The way a government functions is not exactly the way that business houses and enterprises normally function. A government rightly has all kinds of checks, as it deals with public money. Usually, it has time to apply these checks. But when one deals with a plant and an enterprise where quick decisions are necessary, which may make a difference between success and failure, the way a government functions is not sometimes suitable. I have no doubt that the normal governmental procedure applied to a public enterprise of this kind will lead to the failure of that public enterprise. Therefore, we have to evolve a system for working public enterprises where, on the one hand, there are adequate checks and protections, and on the other, enough freedom for that enterprise to work quickly and without delay. Ultimately, it has to be judged by the results, though one cannot judge a government by financial results alone. In judging a big enterprise, one has to judge by the final results.?
Scope has also advocated that the government needs to separate its role of regulator from that of promoter-owner. The government?s own ad hoc group of experts, under Arjun Sengupta?s chairmanship, had recommended an arm?s-length relationship between the government and management. It suggested that, ?Navratnas and miniratnas and other profit making companies should continue to be supervised by the three tier system, namely, the ministry concerned representing the government, the board of directors, and the management, with the role, powers and functions of each clearly defined and codified.?
The present government sees the need of separating ownership and management. Prime Minister Manmohan Singh, in his inaugural address at the Conference of Chief Executives of Public Sector Enterprises, organised by Scope and DPE in March 2007, had said, ?Our commitment towards a stronger and vibrant public sector means we are committed to empowering the management of PSEs with full managerial and functional autonomy.? Further, the PM said, ?It is wrong to assume that entrepreneurship is to be found only in the private sector. Public enterprises too can and must foster entrepreneurship. But this requires an environment that encourages risk taking, empowers professionalism and offers adequate freedom to the chief executive and his or her senior management to take quick and difficult decisions. Excessive regulation restricts entrepreneurial drive and makes management risk averse. That is not the way to go forward in the fast changing world full of uncertainty.?
China has made a success of its SOEs with its autonomy model. India must do likewise.
?The author is a senior functionary with Standing Conference of Public Enterprises. These are his personal views
