Public sector undertakings (PSUs) were created back in early 1950s with two main concerns in mind?one, the scarce private capital to start industry, and two, the need to have certain sectors under government control.
The background is necessary to understand whether we have achieved the objectives and if so, are we willing to move on from there either strategically or otherwise, e.g. space programme or defence industry divestment versus coal or power or railways. The Indian mindset has seen a tectonic shift from the lowest price being the only consideration to the preparedness to pay for quality service. This shift has enabled the launch of the largest PPP programme in the world for the road and power sectors in India.
The PSU spectrum stretches from jewel to junk. NTPC, ONGC, Oil India, Power Grid, GAIL are some examples of successful PSUs having ?Ratna’ or ‘Jewel? status. The debate could be initiated on whether or not they could do better, but it is certainly beyond doubt that they have delivered on the objectives. However, it is not glory all the way with cases such as Hindustan Machine Tools, ITI, Scooters India at the other extreme of the spectrum, with no glory to boast of. It would however be unthankful if we do not place on record some softer achievements, e.g. Air India carried out the largest civilian evacuation in the history of mankind during Kuwait Iraq war.
So what are the limiting factors with these PSUs?
Board constituents: The board of a PSU generally has several members who do not necessarily bring sectoral or functional expertise to the table. PSUs need to have
more professionals, scholars/researchers and strategic thinkers on board than at present. This does impact the quality of discussions at the board level.
Tenor of CEOs: The heads of PSUs have a shorter tenor than their private counterparts. By the time a CEO gains expertise in the sector, the company or the operations, the time to transfer or to retire comes calling. PSU banks serve as a good example.
Absence of succession plans: Many a time, the key shareholder of PSUs (read government) does not take timely decisions in appointing CEOs for many months and quarters, leaving the company rudderless. Examples can be found in the road, power and banking sectors. In the absence of a well laid out succession plan and hand-over procedure, PSUs suffer from a dysfunction syndrome.
Vigilance departments: This may be called the British Raj inheritance where shareholders do not trust the persons they have entrusted with responsibilities. More often than not, the shorter tenor of CEOs and fear of an ?inquiry? leads to non-decision. This is perilous in nature. Today, India has privatised several of the key public services and natural resources such as banking and mining. If it is in the private domain, there is no requirement of vigilance, but if it is a government undertaking, vigilance is a must. Different strokes for different folks!
Tendering: Cut-off amounts are so low that the process of making a tender is more expensive than the underlying asset. Do these limits factor in inflation? Practicality? Again, we do not have such preconditions for the private sector. If the objective is to beat corruption, a dispassionate discovery is called for to know whether tendering is perpetrating corruption or restricting it.
Basically, unsuccessful PSUs were established with honourable intentions but are lost leaderless mid-way to reach the present status.
?With virtuous persons, virtues remain virtues. On reaching a non-virtuous person, they become faults. (Just like) a river flowing with sweet water, becomes salty on reaching ocean.?
If the government has the right management and sets right operational controls, financials will improve. Restructuring of those PSUs beyond repairs requires taking a hard call of winding them up and freeing up national resources such as land holdings.
Public offering of PSUs: The offering of PSU shares to general public has several facets to it. One of the most important is the appetite of individual shareholders. The table along tells the story. The PSUs mentioned are some of the most profitable, being leaders in their respective fields and yet the individual holding is where it is. A lot of hard work will go into ensuring a 25% holding by individuals.
The methods of offering shares will also have to be thought through. A straight discount would simply mean passing of a ?grant? which may be unequal, depending on who can subscribe how much. Fiscal implication is another angle in such grant-like offerings. A lock-in period or a unit based offer with several underlying shares? Many options remain open.
Still, the question whether strategic PSUs such as Nuclear Power Corporation should be brought for a disinvestment remains a dilemma. And disinvestment in Ratna PSUs needs strategic planning. The poor cousins thereof, including Air India and its likes, need the government to lead from the front before a selloff.
Atul Joshi
The author is MD & CEO, India Ratings
