From Navaratna to Maharatna

Indian PSEs can become globally competitive

The Union government’s new Maharatna policy, aimed at offering more managerial freedom to large public sector enterprises (PSEs), should be welcomed. Far too many PSEs have suffered in global competition due to domestic bureaucratic bungling and political interference, even in strategic sectors. Delayed approvals have been the bane of PSEs wishing to take advantage of global opportunities. A good owner must know how much space ought to be given to professional managers. Modern management theory debunked long ago any link between ownership and management performance. There can be good and bad owners both in the public and private sectors just as there can be good and bad managers. Hence, there is no inherent reason for poorer performance by public sector enterprises. If many of India’s PSEs have performed under par, it is either on account of undue political interference or on account of bad managements. The successful functioning of public enterprises in a wide range of countries in Europe and Asia shows that Indian PSEs too can compete at the global level and hold their own. So, when Air India does not do well, the reasons are not just ownership issues, even if that is the primary factor responsible for poor performance. Making enterprise managements more accountable to all stakeholders, apart from the principal shareholder, is good for the enterprise concerned and for the economy as a whole. However, an important precondition for success will be the quality of top management and the independence of the board overseeing the company. A bad captain can sink even the best ship.

While the Navaratna policy has helped strengthen PSEs in the domestic market, the Maharatna policy should help them become global players. The manner in which many PSEs have been able to cope with competition and grow shows that they have good managerial talent that keeps them on their toes. This despite political and bureaucratic interference, often of the worst kind. Researchers have shown that over the past decade and more while public sector share in domestic investment has gone down, its share in output has remained constant. This suggests an impressive rise in productivity. This is manifested, for example, by the rise in physical efficiency, as in electricity generation, and an increase in profitability. The decline in employment generation has translated into better per-worker productivity. In some sectors, PSEs have not been able to levy economically justifiable user charges and have, as a consequence, been hurt. If the Navaratnas and Maharatnas cannot be run on economic grounds, mere managerial autonomy is unlikely to make a difference. This raises the entire question whether saving the public sector is worth the effort or whether India should go in for wholesale privatisation. Apart from the fact that there is no longer any political support for privatisation in any of the major political parties, the fact also is that many PSEs are, in fact, run very well and have contributed to nation-building in a manner that the private sector has not yet done. Hence, strengthening the Navaratnas through the Maharatna route is worth trying.