Should PSUs be separated from their administrative ministries?

Yes, they should be.

The temples of modern India are under pressure. Post 1991, the inherent functioning of PSUs were exposed to new market dynamics, and many became sick and redundant However, there were a few companies like SAIL, BHEL, NTPC and Maruti, that not only survived the competition from MNCs but also thrived in the new environment. But these are far and few.

Ministries are often the deciding factor and the last word in critical decisions. This often leads to delays, lack of accountability and innovation; effecting performance and profitability. Government’s did try the MoU process but it has not achieved the desired results. Performance was never the top priority for most of the chiefs of the PSUs, rather networking and relationship building- especially with those within the ministries was what counted.

Given the current state of a large number of PSUs, an alternate approach to strengthen them is required.

One way could be the creation of a separate entity or Investment trust that would be the holding company of the Government equity and would also manage the PSUs, professionally. Parallels can be seen in the structure of TATA Sons which oversees nearly 100 companies of the group. The key officials in this Trust could be from within the pool of Government run professional institutions like LIC, UTI, SBI, etc. The government’s role would be limited to providing broader guidelines to the trust keeping an accord with strict and transparent governance and eliminate some of the ills that exist.

UIDAI (Project Aadhaar) is one example where professionals have been brought in to carry out a large but specific task. And it has not been created under the ambit of any particular Ministry.

The other approach would be more in line with the current feeling where without tilting the ownership of the Government in the proposed shareholding pattern, we can look at decreasing it to a 40-45 percent, wherein the Government remains the largest entity in the venture and the rest with FI’s and the public. We have examples of L&T, ITC and Axis Bank which are professionally managed with distinct business objective and accountability.

There could be other formats as well but the progressive way forward is to delink ownership and operations by enforcing relative autonomy with strong governance practices and mandatory compliances to bring about increase efficiency, productivity, innovation and accountability.