New-age public sector enterprises

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Published: April 15, 2017 4:04:51 AM

PSEs are in a better position to be the partner for government’s missions of Make in India, Digital India, Skill India and Swachh Bharat

Impressive performance of central PSEs (CPSEs) can be judged from the fact that for the last four years, PSEs have been earning a net profit of over `1 lakh crore every year.

In the last seven decades, Indian economy has grown over 1,444 times from `94 billion to `136 trillion. Public sector which has played a critical role since independence, has provided continuous momentum to this growth story. It has laid sound industrial and infrastructural foundations, and has helped in attaining technological prowess to place India among the fastest growing global economies.

During the journey, public sector faced many ups and downs. Despite this, the sector showed remarkable resilience and adaptability, proved its mettle by successfully countering rising competition in global market and provided the much needed stability to the country during economic down turns.

Impressive performance of central PSEs (CPSEs) can be judged from the fact that for the last four years, PSEs have been earning a net profit of over `1 lakh crore every year. They have contributed over `2 lakh crore to the exchequer every year from FY14 to FY16. CPSEs registered a turnover of `19,95,716 crore during FY16 which is 13.66% of the GDP. Total investment in 320 CPSEs, of which 244 are operating, is `11,71,844 crore. These had 12.34 lakh employees in FY16.

During the last decade, CPSEs contribution to the exchequer has been `17.87 lakh crore, which is 1.5 times the investment in these enterprises. They have paid `4.34 lakh crore as dividend out of which `2.83 lakh crore has gone to the government. Their payout as taxes and duties has been `14.87 lakh crore, and they have earned a net profit of about `10 lakh crore since FY07. There are seven Indian companies in the Global Fortune 500 list, of these three are CPSEs and one public sector bank.

Public sector is no longer the public sector of yesteryears. Maharatnas, like IndianOil, Oil & Natural Gas Corporation, Bharat Heavy Electricals, NTPC Limited, Steel Authority of India, etc, are world-class CPSEs. Several PSEs like GAIL (India), RITES, Engineers India Ltd, MECON, HPCL, BPCL, NALCO, WAPCOS, etc, are globally competitive and at the forefront of forging joint ventures in setting up subsidiaries abroad and expanding overseas operations.

Many PSEs have over the years, played a vital role in providing the critically needed infrastructure. Coal India, RITES Ltd, Power Finance Corporation, Airports Authority, Bharat Sanchar Nigam, GAIL, PGCIL, Container Corporation are among such PSEs.

In the backdrop of Make in India, CPSEs have given boost to manufacturing, and a thrust to R&D. They have also initiated strategic and innovative approaches towards digitalisation by adapting IT technology, e-auction, e-tendering and procurement, e-recruitment portal, compliant resolution mechanism, etc. These efforts are helping them bring more transparency.

Despite all this, it has become a fashion to spread belief that private sector does better than public sector. No private sector could have ever built the kind of railway network in the country, be it in pre or post independence era, that Indian Railways has been able to do.

But there are some challenges which need to be addressed, on a war footing, to ensure that PSEs perform to their full potential. First, is concerning governance, which has two issues. One is clearly defining role and responsibility of ownership and management, and the second is institution of independent directors. OECD guidelines on corporate governance state that the government should develop an ownership policy. It should define the state’s role in governance of state-owned enterprises, its implementation of ownership policy, and the respective roles and responsibility of the officers involved. Such a policy will ensure that PSEs are run in a professional manner and will not cause complexities and uncertainties in taking decisions purely from a professional angle. As owners the main concern of the government should be that PSEs operate and function in a transparent and ethical manner and achieve their set goals, complying with all statutory regulations, and also earn profit besides fulfilling laid down commitments including CSR.

As far as compliance management is concerned, PSEs have adopted constructive mechanism to ensure greater conformity with rising standards of corporate governance. They comply with several rules and regulations under elaborate Parliamentary and government control. They have accountability to other authorities like CAG, CVC and under MOU System, RTI Act and mechanisms required in Companies Act. Over 100 PSEs have also gone an extra-mile by signing Integrated Pact with Transparency International. All these measures, though very beneficial, at times have also undermined performance of PSEs. There is, therefore, need for convergence of these heterogeneous regulatory mechanisms.

Institution of independent directors has emerged as the cornerstone of corporate governance. Absence of requisite number of independent directors on the board has implicated PSEs for not complying with the mandatory requirements of corporate governance. Here, it is important to understand the existing process for appointment, in which PSEs have negligible role. The process being tedious needs to be reformed and simplified.

Corporate social responsibility is an important aspect of corporate governance. PSEs, set up with twin objectives of economic development with social justice have given high priority to the ideals of CSR. Even after liberalisation, their emphasis on CSR has continued, and in fact intensified. According to Prime Database’s recent report, during FY16, 920 companies spent `8,345 crore towards CSR. Among them 47 were PSEs, which spent `2,936 crore or 35.2% of the total.

On the CSR front, the challenge before PSEs are concerned with the Board and appointment of independent directors for setting up board sub-committees, which approve allocation of CSR funds. Selection of suitable agency/trust is also important besides creating awareness among employees, shareholders and other stakeholders about the company’s efforts towards fulfilling social responsibilities.

Succession Planning is another area of challenge which involves capacity and skill building, motivation, retaining talented employees etc. Capacity building is crucial to fill the knowledge gap at various levels in the organisation and it should be in an ongoing process. Capacity building of the board members and senior managers is critical for sustainable and competitive growth.

PSE Boards have a complex collation of diverse and heterogeneous partners, namely functional directors, government-nominee directors and independent directors. All the three come with different qualifications, possess varied experiences, and working atmosphere/background. An effective orientation programme is required so that they can contribute effectively to the sustainable development of the organisation and various stakeholders.Succession planning and grooming dynamic leaders for top management at strategic positions is another challenging job. To accelerate the process, there is need to develop a cadre of potential candidates and professional executives within a PSE as well as within the public sector.

Today, world over, growth with social equity is the buzz word. Public sector is in an advantageous position in this respect. They have improved their performance by sustained transformation in human resource management, technological advancement, operation management, quality management, etc, incorporating the best corporate governance and CSR practices. Their size and over-arching presence across the country and various sectors of economy place them in a better position to be the partner for government’s missions of Make in India, Digital India, Skill India and Swachh Bharat. With government’s conducive policy interventions, PSEs can take the country among the league of the developed nations.

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