Monday, May 14, 2012

Why do Indian Public Sector Undertakings Fail to Perform Now ?

When I joined an Indian Public Sector Undertaking (PSU for short designating business ventures owned and controlled by the government) as an officer way back in the 1980, the general feeling that we youngsters who opted for this service was a feeling of pride that we were a part of a nation building team. The poor salaries the PSUs offered did not deter the youngsters from joining the PSUs. Even while many had various other options including lucrative foreign opportunities, a good majority of people preferred to stick to the low paying PSU services for the pride they felt by being in a PSU which did such industrial activities that was essential for the nation to progress.

During my initial years, most of the central PSUs including the one where I joined worked well. There were certain constraints that we youngsters felt while executing our responsibilities on account of the lack of freedom to proceed in the most techno-commercially desirable manner. But then there was no pressure also to circumvent such restrictive rules to compete with non-governmental sector for earning more profits or for survival.

Even being a PSU the work complexities were much less. There were known principles of working under minimal rules and guidelines. No one ever attempted making things complicated for preventing an error that occurred or detected.

In other words, no one attempted burning the palace for smoking out the rat ! 

Most importantly, corruption was not felt in most of the areas of work, though I cannot say that it was absent. At least superior pressure for doing a thing which was not justified was almost non-existent.

There was a system by which we could get the required facilities for discharging our responsibilities in a reasonable time. This included manpower, budget for procurement of both capital items or consumable materials.

The career growth also proceeded more or less in a logical manner. Seniority and qualifications of the candidate were important factors together with the candidates general work performance as judged by his superiors. People who got promoted to higher positions were generally respected because they were candidates who deserved such promotions.

We had never heard of incidences where the minister of the government who was heading the administrative ministry responsible for the PSU interfering with the PSUs day to day work or influencing to get preferred candidates to key positions.

Most of the officers knew their work. If a junior officer faced any kind of difficulties, he had the senior who could resolve his difficulties.

Most of the PSUs discharged their functions profitably for most of the time. Even at times they faced difficulties, the government helped them out taking the responsibility of a parent. The government also intervened whenever the PSU made major failures. The existence of the administrative ministry was justifiable because they had the superintending functions like this.

Then came the Margarette Thatcher experiment in the United Kingdom. This famous PM of this aristocratic country on whom the rest of the world looked to for guidance declared the economic benefits in having the government free from doing businesses. One by one the UK effectively privatized its PSUs.

Leading economists of the world advocated for privatization of PSUs. Privatization encouraged competition which in turn boosted efficiency. They argued. It was good for all.

The wave made its effects in India too.

Many PSUs were sold in full and in part. While some were sold 100%, some were sold 51% just to enable the transfer of administrative control from government to private players.

The methodology adopted in selling of shares of the PSUs by the governments attracted various kinds of criticisms that made the government to become scared of making and implementing its privatisation policies in a logical manner.

This resulted in a kind of mixed economy the world has never seen before.

An economy where private sector and public sector compete in an unequal footing.

The PSUs cannot recruit people as it used to be in the past due to a recruitment embargo, because the government policy is for eventual privatization. While eventual privatization is projected as the underlying principle, the difficulty faced was in declaring the time frame for that. As government indecisiveness continues indefinitely in this one has to make the logical conclusion that the PSU is destined for natural death for want of people in the future.

The PSU cannot buy its materials and equipment that are most suited technically and commercially and in the right time just as its private competitor can do, due to the rules and regulations that govern public spending that is applicable in the case of the former. As corruption in public places got public attention, so many impractical rules and regulations were imposed on the PSUs on public procurements which made their working more difficult as a competitive business entity doing business in a competitive environment. 

The PSU cannot pay well for its CEOs and its officers and staff the way its private counterparts can do because of the government guidelines of pay and perks applying ceilings.

The PSU cannot do any thing to enhance its business in accordance with the market situation, because the government has yet to decide upon its policies and priorities. And time in years are running out !

If any one says that the ills of the PSUs are due to its management and officers, he is perhaps not making an observation by evaluating the ground realities.

Even with the kind of constraints and handicaps if a PSU is still performing it needs to be appreciated.

Managerial failures do happen in PSU companies and public limited companies in the private sector. But the chances for such failures and the odds are more for the PSU as things stand today.

It is worth noting here that none of the PSUs which got privatized in the past have declined in performing in the changed management scenario. Take for example, the IPCL, Maruti Udyog Limited, VSNL, Bharat Aluminium Company Limited, etc.

But where the government allowed a particular sector opened up for private competition, the cases are not so good for both the PSUs and the new private players. Examples are the telecom, airline, steel, banking, insurance, etc. Every now and then new policies are framed to help either the private or the PSU. The business scenario in these is with high degree of uncertainties.

The public in India are really concerned with ailing PSUs like the Air India, HEC, HMT, IOC, ONGC etc which used to be prides of the nation at some time in the past. Such ailing PSU list is getting enlarged every year.

The sectors in which PSUs are still doing well could be in those areas where they are functioning like monopolies.

The PSUs are now working under severe constraints of various sorts unlike the past.

Indecisive policies are causing the nation great damages which are difficult to measure over a short time.

It is time that the people of India take note of these !

Playing in uneven grounds is not a healthy practice.

It is bound to cause casualties on the ones that are unfavourably placed.

Just as some of the concerned media men put it, let me also sum it like this :

Is any one listening ?


  1. Do u consider ONGC, IOCL as ailing PSU's? And do u consider PSU jobs as low paying jobs? Please check out the salary these PSU's pay to young engineers. No private company can pay even half of it. Moreover these are some of the biggest companies not just in India but in the world. According to Forbes, Indian oil is the 83rd largest company in the world in terms of revenue.

    1. The PSUs like ONGC and IOCL are essentially monopolies of the past that are still trying to maintain that status with the support of the govt. If the Private oil company, Reliance is allowed to compete with them directly by selling their products in the Indian market then these PSUs may not sustain for long just as what happened with say companies like Air India. Where exactly the money of these PSUs goes is something that need to be analysed in detail and compared with the private and foreign companies. PSUs are at a disadvantage with regard to management practices. They are constrained with regard to getting the best talents as their CEOs or Board members who are also motivated to perform. This factor alone makes their top managerial hierarchy not so well performing as compared to their private counter parts while the lower levels may be at comparable levels with regard to performance and abilities. When competition is stiff, swift managerial action with vision and competence is a pre-requisite for survival. And that is not possible with the Indian PSUs under the present circumstances. If the government wants to keep the PSUs let them do so. But then it is not appropriate for us to compare the public and private sectors who are in the same kind of business. Because both work under different sets of rules ! My personal opinion is that the government should privatize all PSUs that are doing similar kind of business that are allowed for the private sector. That alone would ensure a fair competition on an equitable basis. Besides, it will be good for the employees, senior management cadres, the customers, the share holders and the suppliers and also to the government.

    2. To Mr. Anonymous, who posted the above comment:
      With due respect, and since I saw your comment about paying salaries to young engineers, I'd like rather you to do some 'check' on the salaries paid by US and European MNCs (operating in India) to the young engineers of India. Besides providing them an enterprising, supportive and fulfilling work environment. Performance is not forced or demanded, like an Indian PSU, it is by self-will and proactive approach. Why the same engineer performs differently when he/she is employed in an Indian PSU and when in these MNCs? If you reply that it is about personal traits of an Indian mindset, I'd say please check what you say. It is a 'generalized' behavior. So shouldn't the Indian PSUs be thinking about it? Definitely they should. But are they? You know better. Instead they are busy thinking and speaking and commenting on the pay and benefits these young engineers are drawing which maybe they didn't at their time. Time has changed Sir, so please be 'acceptable' to 'changes'.
      You've quoted Forbes. Have you read the countless other articles in Forbes regarding innovation? That if not done, and in time, companies, big hale and hearty, turn to dust within time, even while they are still partying the last so-called achievement. Finally, and if you're still adamant on cursing these young engineers for your non-explained frustration and explicit non-performance, it is never the pay packet that can attract and retain the best talent. If you cannot give something that is very basic about any work environment i.e a culture to perform, a culture to enjoy work, a culture to promote responsibilities rather than off-loading because of inadequacy of somebody else, a culture of non-exploitation, a culture of value and integrity, not only in words, but in practice, and finally a culture of happiness from work, not after it, you can never retain that young engineer of yours saying that he is getting a nice salary.


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