While there is no doubt that Public Sector Enterprises (PSE’s) have witnessed major growth over the years, the need of the hour is to initiate the next phase of PSE reforms in the country which would enable them to become multinationals. This was the overall view expressed during the Global PSE Summit organized by the Confederation of Indian Industry and the Department of Public Enterprises, Ministry of Heavy Industry and Public Enterprises, Government of India in New Delhi on December 13-14, 2013.
This was supported by the CII – KPMG report on “PSEs in India : Transformation, Empowerment & Sustainability”.
Mr Adil Zainulbhai, Chairman – India, McKinsey and Company outlined a five point vision for PSEs. According to Mr. Zainulbhai, PSEs needed to:
1) Achieve world class scale. According to him, the PSEs would need to reinvent themselves so as to become players in the global market and attract global talent.
2) Become leaders in technology and innovation leaders. There were few sectors that PSEs were seen to be leaders in technology and R&D. This scenario needed to change.
3) Need to grow to achieve the world class scale and size. There are very few Indian PSEs in the top 100 companies in the world and he was of the view that many more should figure on this list in the next ten years.
4) Adapt the HR systems and recruitment practices to become the best source of talent in their respective sectors.
5) Need to achieve a high level of transparency in governance and independence.
6) Separation of ownership from management does not tantamount to privatization and must be looked at.
Mr R S Butola, Chairman, Indian Oil Corporation, while accepting the vision outlined by Mr. Zainulbhai stated that a number of reforms need to be undertaken so as to make the vision a reality. PSEs still continue to remain shrouded in red tape and have limited risk appetite which is limiting their ability to grow and become global.
Mr Butola questioned why the personnel of PSEs did so well in the private sector and not so in the public sector. He observed that in the 1970s, PSE were the first option for people who graduated from premier institutions like the IITs. This was no longer the case and the PSEs need to revamp their HR systems to attract the best talent. He suggested that the compensation structures in PSEs needed to be reworked so that they compare well with the structures prevailing in the private sector.
He called for the separation of ownership and management. He felt that by doing this, the company would be able to function more as a commercial entity. He was of the view that by doing this, one would not necessarily be privatizing the company. He pointed out that in countries like China and Russia have separated ownership and management very effectively. The State should allow PSEs to exercise their responsibilities as well as respect their independence. Such measures could significantly help strike a harmonious balance between the private and public sectors.
Mr. Butola called for the creation of a level playing field. He felt that the government needed to decide whether they wished to stay in the business of being in business.
Reiterating Mr. Butola’s views, Mr. Nalin Singhal Chairman and Managing Director, Central Electronics Ltd., spoke of the need to provide greater autonomy to the public sector to enable them to perform at par with the private sector.
Mr. D Raja, Member of Parliament, Rajya Sabha highlighted the challenges faced by PSUs at the present time. He was of the view that there is a need to privatize different organizations, as the banking systems, IITs and most of Government hospitals are the integral part in their own fields and all of them are government owned. He said we must learn from China and examine how their PSEs have grown over the years. He felt that PSEs have a greater role to play not only in building the country’s economy but also to take it forward and achieve its goals.
According the report titled “Public Sector Enterprises in India: Transformation, Empowerment and Sustainability” prepared by CII and KPMG and released on the occasion of the Summit, China established a State-owned Assets Supervision and Administration Commission (SASAC) which launched a process of redefining the relationship between the central government and the so called ’central enterprises’.
The underlying principle of SASAC contains both centralizing and decentralizing features. It clearly separates central, provincial and municipal SoEs and hands over their control to SASAC offices at the respective administrative levels. However, on the other hand, the central government asserted its authority by taking all central enterprises away from the control of various government agencies and putting them under the unitary supervision of an organ that reports directly to the State Council.
Similarly, the CII- KPMG report points out that in Singapore, Temasek Holdings was set up as the government’s private investment arm and the holding company of Singapore’s PSEs. According to Temasek, the Singapore government should control and own companies. This perspective is driven largely by key areas where the ownership of a resource is of considerable significance to the country’s security and economic health. This was one of the driving forces behind the creation of Temasek Holdings’ model. Temasek’s focus on sound governance has allowed it to achieve a portfolio value of S$164 billion (about S$108 billion). The company’s value has multiplied more than 400 times since its inception in 1974. Temasek companies are known to adopt and adhere to a “glocal” model for integrated corporate governance. Thus, Temasek not only enhances investment for its shareholder, the Singaporean government, but also generates additional income for it.
Mr. O.P Rawat, Secretary, Department of Public Enterprises, Ministry of Heavy Industries and Public Enterprises, Government of India focused on strong Corporate Social Responsibility, strong supply chain for the manufacturing sector PSUs that they should undertake in order to grow in their field. He also focused on strong R&D for each and every PSUs.
Mr Ajay Shankar, Member Secretary, National Manufacturing Competitive Council said that PSUs should publicly take pride in themselves on what they have achieved till date and build a brand for themselves. He took the example of Multinational companies like Samsung and Volkswagen, who have their targets and work plan fixed for future days. The PSUs should also do the same. They should be ambitious and should have the risk taking appetite. Each PSUs should give time to their executives for “disruptive innovation” where they can come out with new ideas. According to him, we live in a globalized world and only need to compete on a global level in order to survive. He therefore felt that the Government should give PSEs confidence and empower them to become the global leaders.