DISINVESTMENT! YOU MEAN, YOU GONNA’ SLAUGHTER THE GOLDEN GOOSE?

Will you sell your business when you need money? Or you will run your business efficiently and generate profits? I would go for the second option. But our government thinks otherwise, sell taxpayers assets to raise funds for social sector projects.

The Private Sector, has been given so much of freedom today in every aspect, the scenario was totally different before 1991, as a result of which the private sector companies could achieve tremendous amount of growth in these years. It’s probably good for India, in spite of having its own disadvantages like bringing in economic inequality, on the other side an open economy model has helped in generating good amount of Jobs in the urban areas, and India has become a hot destination for overseas companies for investments. Some infrastructural developments are taking place due to Foreign Direct Investments flowing into the country. We are being able to get access to modern technologies through FDIs, no doubt, but, all would be well and good if the government restricts its liberalization policies to the private sector only and not extend them and implement in public sector.

My argument is, do we need to hand over public sector companies to private hands or do we really need to divest?

Have you heard the story of a villager and his golden goose*? Of course you must have. A PSU is like a golden goose if run efficiently and profitably, it can provide sustained revenue to the government, in other words public, which can be used for infrastructural and other social sector projects. Instead, government over the years have been privatizing the PSUs slowly or divesting the stake to foreign or domestic corporate investors.

For the year 2009-10, Rs 30000 crores could be made available to the government through divesting the stake in PSUs and the same would be used to meet the fiscal deficit. One of the arguments kept by some section is that disinvestment would help PSUs realize their true potential and a change in management in this way would boost their m-cap. Of course yes, as soon as the government announced the disinvestment plan, the stocks of public sector companies shot up 20%, other wise who will buy stocks of public sector companies?

The point is, we Indians resist change, a revolutionary change to totally transform the way things are done, we want the system to go as it is, because a massive change would cause pain, an enormous amount of pain which we do not want to undergo, but there is no gain with out pain. But we just want things to go as they do usually. That’s the reason why we do not see rapid growth in our country, our court cases take years to deliver justice, projects initiated by governments move slowly and when they get over a total generation passes away, we couldn’t find a solution for Kashmir till now, complacency and tolerance have become the way of life for us. The only dramatic change that occurred in India was the 1991, so called economic reforms, that too was forced by external forces (European Union, World bank, IMF ... those elite Western institutions). So is the attitude of our politicians, our policy makers have come to the conclusion that these PSUs are of no use for the government any more, we need funds, let’s sell our assets once and for all. They cannot think otherwise, that why shouldn’t we run these PSUs efficiently, why not we bring radical changes through out the structure of the PSUs. When Corporate Companies can do that, why not a powerful democratic government, fiscal deficit is a problem for our country today, if these PSUs are run properly, it can yield sustained and permanent revenue for the government for years, instead of selling in a one final deal.

Yes, As a few section claim, including our policy makers, many PSUs are in a very pathetic condition today, heavy losses, rigid management at the top, lack of innovation and creativity, an inefficient work force, lack of competitive spirit, too much of government control… all these factors contribute to their inefficiency. But there are PSUs which are performing really well, especially in the banking sector and I have written about this in one of my earlier articles. Recently, there was a news report about Three Public sector companies BCPL (Bengal Chemicals and Pharmaceuticals), HAL (Hindustan Antibiotics Limited) and IDPL (Indian Drugs Pharmaceuticals, which were expecting operating profits in 2009-10. These firms were sent to the BIFR (Board of Industrial and Financial Reconstruction) for revival plans as these firms were declared sick units. Let’s see the steps that were taken to bring life to these companies. The firms have cut internal costs and improved employee productivity, upgraded technology, increased salaries and introduced performance-linked incentives to boost sales. Yes, this is the way to go. Just imagine, if all the PSUs in the country start to deliver in terms of performance how these firms can serve as a continuous and permanent source of revenue for the government.

The Point is, A complete change over is needed from top to bottom, a Business process Reengineering of these PSUs, first of all, autonomy, but with a pre-condition of performance evaluation time to time, that these autonomous units need to show in terms of performance at any cost, just like the way private companies are run, PSUs are also businesses whose objective is profit, then why not run these units in a commercial sense, (except a few public sector companies which were setup by the government for the purpose of serving citizens, but these companies too can be run profitably by providing excellent customer service). Secondly, top heads leading these firms, leaders need to show an absolute sense of passion towards their companies, this is where these PSUs are lagging behind, the heads leading these units are not leaders but mere appointed officials, and most of them do not have any vision for their company, nor do they have the urge to perform. The top management needs to be purpose driven, especially the one at the top of the hierarchy. Hire a few Jack Welch’s, Steve Jobs, and Ben Benarkes to lead these firms; do we have shortage of managerial talents in this country? For what purpose does the government provide subsidized education to the students of IITs and IIMs? Pick a few bright talents from these institutes; provide them adequate remuneration to lead these enterprises. Thirdly, Workforce, Most of government servants today misuse the privilege given to them by the government i.e., permanent employment, there is no incentive based package. Whether a government employee performs or not, hardly anybody bothers, even he performs or doesn’t he will get the same salary, there is no incentives based on performance, he enjoys full protection from the unions. There is no question of firing for under performance unless some serious allegations are proved against him/her. The total HR Policies of these State run enterprises need to be revised. It may sound harsh, but a series of such reforms will change the whole scenario of these loss-making PSUs, The policy of ‘permanent employment’ need to be abolished by passing a law in the parliament. The HR Policies need to be similar like the Private sectors’, perform or perish, the salary package need to be incentive based and real committed workers need to rewarded with incentives and promotions and underperformers need to be fired subsequently after a few warnings. The recruitment process should be short and simplified, in order to intake the fresh batch of candidates to compensate the fired ones and finally, up gradation of Technology is essential in order to ensure smooth and efficient functioning.

These kinds of reforms will totally change the way these Public sector enterprises function and they will subsequently become competitive enough, once these enterprises start to perform and yield profits, expansion plans can be charted out, adequate funds can be pumped in by issuing IPO’s to the retail investors (General Public) not corporate investors, because again that will amount to profit sharing with the private hands, and some profits can be ploughed back.

These PSUs if run efficiently can provide sustained and continuous revenue to the government and the surplus profits can be diverted to various social sector and infrastructural projects.

The suggested reforms may seem difficult, but not impractical, Mrs.Indira Gandhi, nationalized various important banks of this country in one go, no body could stop her from doing that, the militancy in Punjab was completely suppressed in her regime, what seemed impractical or impossible was made possible or practical, a terrific leadership at the national level is what is needed.



*The story of the villager and his golden goose (for reference)
A village bought a goose from the market , to his surprise , it used to lay one golden egg every day, and he was the happiest man in the world, he would sell an egg per day ,and earned a lot of money, he was becoming rich day by day, finally he became greedy, one day this foolish villager thought , this crazy goose lays eggs one by one that too one per day, let me slaughter this goose and get all the golden eggs inside her stomach at a time, he brought his sword from the store room, caught the goose and slaughtered it, but could find only one egg in the stomach which it was supposed to lay on that day, he realized his mistake and repented, but that couldn’t bring the goose back.