Prime Minister of India - Dr. Manmohan Singh

PM's address to Chief Executives of PSUs

"I am happy to associate myself with the Conference of Chief Executives of Central Public Enterprises. This is my first opportunity to meet the captains of our public sector enterprises since I assumed office. At the outset, I would like to congratulate the Chief Executives who have received the awards today for their excellent performance. I am sure such awards will motivate all of you to attain even higher levels of performance in the coming years.

Public Sector Enterprises in our country have served the nation well, but I very much hope and trust that the best is yet to come. Public Sector Enterprises are an important part of the foundation of our economy and you, ladies and gentlemen, are the custodians of these national assets. Your commitment and your efficiency are vital to the productive utilization of these scarce and precious national assets. It is timely for the Department of Public Enterprises and SCOPE to have taken this initiative of holding a conference on the role of the Public Sector. I sincerely hope that this forum will provide a platform for a free and frank exchange of views on the challenges facing your enterprises and will facilitate identification of new strategies to achieve our government's objective of improving the overall performance of the public sector.

I do not have to elaborate before this august audience the important role public sector enterprises have played in the economic regeneration and industrialization of our country. We are all aware of the vision of Pandit Jawahar Lal Nehru who perceived the public sector as capturing the commanding heights of our economy. This vision saw the magnitude and significance of the PSEs in the economy increasing rapidly after independence. The public sector contributed considerably to the rapid economic development and industrialization and have helped create the basic infrastructure for our country. It also provided large-scale employment opportunities for the people and balanced regional development across the country. The public sector has been one of the main pillars on which our country built itself and moved towards greater self-reliance.

Over the years, however, there has been a proliferation of PSEs and willy-nilly they have entered a wide and, somewhat disparate range of activities. Not surprisingly, beginning with just five PSEs with an investment of only Rs. 29 crores at the inception of the First Five Year Plan, we today have around 240 central PSEs with a staggering investment of Rs. 3,33,475 crore. While this is an impressive sum, the question will naturally be asked whether the Nation is getting its due return on this massive investment.

While asking this question, it must be recognized that the environment in which our PSEs have to function has changed and is changing very rapidly. The eighties and nineties have seen a gradual opening up of the economy, both internally and externally. Today, PSEs have to face a far more competitive environment than they ever had to in the past. Firms, which were monopolistic players in product markets face today intense competition both from domestic competitors and from imports. While economic liberalization has increased competition, technological progress has changed product markets. Stability, in many cases, has been replaced by change and certainty by greater uncertainty. While product markets are getting fragmented at one end of the spectrum, they are crossing sectoral boundaries at the other. Who would have thought a few decades ago that IT and telecommunications would have anything in common? Or that imaging technology would merge photography, photocopying and IT? Faced with the great variety thrown up by a more competitive economy, customers, long used to uniformity and limited variety in products now demand greater choice, better quality and improved service delivery. They demand innovative financing options and inducements. The government's own role as a predominant buyer in many product markets has also changed very significantly.

This changed competitive environment - driven by changes in the economic policy environment, by changes in technology and by changes in consumer tastes and aptitude - requires phenomenal changes in the functioning of our PSEs. Strategies, structures, styles, systems and skills, which were relevant and effective in an earlier era may be of limited use in the changed environment, if not downright redundant. Every aspect of functioning of PSEs therefore needs to be rethought and modified and adapted to meet the requirements of the new emerging environment.

For PSEs to survive and flourish in this changed environment requires them to have adaptive skills of a high order. The challenge posed by each element of change, or of uncertainty requires a new skill. Technological change requires investment in R&D and development of capabilities to capitalize on advances made by science and technology. This may be in inventing new products; in improving production processes to improve efficiency and to reduce costs; in increasing product variety; and, last but not least, in meeting customer needs through a better appreciation of demand in all its dimensions. Enhanced competition requires the adoption of new managerial techniques in corporate finance, in operations management, in project management, in human resource management and in marketing. Reaching out to customers - both public and private - in a competitive environment requires marketing skills, which were possibly considered irrelevant when government was a predominant buyer. In a globalised world, this reaching out stretches to export markets as well and that requires additional skills.

Management of human resource becomes even more vital where success of organizations is critically dependent on harnessing technological, scientific and other knowledge. As funding from government sources shrinks, there is a need to develop new skills in alternative financing mechanisms. This in turn requires greater transparency and more stringent accounting norms to cater to the growing demand of investors to know more about the enterprises in which they invest. The spectrum of skills I have elaborated are essential if PSEs are to become more efficient and capable of surviving on their own in this harsh, competitive world that is now on the horizon.

Given the changed economic scenario and the demands this places on PSEs, it will be useful to step back and reflect on how PSEs have managed to cope with this change. While some firms have shed their inhibitions and embraced change successfully, there are many others, which have yet to adjust to the new, harsh realities. It is a matter of pride that the performance of some of our PSEs is commendable by any yardstick of performance. It has been seen that many PSE stocks have been among the best performers in the stock market. At the same time, the general perception does remain that PSEs often under-perform on standard measures used to measure the performance of commercial organization.

Of course I fully realise that the principles by which we judge the performance of PSEs cannot be the same as those we used to judge the performance of the private sector. I'll touch upon that in a moment. However, even Pandit Jawaharlal Nehru had said almost half a century ago that, "The way a government functions is not exactly the way that business houses and enterprises normally function....when one deals with a plant and an enterprise where quick decisions are necessary, this may make a difference between success and failure. I have no doubt that the normal government procedure applied to a public enterprise of this kind will lead to the failure of that public enterprise." That is precisely what seems to have happened.

Therefore, we need to ask a number of questions on how can we change the way we manage PSEs so that the good performers are not an exception but the normal rule. That is a task that conferences like yours must perform. How do we create in these organizations the work culture, the managerial attitudes and the entrepreneurial drive that is required for enterprises to compete in increasingly globalised and competitive markets? What should the priorities for public investment? Which are the sectors where public investment should be diverted in years to come - primary sectors, manufacturing, strategic sectors, consumer goods, services? How do we give operational autonomy to PSEs while retaining their character as public enterprises? What about the attendant ministerial supervision and parliamentary accountability'? What are its limits? How can we ensure that individual initiative is not stifled? Ladies and gentlemen, these are fundamental questions, the answers to which will determine the success or failure of our enterprises as commercial entities. I request the participants in this conference to focus their energies on finding feasible strategies and solutions to meet the challenges outlined above. Our government will be open to any suggestions which will go towards enhancing the competitive position of our PSEs.

Of course, in playing their due role as instruments of economic development, PSEs have readily taken and are still required to take on the burden of social development. The externalities arising out of public sector investment often outweigh the direct benefits arising from commercial operations. The development of backward areas, the provision of employment to the less privileged and the creation of social infrastructure became often the leitmotif of the public sector. This fact has been widely acknowledged even by captains of private industry. Gratitude has been expressed for the fact that PSEs have helped create in our country a pool of human resources, rewarding professional competence, technical excellence and above all diverse experiences in managing the complex process of establishing large-scale modern industry. Any meaningful appraisal of the performance PSEs therefore, must take into account the beneficial effect of these externalities that are generated. In many ways, our PSEs face an extraordinary challenge when they are required to fulfill the charter of social commitment and simultaneously meet the imperatives of managerial efficiency and the ability to survive in a competitive environment. The ability of PSEs to evolve an organizational model that can both meet the challenges of competition and simultaneously fulfill social needs requires entrepreneurial abilities and innovative approaches of the highest order. And therefore, if PSEs continue to do well, even when they are asked to combine these two objectives, not easy to reconcile all the time, I think their performance needs to be commended.

Our government is committed to a strong and effective public sector pursuing both social objectives and commercial principles. The NCMP commits the Government to devolve full managerial and commercial autonomy to successful, profit-making companies operating in a competitive environment. It also states that generally profit-making companies will not be privatized and where needed privatization would be done on a transparent and consultative case by case basis.

In pursuance of our commitment, we will take steps to make PSEs more efficient and self-reliant. The Chairman of SCOPE has suggested some measures. We have with us the Report of the Committee under the Chairmanship of Shri T.K.A. Nair, former Chairman, Public Enterprises Selection Board. The Government will implement the recommendations of the report after they are duly examined.

It was heartening to note that SCOPE has taken the view, in its journal KaleidoSCOPE, that PSUs are not holy cows and they want to face challenges and prosper in a competitive market environment. It is indeed encouraging to note that SCOPE has amended its Articles of Association and has redefined its vision urging its member enterprises to be globally competitive in a market driven environment. Our government is committed to improving the standards of efficiency and competitiveness of PSEs and I expect them to be model employers and global players in years to come. This is of course, not a small challenge.

Good corporate governance has emerged as a major managerial and shareholder concern worldwide even among world scale MNCs. Transparency and accountability are essential ingredients of any managerial system, especially with respect to PSEs where public money is involved. I would also like you to debate whether the instrument of Memorandum of Understanding, MoU, between PSEs and government has been an effective mechanism of ensuring operational autonomy and managerial accountability.

Given the commitment of our government to a strong and effective public sector, we shall be establishing a Board for the Reconstruction of Public Sector Enterprises to guide government policy with regard to PSEs. The Board will advise Government on measures to be taken to restructure central PSEs, including cases where disinvestment or closure or sale is justified in national interest. Our government believes that the process of disinvestment should increase competition, not decrease it. We are of the view that there should be a link between disinvestment and the provisioning of basic social goods. Towards this end we propose to use the revenues generated through disinvestment for designated high priority social sector spending. Public sector companies and nationalized banks will also be encouraged to enter the capital market to raise resources and offer new investment avenues to retail investors.

I am happy to learn that the PSE Executives who have got awards for their distinguished service have in fact walked the path of taking responsibility for their actions, of providing leadership and of being accountable for their actions. I congratulate the awardees and am sure that such awards will further encourage the employees and management of PSEs to excel in their respective fields.

There is, before I close, another issue I wish to place before you for your consideration. One of the important objectives of public investment in the industrial sector was in fact to foster research and development and augment our technological capability. In fact the close association between the Council of Scientific and Industrial Research (CSIR) and the public sector was based on this principle. Has this objective been properly addressed and adequately met? I have been told by Dr R S Mashelkar, the Director-General of CSIR, that in recent years the track record of CSIR in patenting new products in association with PSEs has greatly improved. However, when I look at countries like China, an impression is created that we are far from the record that countries like China have achieved in this regard. Investment in R&D is an important commitment of the public sector, but it is a commitment that probably has not been adequately fulfilled.

Much of what I have said is really based on our own experience with central PSEs. What about the state-level PSEs? How active is SCOPE in addressing the challenges faced by state PSEs? In fact, what purpose are these state PSEs serving? Has there been a horizontal and vertical proliferation of central and state PSEs with duplication of activity and sickness being induced by uneconomic scales of operation and absence of a focused strategy?

These are all substantial issues that need to be debated. Far too much of the public discourse, in the media, in academia and in the Parliament and the legislatures has been focused on the pros and cons of privatization and disinvestment. We must, however, engage in a wider and more meaningful debate on the more substantial questions of making PSEs more efficient, more profitable and competitive not just at the national level but also in the global market. We must raise our sights. The status quo will simply not do. If PSEs even in the so-called "strategic sectors" have to survive in the long run they must be globally competitive and must constantly invest in making themselves more competitive in a changing global market environment.

Globalisation has come to stay and there is no running away from it. I look forward with keen interest your deliberations and your specific recommendations. I also assure you that the Government will give full consideration to the recommendations that would be made here. We are partners in progress. You have the technological knowledge, the managerial skills and the dedication that I have been witnessing to carry forward the process of social change in partnership with government. I extend my greetings to you and my very best wishes for your deliberations. May your path be blessed".