1. Nevertoolatetobe
Achangeagent
ParthaSarathiBhattacharyya
isformerchairmanofCoalIndia.
entral public sector enterprises (CPSEs),
described as the “temples of modern India” by
former Prime Minister Jawaharlal Nehru, were
mostly created between the ’50s and the ’70s with
the purpose of “attaining the commanding heights
of the economy”. Funded by the government, the
CPSEs moved into uncharted capital-intensive
core areas, shunned by the private sector for
perceived higher risks. Steel, coal, power, oil and gas, fertiliser, heavy engi-
neering, and defence equipment and infrastructure became the key areas
dominated by CPSEs.
Initially, the focus was on capacity addition and production growth rather than
profitability. Till the late ’80s, the net cash outflows from the government to the
CPSEs were in the latter's favour. But this gradually became unsustainable and
in 1991, the government planned a phase-out of budgetary support as part of the
economic reforms programme. Doomsday was predicted for the CPSEs by many.
Nevertheless, most of the CPSEs, with some support from the government,
underwent reform to overcome the challenges. The CPSEs that ran into huge
cumulative losses till the ’80s not only turned profitable but also became capable
of contracting long-term commercial debts for funding capex like their private
counterparts. Soon thereafter, the cash flows reversed in favour of the govern-
ment. Today, the aggregate contribution of public sector enterprises to the exche-
quer by way of taxes and dividends net of budgetary support forms a significant
share of revenue receipts of the government. Adding to that, disinvestment
proceeds make the public sector undertakings jewels of the government coffers.
Thanks to a central government with a decisive mandate, a new window of op-
portunity has opened. It is time for CPSEs to take the next step and unleash their
full potential. In this context, it may be useful to take a quick look at the reforms
carried out by China for its PSUs, known as State Owned Enterprises or SOEs.
In 2002-03, China disbanded many economic ministries and brought more
than 150 large SOEs under one umbrella—the State Assets Supervision & Ad-
ministration Commission (SASAC)—chaired by a senior minister and supported
by a few vice chairmen to whom the SOE chiefs reported.
While the SASAC appoints, rewards, punishes, and empowers the SOE heads,
it delegates the rest of the business decisions to the minister. For the large SOEs,
the heads are chosen via a global search among eligible Chinese nationals and
offered competitive salaries. The focus is on verifying them thoroughly in order to
find the right person for the right job, and thereafter, place full trust in them.
During 2003-2008, the SASAC-con-
trolled SOEs delivered an aggregate top-line
and bottom-line growth of about 200%.
A collaborative style of functioning also
emerged among the SOEs, as opposed to the
earlier compartmentalised style of opera-
tions. In November 2010, I met the chair-
man of China Shenhua Energy at a World
Coal Association conference in Brussels. He
confirmed that post-IPO and after com-
ing under the SASAC, the company had
rediscovered its strength and was pursuing a
diversified growth path.
A serious debate is needed on whether the
SASAC model could be considered a base
for developing an Indian model.
To begin with, the government should
appoint the CMD of CPSEs through an
intensive search among Indians, globally.
Non-official directors should be chosen
from reputed professionals. And the ap-
pointment of directors should be notified by
the government, based on the recommenda-
tion of the Nomination and Remuneration
Committee (NRC) of the board, creation
of which is statutorily mandated under
the New Companies Act 2013. The boards
should have complete autonomy in handling
all affairs of business of the CPSEs, includ-
ing the empowerment of the CMD. Any
intervention of the government should be
limited to performance monitoring.
These reforms will go a long way to en-
sure faster equitable growth of the economy
and the society.
column by Partha SARATHI Bhattacharyya
March 2015