There is no doubt that PSUs have proved themselves worthy of being called instruments of economic growth, industrial and regional development, and a steady increase in parameters such as surplus generated for the exchequer, increase in net profit amongst others strengthens this belief.
The concept of making PSUs accountable through MoUs in India can be traced to the recommendation made by the Arjun Sengupta Committee on Public Enterprises in 1984. During the initial years, Government of India laid greater emphasis on the core sectors like Steel, Heavy Engineering, Coal, Power, Petroleum and Fertilizers but over the years, the number of PSUs under the MoU system has increased exponentially.
From aggressive disinvestment during 2002-2004, approx. $3.16 billion, over the past decade, the PSU sector in India is experiencing a paradigm shift with corporate governance reforms gaining prominence over divestiture.
This cautious approach to disinvestment and privatization was a result of the recommendation of the National Common Minimum Programme (NCMP) which proposed providing full managerial and financial autonomy to profit-making PSUs in competitive sectors.
PSUs have progressively come under greater pressure to improve their performance and competitiveness because of globalization, market deregulation, demands for essential infrastructure, need for reduced fiscal burden and enhanced transparency and accountability.
Keeping this in mind the reform agenda focused on improving corporate governance of PSUs and the introduction of a performance monitoring system for PSUs created a level playing field for public and private corporate enterprises alike. Through proper accountability mechanisms like the MoUs the Government has also rewarded these PSUs by providing greater autonomy, the result, according to the Public Enterprise Survey 2014-15, majority of the 298 PSUs have improved their financial performance over the years.
The latest step taken by the Government in April 2016 was the renaming of the Department of Disinvestment as the Department of Investment and Public Asset Management (DIPAM) under the Ministry of Finance which will be responsible for promoting people’s ownership and better corporate governance in PSUs.
DIPAM is responsible for all matters relating to management of Central Government investments in equity including disinvestment of equity in PSUs. It is also responsible for matters relating to sale of Central Government equity through offer for sale, private placement or any other mode in older PSUs. It should be noted that all other post disinvestment matters, including those relating to and arising out of the exercise of Call option by the Strategic Partner in the erstwhile PSUs, will continue to be handled by the Parental Ministry or Department concerned, where necessary, in consultation with the Department of Investment and Public Asset Management (DIPAM).
Further, the Finance Minister conveyed the Government’s intent to adopt a comprehensive approach for efficient management of government investment in PSUs by addressing issues like capital restructuring, dividend, bonus shares amongst others through DIPAM.
Asia is full of examples of countries acknowledging the importance of PSUs as vehicles of economic growth, though their outlook on its proper management and the resultant outcome differs. While some countries like Nepal have vastly been effected by continuous disinvestment which has almost hindered their PSUs from contributing to their full potential, countries like Bhutan have seen a steady rise in financial parameters and profit through effective corporate governance practices like Performance Contracts, while countries like India have taken a cautious hybrid approach of corporate governance through MoUs and strategic disinvestment through restructured organization like DIPAM. Which approach to PSU management will be the best will
be crystal clear in the next couple of years but one thing is certain that Corporate Governance no more remains just a buzzword in effective PSU management.
(Ritvik Mishra has been working on policy formulation, critique and implementation in various capacities during his tenure in the Cabinet Secretariat, World Bank amongst other world renowned policy think tanks. He is a firm believer in good governance through effective implementation and proper M&E.)