Need to review policy on public sector

Updated: Feb 11 2002, 05:30am hrs
The government did well to open up the infrastructure to private enterprises, which, however, have not been able to contribute much. In fact, low foreign direct investment in India is attributed to inadequate infrastructure. In this vital area, the public sector has remained the sheet anchor. There is, therefore, a strong need for encouraging and strengthening public enterprises, particularly those in the infrastructure sector. In the light of the recent slowdown, it is certainly not the most propitious time to dispose of highly valuable assets. I would suggest that the situation does call for review of the policy on public sector.

With regard to divestment, it is not clear which PSUs would be put on the block next and what modes would be applied. Since the process will go on for long, it will be very productive if the government were to evolve a road-map defining priorities and the rationale of diverse modes for different categories of enterprises. This will help remove the climate of uncertainty and strengthen the hands of the management of PSEs.

While the government is expecting around Rs 15,000 crore a year through divestment, over Rs 1,00,000 crore is locked up in non-performing assets (NPAs). These have not only affected the working of public FIs and banks, but have eroded the liquidity available to the performing corporates in the public and private sectors. Yet, those responsible for the NPAs are the most vocal advocates of disinvestment. The situation needs to be corrected.

It is rightly demanded of the public sector that it must perform in the competitive environment. It should cease to have the support, if at all, of administered prices. To be able to operate successfully, it is essential that there is a level playing field. The three areas in which a level playing field can be created are: corporate governance in letter and spirit; phased withdrawal of administered prices and subsidies; and, liberalisation of the fixation of compensation to PSE managers .

The key to better performance in PSEs is freedom to perform. Board managed PSEs will not only be able to actualise their latent capacity to be globally competitive, these could be a source of tremendous financial strength to the exchequer. There is a drain of intellectual capital from the public sector, via VRS or otherwise, because of much more attractive remuneration offered by domestic and multinational corporates. There is need for adequate levels of remuneration for equivalent performance in PSEs.

VRS is becoming a common instrument of rightsizing in both public and private sectors. We should empower PSEs to adopt the best-suited schemes according to their respective needs. In view of the changed conditions, it is necessary to raise the long-standing tax exemption limit to Rs 10 lakh. Also, separated and retired employees invest their money in bank saving schemes. It would be desirable to provide a better rate of interest on savings in such cases.

Lastly, about 70 enterprises were referred in the early 1990s to BIFR. Only a few have been restructured. Many sick and closed units, most of which are those taken-over from the private sector as sick units, have been a drain on the exchequer. These cases on top priority rather than focus on highly performing PSEs.

(The writer is Chairman, SCOPE)