There are six key issues facing the public sector enterprises (PSEs) that require immediate reform, and incidentally, all are linked to governance. These are (i) ownership policy; (ii) autonomy of board; (iii) succession planning; (iv) capacity building; (v) minimizing/relinquishing control of the administrative ministries; and (vi) community relations. The micro issues are project clearances, environment and forest clearances, size of the board, risk management and the overall decision-making process, which are again linked to governance.
In the more than six decades of its existence, public sectors in India have witnessed two distinct phases: (i) Pre-; and (ii) Post-1991. The ?commanding heights? in pre-1991 became ?demanding height?, and ?temples of India? became ?Samples of India.’ In the post-1991 period, PSEs proved their mettle by increasing their profitability by over 50 times and turnover by more than 16 times. Their contribution to socio-economic development has been huge and unparalleled.
Reforms, particularly those needed to enhance the operational and functional efficiency and governance, could have bettered their performance. It is an irony that even after six decades, we do not have a well-documented ownership policy on PSEs. Under such a situation, PSEs are governed through passive ownership that exerts undue influence through politically motivated interference. PSEs as such have been reduced to extended arms of the administrative ministries. This dilutes the accountability of the owner and the board-driven PSEs. Therefore, the top priority in reforms should be to evolve a well-documented ownership policy that lays down the rationale for ownership, the role and responsibility that government seeks. This needs very wide consultations with all stakeholders and domain experts.
PSEs are ?State? in terms of Article 12 of the Constitution. Being defined as ?State?, they are subject to the same requirements as applicable to a government department and hence are required to be complying with parliamentary accountability, MOU system, performance review by administrative ministry, CAG audit, vigilance administration by CVC, the Right to Information Act, etc. Such complex regulations sometimes delay/frustrate the decision making process. Even though such regulations have enhanced the image of PSEs, there is scope to introduce a converged point of checking accountability on all these counts in place of a multi-layer regulatory system.
Succession planning is another area that requires immediate attention, as the selection process by PESB is unduly long, leaving a large number of posts vacant. There is need to reform the process of selection of directors and CEOs through a transparent system so that the appointment of a CEO can be made in a week.
Capacity building is critical to the success of an organisation. So emphasis has to be laid on capacity building for strengthening the skills, competencies and leadership abilities of the executives to help them confront challenges and achieve sustainable results. Capacity building is also needed for all categories of board members.
The structure of board is another sphere where ambiguity and non-professionalism is felt. PSEs have proactively acknowledged the need to structure the board in such a manner that only qualified and experienced people having an ethical background make their way onto the board. Developing a structured and transparent board nomination process for PSE boards is highly admirable as is clarifying and reinforcing board mandates and functions.
Full empowerment of the boards to decide on bold strategies and their implementation without day-to-day interference from the administrative ministries is the need of the hour. There is a need to redefine the ownership structure, to separate the ownership from the management.
The post-meltdown trend world-wide has been to relinquish ownership rights and control by administrative ministries and create a supreme sovereign department or a sovereign wealth fund for PSEs for investing in equity in domestic and international markets. Some developed countries have created an independent sovereign committee, away from the control of the administrative ministry, that monitors the implementation part, succession planning and also selects the independent directors. The State-Owned Assets Supervision & Administration Council (SASAC) in China, the State Investment Corporation in Vietnam, and Khazanah in Malaysia are the notable entities that have been formulated to manage state-owned enterprises. The Temasek model of holding company concept of Singapore could be another model for reform.
There is a need to review the corporate governance norms in India in line with the world-wide trends. Global experiments that have yielded good results can be appropriately assimilated in the Indian system with modifications. An organisational model that can provide greater autonomy to PSEs without compromising on accountability is need of the hour.
Reforms suggested here would require structural change and a complete revamp of the system of control of PSEs through administrative ministries. It will require interaction with several countries and global consultant. This is an enormous task requiring action. Let a beginning be made.
The author is director-general, Scope. Email: udchoubey@gmail.com