Grow, Transform and Sustain – The Mantra for Indian PSUs

India’s central public sector enterprises have undergone a cycle of transformation since the introduction of liberal economic policies a couple of decades ago.  Many believed that the public sector enterprises will simply wither away because of competition and their inefficiency; or they will be subsumed by the private sector because of the divestment programme.  However, as the experience has shown, the Central Public Sector Enterprises (CPSEs) continue to have a critical role to play in many businesses, especially in the strategic sectors.  Many CPSEs have proved their critics wrong by becoming extremely efficient and competitive.

In the strategic sectors of our economy, CPSEs are needed to ensure that the national and the social priorities are guaranteed – in terms of assured supply and affordable prices.  Infrastructure, energy, healthcare, defence are such areas where it cannot be left entirely to the markets.  In fact, the CPSEs are needed to create, balance and sustain the market in these sectors.  Even in the business and consumer services sector, the CPSEs are needed to ensure adequate and fair competition and stabilize the market.

However, at the same time, the CPSEs cannot take such role for granted for future also.  They cannot be allowed to become complacent.  Efficient and effective management is essential to ensure that the CPSEs continue to fulfill their obligations to the country.  Indian CPSEs need to be competitive at home against the global competitors and become multinationals themselves.  By striving to become multinationals, Indian CPSEs will be following the best management and operational benchmarks in the world, making it easier for them to be competitive at home and also in global arena.

Most of CPSEs are profitable despite operating with the constraints of public service priorities.  Of the 248 CPSEs, 220 are currently operational and of those 158 are profitable.  That is an impressive 70 per cent plus mark for a group that also includes a large number of legacy companies taken over as sick private sector units.  The operating efficiency of the CPSEs is also quite good in the prevailing dullness in the economy.  Last year, i.e. 2010-11, CPSEs delivered dividend of Rs. 35,681 crore.  Importantly, there has been significant improvement in the revenue and profitability levels of the CPSEs.  So, the CPSEs are making a substantial contribution to the country’s economic growth.  Even on the stockmarkets, the listed 45 odd CPSEs make nearly 20 per cent of the value of all listed Indian stocks.  Clearly, Indian public sector has the size and the efficiency to entertain ambitions of going global.  The CPSEs can also build and be parts of global supply chains.  In doing so, they can achieve an edge in technological and managerial innovation and help Indian economy grow at a faster rate.

Already, many Indian CPSEs are global giants.  Most of the petroleum PSEs are now multinationals and helping secure energy fuels for now and the future.  In the heavy engineering, infrastructure and project services too, Indian CPSEs have significant presence overseas.  Now, the power sector CPSEs are set to spread out in the world.  Given their experience of working in resource constrained and politically obstructive environment, Indian CPSEs are well equipped to do business in the other developing parts of the world, particularly Southeast Asia and Africa.

The Government has taken steps to help the Central Public Sector Enterprises (CPSEs) to improve their operations and competitiveness at home.  The Maharatana and Navaratna CPSEs have been allowed to invest in assets overseas and undertake joint ventures abroad.

The CPSEs are continuing to invest even in the prevailing slowdown.  Much of this money is being invested in the critical sectors such as energy and infrastructure.  This investment will have a multiplier effect on the economy.  Also, a significant part of the fresh investment this year is going into capacity building overseas.  This investment has been made possible by the CPSEs strong performance during the past few years, which have yielded adequate cash surpluses for investment.  The government has also allowed the CPSEs to use their cash surpluses to buy others’ stocks in order to aggregate their complementary strengths.

Steps have also been taken to improve efficiency of these investments.  Majority of the CPSEs have been signing MOUs with the Government which cover not only the financial results but also the outcomes in areas such as corporate governance, research and development and corporate social responsibility.  A vast majority of the MOU signing CPSEs have been meeting or exceeding their targets.  A comprehensive review of the MOU system is underway and revamped MOU system would be put in place shortly.

The Government has also been taking steps through, the Board for Reconstruction of Public Sector Enterprises (BRPSE) and Government approved revival packages to ensure that the performance of loss-making CPSEs could be improved.  We are also taking new initiatives such as enhancement of the age of superannuation from 58 to 60 years and grant of 1997 pay scales to the employees of sick and loss-making CPSEs as these steps can give them the incentive to make extra effort to get out of the red.

Even as the CPSEs move towards becoming globally competitive and going global, they still have to play their role as the catalysts of development and opportunity.  The CPSEs will continue to go to hinterlands to seed industries there and they will continue to invest in creating employment and economic opportunities for the deprived.  The government would like the CPSEs to integrate India’s rural economy into the mainstream.  However, it is upto the CPSEs themselves to continue to prove their relevance and they will survive only if the public sees them performing a useful function and only if they can compete with the best in the world at home and overseas.

Autonomy and more freedom are crucial for achieving this objective.  In fact freedom is not complete if it does not include freedom to commit mistakes and take risks.  Keeping this in view, it is the Government’s endeavour to enhance freedom and autonomy to CPSE management and an exercise in this direction has already begun.