Essays

Addressing a meeting of MPs, bureaucrats, trade union leaders and chief executives of PSUs, organized by the Standing Conference of Public Enterprises (SCOPE) in New Delhi, Mr Pranab Mukharji has emphasized that "all operational decisions of the PSUs should be taken at the board level". Massive investments we required in infrastructure sector like power, communication roads, ports and irrigation, he said adding that "all this investment will have to be made by the public sector" for which functional autonomy is a must.

Favouring re-deployment of funds raised through PSU disinvestment in the public sector, Mr. Mukherjee regretted that as much as 40 per cent of the questions in Parliament related to operational matters, whereas according to the rules of business these should be confined to policy matters only.

The SCOPE chairman and chief executive of Hindustan Zinc Ltd, Mr.A.C. Wadhawan, said CEOs and employees of PSUs were confused by different statements of decision- makers at different platforms and regretted that this had a "demoralizing effect on the performance of public enterprises." Mr. R.K. Sinha, Secretary in the Department of Public Enterprises, also called for greater operational autonomy to the PSU boards to enable them to compete with the private sector and multinationals.

Stating that the public sector's role would not diminish for a long time owing to strategic reasons as also the national interest, Mr. Sinha, however, asked these enterprises to fetch greater returns on the massive investments incurred on them. Mr. Ram Niwas Mirdha, who chaired the brain-storming sessions, called for a change in the Government's attitude to give commercial freedom to this sector for expansion, diver- sification and joint venture operations.

The United Nations Organization recently listed the freedoms to be enjoyed by public enterprises.

(1)  Freedom from annual appropriation process/ at least for operating expenses.

(2)   Freedom Jo receive and retain operating revenues.

(3)   Freeedom to apply operating revenues to operating expenses.

(4)   Freedom from general government restrictions, par- ticularly in the field of expenditure.

(5)   Freedom from normal government appropriation accounting.

(6)  Freedom from normal government audit operations.

(7)   Freedom from central purchasing and contracting requirements.

(8)   Other related freedom to borrow money, freedom to hire and fire, freedom to pay salaries at the discretion of the enterprises and freedom to control its long-term planning.

One of the main reasons why the public enterprises need to be autonomous of government is that the former have to undertake activities and to make decisions which are entirely different in nature from the activities undertaken or the decisions made by the latter. The machinery of government and the procedures adopted in government departments which may be suitable for the work done therein are not necessarily adopted for the requirements of commercial and industrial undertakings.’ In government, for instance, a great deal of importance has to be attached to rules, regulations and precedents for the simple reason that the government decisions must follow a recognizable pattern which should have uniform application to or repercussions on all the citizens. In commercial or industrial undertakings, the emphasis is not on uniformity, but on certain other accepted criteria, such as profitability. Besides, the objectives of the policies pursued are more clearly definable and issues involved are less complex in nature in the public enterprises, than in the government. The room for differences of opinion and, therefore the need for detailed examination and consultations are less in the former than in the latter.

Public enterprises are granted certain amount of autonomy. The autonomy was sought for enabling the enterprises to function on the pattern of commercial concerns unlike government departments, where rules rule men and matters. Autonomy is freedom to make decisions related to operation and strategic management without governmental interference. This autonomy is based on a recognition of the fact that certain decisions can better be taken by the enterprises than by the state, by the administrative machinery or legislature, and that if such decisions are continually questioned the responsibility for achieving the results would be blurred and performance adversely affected.

The comparatively elaborate system of examination and consultations prior to decision-making prevalent in government is redundant and indeed time consuming for the public enterprises. Therefore neither the machinery of government nor procedure followed in government are really suitable for decisions in industrial and commercial concerns which have- to be made in an entirely different context. That is why it was pointed out that the usual political machinery of government is unsuited to manage commercial enterprises on business principles.

New business qualities, greater professional competence and commercial skill were required of executives to man the public enterprises on business lines. In India, the second five year plan stated that the general policy is to confer upon the managements of public enterprises, the large measure of financial and administrative autonomy, consistent with the overall responsibility of government and accountability to parliament. The industrial policy resolution of 1956 also emphasised the largest possible measure of freedom to public enterprises. The Third plan noted that if an enterprise does not have real autonomy, it is not likely to be effective.

But the autonomy cannot be absolute. The public sector enterprises have to work within the national policies and framework of a comprehensive plan for economic develop- ment. On the other hand, an unbridled autonomy of the responsible boards of management might lead the nation to the quick sands of managerial society. Autonomy does not mean complete independence. If maximum autonomy has to be granted to an enterprise, there is no point in keeping it in the performance of public enterprises. Excessive autonomy has been considered a serious cause of poor performance of state owned enterprises in Brazil, Argentina, Philippines and other countries. Autonomy is a device for the better management of the enterprise and not an inexorable principle by itself.

In a democratic set-up, legislature cannot remain un- concerned about the working of the public enterprises. Mr. G.V.Mavalankar, former speaker of the Lok Sabha, ob-served that merely because the system makes them autonomous, it does not follow that the system can take away the jurisdiction of the Parliament in having a full probe in the administration of that autonomous body. The motives behind the creation of public sector enterprises are promotion of distributive justice, social welfare and economic growth. No government can afford to sacrifice these principles for the sake of autonomy of the public sector enterprises. When an enterprise goes wrong, the government cannot take shelter behind the autonomous status of public enterprises or be ignorant or innocent about the goings-on in them.

The Rangoon Seminar advocated the following purposes of control on public enterprises. Tin- control is intended to see that (i) the operations and policies of public enterprises are consistent with and in furtherance of basic objectives established by the government; (ii) policies and directions of the government are implemented; (iii) public enterprises and non-business programmes operating within the same major framework are effectively co-ordinated; (iv) operations are conducted with maximum efficiency and economy and (v) sufficient information is provided to enable appropriate authorities and the public to appraise the effectiveness of operations.

Thus in public enterprises, there is a problem of reconciling operating and financial flexibility for the successful conduct of business with the need for controls to ensure public accountability and consistency with public policy. Public enterprises have a commercial mandate as well as public policy. They are intended to achieve both business flexibility and public accountability. So, both autonomy and control are indispensable to public enterprises. The autonomy on the one hand and the control on the other are fundamental prerequisites for the effective functioning of a public enterprise. They are to be viewed as complimentary to each other. The ultimate objective of both control and autonomy is the same- improved performance in terms of intended goals. Autonomy and control are the two sides of the same coin. Hence there should be an ideal compromise between the autonomy of public enterprises and the State control over them. Autonomy and control should go hand in hand.

If we accept that both autonomy and control are imperative for public enterprises, then another question arises: How much of autonomy and how much of control? It is very difficult to determine the degree of control which in too much close can destroy the commercial nature of the enterprises, whereas too much of autonomy takes them outside the democratic regime. It is not a question of less control and more autonomy or more control and less autonomy. It is certainly a question of good control and good autonomy.

Hence, the key problem is to strike a balance between the requirements of relevant autonomy and efficient administration on the one hand and effective control over them on the other. To balance control and autonomy is no easy task and the extent to which the right system of checks and balances have been yet built up is a matter of debate.

The Administrative Reforms Commission also emphasized the need for evolving management control in respect of public enterprises which would strike a right balance between autonomy and control. A method of work is to be devised which will enable the government to acquire necessary information without constantly harassing managers and reducing them to a state of chronic indecision. Thus, there is a need to evolve a kind of relationship between the public sector and the government so as to optimize the concepts of autonomy and control.

On the whole, the question of wielding control over public enterprises is quite a ticklish one and as yet, we have not been able to evolve any suitable methods so that a proper-balance between control and autonomy may be maintained Prof. Hanson pointed out that the establishment of just balance between autonomy and control is possible only through the development of appropriate conventions and understanding. It was also suggested that the members of Parliament should restrain from asking questions of trivial nature and impose a self denying ordinance as is done by their counter-parts in England.

Various institutional devices have been created in many countries over time to shield the public enterprises against undue control and interference from the Government. Public sector autonomy and control continues to be a focal subject because of its ramifications. Signing of memoranda of under- standing and creation of holding company structures in India, performance contracts in France and signaling system in Pakistan are some of the examples of these devices. These are intended to achieve increased managerial autonomy and reduce government control. There seems to be a pendulum swing between autonomy and control. This swing will never stop.

Disinvestment Proposals: The Industry Minister, Mr. K. Karunakaran, categorically said that the Government does not intend to abandon its programme of disinvestment of public sector undertakings (PSUs) shares. "We will go to the market for disinvestment of PSU shares at the appropriate time, he told the post-address question-answer session of the ongoing Economic Editors conference held in New Delhi. The market conditions would play a key role in determining the timing of approaching the market for disinvestment of shares of select PSUs, Mr. Karunakaran said. The Government proposed to disinvest PSU shares worth Rs. 7,000 crores in 1995-96.

The Secretary in the Department of Public Enterprises Mr. R.K. Sinha said the modalities for finalizing the schedule of disinvestment programme for 1995-96 had alreadybeen completed. Mr. Sinha said there was no question of abandoning the disinvestment programme as the Finance Minister; Dr. Manmohan Singh had already stated that the exercise would be launched at the "appropriate time" when the market conditions were suitable for off-loading the PSU shares. Mr. Karunakaran also said emphatically that there would not be any 'drastic dereservation of items exclusively reserved for small-scale industries.

On the programme of disinvestment of PSU shares, Mr. Sinha said the Government would approach the market on the advice of mercantile banks appointed for this purpose. Responding to a query whether major chunk of the funds raised through the disinvestment programme would be spent to reduce the fiscal deficit, Mr. Karunakaran said "there is no compartmental approach on how the money would be spent." According to him, it was a 'wrong notion' to say that the money raised out of disinvestment of PSU shares would have to be spent on the PSUs alone.

"After all the PSU belong to the nation and money has to be judiciously spent keeping the overall interest and progress of the country in mind," said. But if "it is felt that money should be spent on reducing our debt burden or deficit, we will do that." However, the Minister said part of money raised out of disinvestment programme would go to the PSUs also. Concurririg with the Minister's views, the Secretary of Heavy Industry, Mr. T.R. Prasad, said : "It is not necessary that money coming out of the sin vestment should go exclusively to the PSUs. There is no quid pro quo approach involved in this.'

Sharing Mr. Parsad's views, Mr. Sinha said the budgetary support for PSUs was increasing from year to year. So in view of this it would not be wrong if all the amount of money raised out of disinvestment was not spent on PSUs only, he added.

Mr. Karunakaran also asserted that the Government would protect the legitimate interests of small-scale industries. He said special care would be taken to ensure that no big industries encroach on the items of production reserved exclusively for the small-scale sector. In this context, he said the Committee of Secretaries on SSI was constantly monitoring whether any encroachment was taking palace.

Mr. Karunakaran said some cases of encroachments had come to the Government's notice and necessary action would be taken to prevent such occurrence. The Secretary of SSI, Mr. N. Mohanty, said the Government would stick to the present list of items reserved for SSI under which 836 items had been enumerated.

However, he said, the Committee of Secretaries was looking into whether some of the items could be dereserved. On stalemate over the Patent Bills, Mr. Karunakaran said the Bill was in 'progress' and refused to elaborate saying he would be hauled up for breach of privilege if he disclosed anything more on this as the Bill is now before the Rajya Sabha Select Committee.

The Patent Bill, which had already been passed by the Lok Sabha, could not be approved by the Rajya Sabha due to resistance from Opposition parties. The Bill had since been referred to the Select Committee of the House for scrutiny.

On restructuring of PSUs to enable them to face the growing competition, Mr. Karunakaran said the Government would remove all administrative hurdles facing the PSUs to make them more efficient, competitive and dynamic.

In reply to a query whether the present constraints on PSUs not to divest more than 51 per cent of their equities was coming in the way of the PSUs to reorient themselves to face the growing market challenges and bring about turnaround in their performance. Mr. Sinha agreed it we'> true to some extent. He explained that as long as the Government would hold more than 50 per cent of equities of the PSUs, the companies would be under the constitutional obligation as per Article 12 of the Constitution to be accountable to Parliament for scrutiny.

As a result of this Article 12, PSUs are subjected to routine interference from the administrative machinery, he said, adding as long as they do not come out of the shadow of the Article 12 and are not allowed to go in for more than 51 per disinvestment of the equities; the PSUs would not be in a position to bring about any remarkable turnaround in their performance.