I really have never been a great advocate of public sector units, as I am a firm believer and advocate of freedom of enterprise and a vested interest led economic model, as it imbibes in its foundation, individuals’ education, freedom, liberty and innovativeness as the root cause that stimulates economic growth, cumulatively, of a nation. It pays more importance to microeconomics, which cumulatively leads to macroeconomics. The nation is assumed to be a sum total of individuals and entities. The Left leaning models are more distributive in nature rather than being cumulative. All resources are accumulated in the hands of the state, which then distributes them among individuals and entities.

It cannot be denied that neither of the two models work perfectly, because they are not inventions that suddenly percolated the economies. They are a consequence of centuries of history, culture and economics that stoichiometrically or deterministically (depending on what school you, my reader, subscribe to) lead to what and where we are and who we are.

For well-intentioned reasons of our forefathers and leaders of post-Independent India, we have a substantially large number of Public Sector Units (PSUs). There are three interesting observations I made about these PSUs.

Government belongs to the people; PSUs belong to government and private investors. Both ways it is people of India, who own the PSUs. How should we the people of India run the companies that belong to us? Of course, through our chosen representatives. But it is important to understand that the interests of 1.3-billion people of India should supersede all other interests, whatsoever. It surely is time to junk ideas that all capitalists are blood suckers. History has shown it is far from true. Secondly, governments are hired indeed to ensure that no agent in the economy becomes a blood-sucker. Govt. can always make policies to avoid such instances. Thankfully we are not a colony and laws can be changed in case there is misutilization. Below-mentioned are a few things I would surely want my government to execute for the PSUs we people of India own.

First and foremost, the top management running the PSU has to be world class with world-class remuneration. Even if the salaries are kept in concurrence to those in other sectors. Like in the private sector, the management should be allowed to take away X% of the total profits as incentive (in the private sector this number is 10%). This will very critically raise the stakes of the top management which will be able to rake in big moolah. Not only will the brightest compete and rise, they will ensure high operational efficiency, besides, resisting useless dole outs, which PSUs have to make for various reasons. The interests of the shareholders & those of the top management shall then concur in full force. India will see the brightest talent pouring in PSE Services instead of IAS, IFS, IPS & IRS. I assure my readers it will be so, because we are more catholic than the Pope, when it comes to capitalism.

Heading a PSU today comes with some egotistic perks and little to nothing more. Therefore, there is no yearn in the management to go beyond the convention. I propose to ignore some exemplary cases that might have happened owing to exceptionally self-motivated CEOs or geniuses. Those are exclusions, not principles. This has to be acutely changed, by getting the CMD of ONGC, BHEL, BEL, IGL, BPCL getting incentives that are in concurrence with peers managing similar companies abroad or at least similar size companies in the private sector.

All large highly profitable PSUs should be emboldened to have a portfolio of investment with smallest investments in a high-risk area (venture capital), then growth capital and last conservative investments. Investments in ongoing operations and expansions to be excluded from this matrix. Indeed, I would want my PSUs to weigh investments. If another PSU is fetching better returns then the PSU in question, it should be allowed to invest in profitable projects of the other highly profitable PSUs. I would want my money to be invested in the most optimized risk-return option. Why should ONGC not invest in EIL if the return on investment that EIL generates is higher than ONGC? Inter-PSU investments will make peer comparisons happen and lead to creation of a meritorious class. All competitive, successful capitalism is based on creation of meritorious operators (please do not confuse it with social classes, against which I pitch acutely).

While management usually is about strategic decision-making but subject-matter understanding is critical. All major PSUs should have a clear succession. Every CMD should have a Deputy CMD, who would take over charge from the CMD, as and when he retires or is transferred. It is ideal to let lateral entries at mid-level not at top. Nonetheless, in case there are lateral entries (they cannot be avoided), they should not happen at the CMD level. They should happen at Deputy CMD level. This will give the internally promoted or laterally inducted Deputy CMD sensible time (at least an year or two) to be trained and be prepared on various intricacies and subject-matter understanding before taking over as the CMD.

The most important reform that the government should undertake is ensure provision of objectively meritorious culture. All PSUs beg love of merit, which is compromised owing to various pulls and pushes. There are innumerable softwares like SAP, TCS, Transformating that are good at evaluating and assessing people working using them. They should be introduced to ensure personnel assessments are very objective. The government has to realise that assessment has undergone a sea change in the last few years with 70-80% work digitization. It is much easier to estimate a number of such factors that were completely left to an annual subjective CR (Confidential Report).

The government should have a clearly formulated and loudly pronounced policy on disinvestment. It should announce disinvestment conditions in highly profitable corporations for raising funds while those which fall beyond a predetermined market share, would automatically go under the hammer. This will ensure that employees and management of all PSUs are well informed of the consequences of lacklustre performance in the market and losing market share to private operators. This of course has to come with the top management getting the incentives like the private sector, as recommended previously. Else, one will end up tying the hands & feet of the managers, throwing them into the sea and tagging along a large number of non-swimmers, whom the management is bound to save from drowning, besides swimming to the banks themselves. But what is crucial is to announce these measures much in advance and not treat everyone with shock therapy. Large corporations have to get time to adjust.

Disinvested corporations, especially those which are loss-making, should get a few years of PSU perks after privatization in return for all the legacy problems and issues that a private investor might have to take up. As an example, to sweeten the deal, the government can offer to continue using the Maharaja (Air India) as the preferred carrier for all government officers for 1, 2 or three years. This will enhance the deal value for the private investor.

On some very fundamental analysis of the data on public sector enterprises, it was not difficult to spot very high managerial to non-managerial ratios. In concurrence to at 1:5. This means either most PSEs are no longer producing and are largely routing, or they are ageing fast.

My straight understanding is that since we have PSUs, it is nonsensical to wish them away. On the contrary, thanks to earlier monopolies that these companies enjoyed, many of them are pretty rich. We have to sharpen them by providing them all the rights, incentives and obligations that will enable them to excel and be highly efficient.

Empower them to excel and chisel their fortune themselves. They will turn out to be unpolished roughs, which needed some thought and effort to sparkle like a diamond. Those which are Zirconium or glass, should be jaded into jewellery and their value recovered to invest in the next level of education of Indians. That is a more worthwhile investment than in poorly performing PSUs.

Deepak Loomba is MD & CEO, AICORPS EPL