PSU autonomy shouldnt mean abdication of duty

Written by YRK Reddy | Updated: Dec 24 2005, 06:00am hrs
Pursuit of autonomy without caution can end in abdication of public duty. The demand for greater autonomy for public sector undertakings (PSUs) arises from well recorded adverse experiences with the administrative ministries, Central Vigilance Commission (CVC) and the Comptroller & Auditor General (CAG). It is indeed a time-worn observation that ministers and officials in the administrative ministry get into petty operational issues and the chairman and the board function as if they are accountable to the ministry alone than to the entire body of shareholders. Nearly half of their mental space and time is consumed by this mistaken accountability and this, indeed, is an intangible loss to the company.

The inability to restructure and reform this relationship has led to the argument by multilateral organisations and enthusiasts of market economies that public enterprises are no different from family- dominated businesses in hijacking control over management to the detriment of other shareholders. The logic for privatisation arises mainly from the inability of the government to improve its standards of relationships by ring-fencing the ministers and officials with adequate and transparent firewalls and disclosure mechanism. This, indeed, is no rocket science, as several countries have already achieved this.

There has been much debate on how to take PSUs, including the banks, away from the tyranny of the CVC. Employees of public enterprises are deemed public servants in all countries, and India is no exception. They are covered by the relevant anti-corruption laws and agencies. The CVC had taken a commendable and anticipatory initiative some months ago to form a committee under the chairmanship of Arvind Pande, to examine and recommend methods by which the vigilance system can be reformed. This committee, of which I had the privilege of being a member, had made suggestions for re-engineering the superintendence by the CVC in such a way that it becomes a standard setter with direct jurisdiction over the board and the top management alone.

The suggestions include the process through which the parliamentary system is prevented from being misused to initiate malicious vigilance proceedings. It would be appropriate for the government to work further on these, to attain the balance by which PSUs are not stifled for fear of vigilance cases. And at the same time, the CVC continues to fulfil its duty.

Government must ensure PSUs are not stifled for fear of vigilance cases
Many countries have re-engineered the scope and methods of state auditors
Its been done by setting norms, quality testing, etc. with those they supervise
The cudgels against CAG are that its audit is duplication of work already carried out by the statutory auditor and that it gets into evaluating commercial decisions for which it is ill-equipped. All state-owned enterprises in all countries come under the purview of the government auditor. However, many countries have re-engineered the scope and methods, by limiting themselves to setting standards, quality testing, building capacity, outsourcing specialised work and adopting a partnership approach with those they supervise to achieve common goals. The International Organisation of Supreme Auditing Institutions, the global organisation of such auditing agencies, would be a good source for learning the reforms made in other countries.

Many ignore the fact that the objectives of statutory auditors are different from those of CAG. Statutory auditors give an audit report and an opinion on the financial statements of the managementthey do not certify the authenticity of the accounts or transactions or efficiency or probity. On the other hand, CAGs involvement arises by virtue of the public funds involved. It has to examine the duty of care in the application of public resources and aspects of probity. Delays in approving the accounts and other bureaucratic problems can be resolved by re-engineering the processes and methods adopted so as to attain the balance between the public duty expected from the CAG, as per the Constitution, and reducing repetitive audits, comments on petty issues and delays in completion of accounts and reports to the shareholders.

In these reforms, the capacities of the superintendent agencies are a critical element. Unfortunately, they have neither competition nor a market mechanism to discipline them. Often, their competencies fall well short of those they supervise. Thus, they tend to get accused of archaic methods, heavy load of bureaucracy, pettiness, and loss of motivational capital that can burden PSUs unduly. The rational and viable middle path is to reform these agencies to meet the public policy requirements adequately.