Column: Business Revival

BUSINESS REVIVAL
Where There Is Political Will

PSUs in trouble should get the same treatment as sick private companies: change of promoter, induction of a professional board, and an empowered CEO.

By Pradip Chanda

Pradip Chanda, Turnaround Consultant

A reader has posed me a question: can the principles applicable to reviving privately-managed companies be applied to public sector units (PSUs)? The answer is yes, provided there is political will.

If the government accepts that it has failed in its role as promoter-cum-manager and must therefore relinquish control of public sector corporations and hand over the management to a freshly-inducted board and a duly empowered CEO, there is no reason why PSUs cannot be turned around.

Having said that, it is pretty obvious that neither the Central nor the state governments are in a position to give up control. For they do not have control in the first place. The bureaucrats do. Will the bureaucrats change? Prime Minister Vajpayee is reported to have said, ''To avoid one mistake, they are willing to commit 100 more. I have come to the conclusion that it would be easier for me to change rather than trying to change the bureaucracy.'' (Hindustan Times, Nov 10, 2001).

Now, let's backtrack a bit to understand the case of PSUs. The Industrial Policy Resolution of 1948 delineated the role of the State in industrial development both as an entrepreneur and an authority. Successive policy resolutions strengthened the bias towards the public sector, giving it a strategic role in the economy.

At a point of time when the country's industrial development lagged far behind the world's, and the capital market in the country was in its nascent stages, most policy makers believed this was necessary. Their reasoning was that private capital could not fund large scale investments in essential infrastructure industries such as power, steel, and transportation.

The PSUs had everything going for them. Funding, prima facie, was not a problem. The staying power of the promoter-the State-was not an issue. By definition, PSUs were given strategic assets and monopolistic strangleholds on markets-an Utopia of sorts, where private promoters would have been able to create world-class corporations. And in a world recovering from WW ii at that point in time, many entrepreneurs, given similar resources, would have created transnational giants.

Out of the three key elements required to succeed in business-vision, resources, and organisation-the Indian state was able to provide only one: resources. Its contribution, in terms of both vision and organisation, were lacking.

At some stage, the government as the promoter was unable to get PSU managers to buy into the vision that the purpose of the PSUs was to create wealth from the assets entrusted to them.

Consequently, each PSU appears to have defined its own goal, often missing the wood for the trees and ending up as a mere provider of jobs.

The other problem was organisation. Despite well-meaning measures such as creating boards with invitees from the private sector wherever possible, a transparent selection process, and substantial investments in training and development programmes, the government was unable to attract the right talent owing to an unrealistic remuneration policy. There have been some exceptions. A few PSUs, fortunate enough to have a CEO with a vision, have done reasonably well, proving once again the axiom that businesses do not fail; people do.

PSUs in trouble should get the same treatment as sick private companies: a change of promoter, the appointment of a professional board, and the induction of a new CEO empowered to bring in the changes required to deliver what these PSUs should have been delivering all along.

Given the deeply entrenched sloth in our PSUs, such changes can only happen through privatisation. I, therefore, pin my hopes on disinvestment.

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