Throw state-owned companies to the lions

Of course, this assumes that the returns to the private contractor through fees and sharing have to be a strong enough incentive for him to undertake the task without 100% ownership of the PSU. As long as the private contractor/consultant can improve the performance of the PSU to factor in his fee cost and a reasonable return through sharing, that would be incentive enough.

There might be management consulting firms who might enjoy a challenge like this, getting their hands dirty instead of just giving advice from outside the ring. There are also serial entrepreneurs and distressed business experts who have built a track-record of managing and turning around private firms, so they might like to try their hand with a larger PSU.

There are two critical challenges for this theoretical suggestion. First, the contractual terms and guidelines have to be detailed in fine print to avoid tricky situations occurring later among the parties involved. Secondly, most PSUs are mammoth in the size of their operations as compared to lean private enterprises, and this size is a challenge to outsource.

Level-playing field for public and private companies means that exemptions and preferences in rules and regulations that benefit PSUs have to be removed, even if it hurts like removing a Band Aid.

When competing for tenders and contracts, the battlefield has to same for everyone. Private companies have to get the same treatment as PSUs, so that they do not face hindrances when competing with state-owned companies. Otherwise, that might discourage further private investments.

This holds true in the opposite way as well. Many state-owned companies (airlines being the best example) have to provide free/subsidized services to government employees, which is a potential loss of revenue.

Private companies do not need to adhere to this and so they can collect revenue on every unit of product/service sold. So, the level-playing field for public companies has to work in both ways.

Focus on Merit and Competence

Placing importance on merit and competencies will be a crucial element of the transformation process. Technical/management qualifications aside, rewarding the employees in state-owned enterprises based on their meritorious performance at work, before personal references, would go a long way to develop motivated employees. In most cases, motivated employees are better performing employees.

Private companies assist in ongoing learning by sending employees to institutes to learn new skills and competencies. These add to the feel-good factor for the employees, as it helps their career progression. Increasing the coverage of similar practices among PSU staff might also make their workforce more motivated and better-performing, which bodes well for the state-owned companies.

Allowing the PSU management to take the initiative for strategic directions, rather than always work on instructions from the ministries, will also be important. They need to be leaders, instead of followers. The management is better placed in taking relevant decisions since they are on the ground.

But their inputs often get overruled by the politicians who have their voters in mind. This can often impact the viability of the PSUs’ projects. There has to be a balance between management and politicians. Rewarding initiatives that worked would also motivate the management. However, this requires that the management (and bureaucrats) have the support of the politicians; otherwise, the fear of repercussion will freeze decision-making.

The bottom line to the debate is competition. Unless competition is brought in, PSUs bleed the taxpayers’ money, which could be used for better purposes than just to keep a white elephant, which most PSUs have become today, alive. PSUs cannot run as monopolies as this is the best way to become inefficient.

The market has to be open for all participants, irrespective of their ownership. This is the premise behind saying that irrespective of whether all state-owned companies can get divested or not, it might be best to let them face the lions just like the rest of the companies. If an existing PSU starts performing better due to this, it would benefit the nation in the long-term.

– The author is a finance professional in India. Views expressed are entirely personal.