Editorial: Reservations about PSUs

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Published: August 10, 2015 12:23:27 AM

Compulsory procurement policy has to go

As the results of most PSUs show—there are, of course, some exceptions—it is tough being one. Apart from the bloated work forces that PSUs have to contend with, there is the constant interference from the political-bureaucratic class, and the various rules to contend with. BSNL, a company for whose revival the Cabinet just cleared various proposals, is a good example of this. Compared to Bharti Airtel which has 24,670 workers, BSNL has 2.3 lakh; as a proportion of turnover, wages and salaries eat up 55% of BSNL’s bills as compared to 2.55% for Bharti. As a PSU, BSNL has to work only through tenders and a large part of its fall in market share can be traced to this. On at least 2 occasions, when BSNL issued tenders for building up more cellular connections, the losing bidder went to court and held up the bidding on one ground or the other; with not enough connections to offer, it was not surprising BSNL lost out in market share over the years. The government added one more complication to this a few years ago—that of completing its social agenda through PSUs. While PSUs have to, in any case, meet quotas for employment of various caste groups and have to purchase a certain amount from micro and small enterprises (MSEs), in 2012, the UPA government added a caveat to this scheme. Within the policy of ensuring a fifth of PSU procurement comes from MSEs, the UPA said that a fifth of this had to come from enterprises promoted by scheduled caste (SC) or scheduled tribe (ST) entrepreneurs.

During 2013-14, PSU procurement from MSEs was Rs 12,440 crore, or around 15.3% of the total procurement of R81,319.28 crore in the year. But sourcing from MSEs promoted by SC/STs accounted for just Rs 419 crore or a mere 0.51% of the total orders against the 4% target. PSUs have to be able to recruit the best in class, work on VRS packages for extra staff and follow purchase practices that are in keeping with industry standards. If they have to purchase a fifth of their year’s requirements from MSEs, they have to spend a considerable part of their time—and even contribute scarce capital—to bringing these firms up the quality curve. Ditto for enterprises run by SC/STs. Such micro-management and onerous targets are only going to ensure more PSUs turn sick.

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