The government has moved to overhaul guidelines relating to the central public enterprises as part of its long-term strategy to bring the sector on a par with the private sector in terms of transparency and accountability. This is a welcome move. However, such efforts alone would not go far enough in reviving investor confidence in the sector unless the government stops interfering in the commercial and financial decision-making of CPSEs.
The lacklustre success of the disinvestment programme is a reflection of the investors’ fear of government interference in CPSEs.
Shares of blue chip CPSEs like ONGC, IOC and CIL continue to underperform their peers at the stock markets because of the government’s continued interference in their day-to-day matters. This also goes against the interests of minority shareholders and is a gross violation of corporate government principles. The success of the government’s disinvestment programme hinges on the investors’ assessment of the chances of CPSE boards functioning independently.
The government has targeted to raise R30,000 crore through a partial sale of its stakes in CPSEs in the current financial year, after failing to meet the disinvestment target in 2011-12. It looks unlikely that the government will be able to mop up the required resources through stake sale this year either.
However, it is satisfactory that the government has realised the urgency of bringing more accountability in CPSEs’ functioning. It would be interesting to take a peek into the steps taken by the government to promote transparency in PSUs.
For one, the department of public enterprises (DPE) has decided to focus on the role and responsibility of private directors on the CPSEs’ board. These directors are nominated by the government. There has been a growing perception that these directors are a liability rather an asset for a CPSE and so there should be a mechanism to assess their performance.
The DPE has also paved the way for utilising services of private sector executives on CPSE boards. The logic is that since these executives have greater exposure to operational risks, their experience would be helpful in improving the PSUs’ efficiency.
PSUs have to maintain their operational autonomy, revenue and profitability if they want to keep their maharatna, navratna or mini-ratna status. They may lose the special status if their performance dips below the specified threshold. But there is no such criteria for a downgrade of category schedule if a CPSE's performance keeps falling.
Things may change soon. The DPE is also