It has been reported that the central government may consider creating a holding company for its largest public sector enterprises, and that this company will own them on the state’s behalf. That the Centre accepts that the public sector continues to suffer from interference is welcome, as are continuing efforts to solve the problem. However, there are reasons why this latest plan should be viewed with some scepticism. It is not that the structure of the plan itself is unsound; it’s just that the history of government control of the public sector should show that even more drastic measures are necessary.
The government has, after all, tried many different approaches to management of central public sector enterprises (CPSEs). They have created various categories that are supposed to free them from ministry-level control: first the “navaratnas”, and then various spins on that status, such as “miniratnas” and “maharatnas”. Then there was the report of a high-level committee led by Arjun Sengupta shortly after the first United Progressive Alliance government came to power. The report suggested that the only way the government could interfere in a public sector company should be through its nominees on the company’s board — or through a full presidential directive, with the consent of the entire Cabinet. And as far back as 1991, in the industrial policy that heralded the beginning of reform, it was announced that each public sector unit would be freed from its associated ministry’s direct control through the signing of a memorandum of understanding at the beginning of the year. That efforts to insulate public sector units from political and bureaucratic control have been underway for two decades with little success, although a variety of alternative methods have been trumpeted, should cause this latest news to be viewed with concern.
What can a holding company do, after all, to genuinely insulate a public sector unit? Little enough, if those who staff and run the holding company owe their position to direct political or bureaucratic patronage. If ministries send bureaucrats on deputation to staff this nominally independent holding company, it is not going to be independent at all. Instead, it will be just another set of politically appointed jobs with perquisites made comfortable by public sector profits or taxpayer subsidies. The companies in question, especially those listed on the markets, are after all already technically answerable to an independent body: their board. If the controlling ministry is nevertheless able to subvert this process, why should it not subvert any holding company, as well? There is also some concern that the future path of this holding company will be to hold on to CPSE profits and invest them on the say-so of the government — a very dangerous idea. The history of state control of the public sector in India has shown, over and again, that the management of public sector enterprises will not be independent of the structures of power and patronage put into place by government ownership. The only real conclusion: the government must actively relinquish control of these companies. This will hurt those who look forward to the perquisites they provide. But it will help politicians, in that they will no longer consider themselves responsible for the commercial decisions taken by some of India’s largest and most influential companies.
