[PDF Notes] Essay on Autonomy in Public Sector Enterprises

During the last few years, there has been a demand for greater autonomy to the public enterprises. It has been argued that Article 12 of the Constitution, where the public sector units are treated as ‘authorities’ under ‘State’, has put a lot of constraint on them.

The demand of/for autonomy has also become somewhat irrelevant if we take cognizance of the recent development regarding providing autonomy to a large number of PSUs.

Ministries told to keep their PSUs at arm’s length

The government has barred its officers and staff from using the infrastructure or facilities of the state-owned companies and asked administrative ministries to repatriate PSU staff working with them.

The measures are aimed at providing greater autonomy to the state-owned companies by keeping administrative ministries at a professional distance..

Several PSU officials are currently working in key ministries such as power, oil, steel, chemicals and heavy industry. The government has also received complaints that governance norms have been violated in cases where PSU employees are working with the administrative ‘ministries in advisory roles.

The government is of view that it is important to separate the functions of the ministry and its public undertakings, given the government’s disinvestment programme. No PSU official should be involved in such decision making process barring the chairman and his appointed staff.

The department of public enterprises, the nodal agency for all state-owned companies, has also come out with guidelines restricting officials of the administrative ministry from participating in retail issues. The same is applicable to PSU employees who are involved in the decision making process.

Some administrative ministries, however, feel that this exercise may lead to delays in decision making on key matters.

The government is further looking to curtail the role of administrative ministries both in functional and financial matters. Four PSUs – NTPC, SAIL, ONGC and IOC – have been approved for the new maharatna category. As of now, only NTPC enjoys this status, the rest of the PSUs have to appoint non-official directors to get maharatna powers.

Port trusts to become public sector companies

Years after the government set up its first corporatised port at Ennore, the ministry of shipping is planning to initiate the conversion of major port trusts into public sector undertakings (PSUs) in a bid to make them independent and more profitable. The plan is to begin the process with Jawaharlal Nehru Port Trust (JNPT) and then move on to other major port trusts.

A consensus has been reached within JNPT over corporatisation among various stake holders including employees’. Usually, corporatisation of ports has been a thorny issue for the government due to opposition from labour unions.

The move is expected to give more autonomy to boards of major ports especially at a time when there is immense pressure on the government to expedite the National Maritime Development Programme for modernisation and expansion of ports through public private partnership (PPP).

India gives greater autonomy to jewels’ among state-run firms

India created a new category for its highly-efficient state-run firms, called maharatnas or mega- jewels, to extend much greater autonomy to its managements and flexibility in areas like mergers, acquisitions and recruitment.

The main objective of the maharatna scheme is to empower the mega central public sector enter­prises to expand their operations and emerge as global giants.

The proposed higher category will act as an incentive for other navratnas (jewels) firms, provide brand value and facilitate the delegation of enhanced powers to central public sector enterprises.

Currently, there are 18 navratnas among state-run firms.

For a company to be accorded maharatna status, it would first have to be a navratna, besides being listed on stock exchanges with public shareholding as prescribed by the Securities and Exchange Board of India (SEBI).

The firm should also have clocked an average annual turnover of Rs. 25,000 crore ($5 billion) with an average annual net worth of Rs. 15,000 crore ($3 billion) during the past three years.

It should also have posted annual net profit of more than Rs. 5,000 crore ($1 billion) during the past three years and enjoy a significant global presence or international operations.

The procedure for grant of maharatna status as well as their review is proposed to be similar to that in vogue for the grant of navratna status.

Some of the special powers to maharatna companies include:

  1. Make equity investment to establish joint ventures and subsidiaries in India or abroad
  2. Execute mergers in India or abroad subject to a ceiling of 15 percent of its net worth up to an absolute ceiling of Rs. 5,000 crore ($1 billion)
  3. Powers to the board on recruitment

The government had introduced the navratna scheme in 1997 to identify state-run firms that had comparative advantages over others and needed autonomy and support to become global giants.

The boards of these navratna companies have been delegated powers in areas such as capital expenditure, investment in joint ventures or subsidiaries, mergers and human resources management. “The current criteria for the grant of navratna status are size-neutral.

Over the years some navratna companies have grown very big and have considerably larger operation than their peers. ‘The proposed higher category (of maharatna) will act as an incentive for other navratna companies, provide brand value and facilitate delegation of enhanced powers to central public sector undertakings. Conclusion

To conclude, it is clear that during the last 62 years, public sector units have registered a growth in jurisdiction, volume of investment and activities.

The performance of public enterprises, which at times was dismal, has improved to some extent. Large number of contributions has been made by the public enterprises in the past. Even after liberalisation, the public sector will play an important role in the economic development of our country.

What is required is to have a supporting role from the private enterprises. Instead of privatisation of the public sector units, one can argue that there is a need to bring in private culture of management in the PSUs. Efficiency is not the function of ownership, but of management.

In case, we are able to provide the real operational autonomy, reduce the bureaucratic way of functioning, bring about modern techniques of management, reduce considerably the size of manpower and bring about effective accountability, the public sector would still occupy commanding heights and play a significant role in the economic development with social justice in India.

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