Public Sector Reforms: Under-promise, over-deliver
Our Finance Minister was widely criticized for squandering an opportunity to paint a bold reform agenda in this year’s Budget speech. But let us be realists. This is an inopportune time to contend that aggressive PSU reforms and privatization constitute the panacea to all our economic woes. In the capital of free markets-the USA, several companies in the private sector have perished because of inefficiency, greed and poor governance. Yesterday’s iconic corporations are being rescued with American tax-payers’ money. If we look at their ownership structures today, many of them resemble our PSUs.
Globally, the pendulum is also swinging back towards government regulations and oversight. In a survey, conducted online in the US by Public Strategies Inc. and Politico, only 37 percent of the respondents said they trust corporations to do what is right. Only one in five said federal regulation of corporations should be decreased while 61 percent said regulation should be increased. Public trust in business in the US is at its lowest in a decade. More than a third of the U.S. economy is being touched and impacted by the government. In Western Europe and Japan, the percentage is likely to be even higher.
The gurus of public policy and management are hoping that we shall not witness the return of government in a “command-and-control” role as in the past. Such an approach, they feel, would destroy entrepreneurship, innovation and creativity that are vitally needed to improve competitiveness and revive companies. They expect governments to coax rather than coerce. They believe governments will use incentives to influence corporate behavior rather than enforce punitive measures and taxes. There are many success stories of how incentives have been offered and embraced .How governments are coaxing the private sector to adopt clean and green technologies in our warming planet through incentives is cited as a great example.
Yet the debate on the role of PSUs in our country is alive and for good reasons. Our national carrier Air India is losing $1 billion. And Air India is not a solitary example. There are many others who are swimming in red ink and corroding national resources. On the other hand, the supporters of PSUs are contending that it is our strong PSU base that has saved the day for India in these dismal economic times.
The case for sensible reforms in PSUs, however, is more compelling today than ever before. Past reforms and empowerment have actually assisted PSUs to emerge stronger. It is important that PSUs have independent boards consisting of competent and experienced people. It is also crucial that they are insulated from interference, their performances are benchmarked and they have good governance. As Deng would say, the ability to catch mice (meet or exceed agreed performance metrics) is more important than the tired ideological debates about the cat’s colour (ideology).
The so-called “Navaratna” experiment in the PSUs has been a success. The number of 9 (Nava) has expanded already to 18 Navaratnas. At least 3 more enterprises are waiting in the wings to be anointed. With increased autonomy coupled with performance monitoring, it has helped companies to emerge as strong players. It is time, therefore, to go one step ahead and pick those companies which have the potential and aspiration of being world-class, global-scale Indian MNCs and empower them further to succeed in the world market. The Government is toying with the idea of a special class of companies to be christened “Maharatna” . Maharatna should not be just a badge of recognition. It should empower them to be high-performance, agile enterprises that can emerge as a global leader with the people of India directly investing in their fortunes.
There are also a host of PSUs which are ailing owing to excess labour, outdated technology, poor management, lack of funds, weak linkages to market and so on. It is important to restructure and invigorate them, if necessary, by inducting a competent strategic partner from the private sector.
China was able to bring about sweeping reforms by making the right economic moves while making the correct political noises. In 1949, 100 per cent of China’s businesses were state-owned. Then, as the joke goes, one day Deng Xiao Ping was being driven in his Red Flag limousine when the chauffer came to the crossroads. When asked whether he should turn left or right, Deng famously said, “Signal left but turn right.” I think this dialectical ambiguity has assisted China in implementing rapid reforms. We should be pragmatic and do what is best for India.
The FM has done an admirable job in managing expectations. Although Comrade Prakash Karat is not looking over his shoulders, as a consummate politician the FM is keenly aware of the sensitivities of his coalition partners. He would have created a huge push-back if he had announced a massive disinvestment plan .This would have done the cause of reforms more harm than good. Let us hope he has under-promised in order that he may be able to over-deliver.
(Roopen Roy is the Managing Director of Deloitte Consulting.Views expressed in this article are personal)