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Why sack 100,000 people when just one will do?

Saturday, 13 March 2010 - 10:26pm IST | Place: Mumbai | Agency: dna
If neta-babu meddling is responsible for ruining the companies, how can their committees address the core issues bedevilling the public sector? It’s like asking the fox to guard the hen-pen.

Some remedies are worse than the disease. The Sam Pitroda committee, which has made various recommendations for reviving the fortunes of Bharat Sanchar Nigam Ltd (BSNL), the country’s public sector telecom leviathan, has suggested a reduction in employee numbers by 100,000. Being a government company, he has not recommended instant pink slips, but voluntary separation schemes and gradual reduction in the workforce through natural attrition.

The parliamentary committee on public undertakings, in a recent report on the Air India mess, has a different answer to the problem of public sector failure. In a stinging indictment of the way civil aviation minister Praful Patel pushed through the merger of Air India with Indian Airlines, the committee called for action against “agencies and individuals responsible for taking a whimsical decision so that no public sector unit suffers such losses in future.”

Both the committees have addressed the symptoms, not the problem. In suggesting that we get rid of 100,000 BSNL employees, Pitroda is making the mistake of assuming that chicken-pox can be cured with face-cream. The parliamentary committee makes retribution its focus. It is trying to fix the blame for the Air India-IA megaflop merger, not the problem.

The problem with public sector governance is precisely this kind of gratuitous external advice, given by committees appointed by the same people who first ran the companies into the ground. The public sector needs managerial autonomy and guaranteed freedom from political interference, not committee advice.

Autonomy has not happened any time in the 60-and-odd years after independence. If neta-babu meddling is responsible for ruining the companies, how can their committees address the core issues bedevilling the public sector? It’s like asking the fox to guard the hen-pen.

The only way to square the circle is to delink public sector units from politicians and babus. We need to get rid of that one politician or babu who interferes, not the 100,000 employees who work in demotivating conditions. The problem starts with the way we define public sector accountability. We believe that since they are publicly funded, they should report to their political masters, who are the people we have elected. Accountability, thus, runs upwards from board to ministry, and we know what damage ministers can do.

The real picture is different. It is taxpayers and the public who own the public sector, and not politicians. Direct accountability to politicians vitiates the environment for performance. One solution lies in changing the direction of public sector accountability to an independent body comprising truly public-spirited individuals, who should act like trustees of public investment and wealth. 

Take the case of the Air India-IA merger. If Praful Patel wants a merger, can the management oppose it? Faced with high competition, Patel’s ministry dangled the simplistic solution of merger as panacea without thinking through the consequences.

A businessman himself, Patel should have known that the world is strewn with the carcasses of failed mergers. If two out of three private sector mergers fail — and, remember, private promoters have better incentives to succeed than public sector managers — with what assurance did Patel push the merger of Air India with Indian Airlines? It is difficult to believe that he had only the best interests of the two airlines at heart.

Sam Pitroda had less of an axe to grind on BSNL than a Praful Patel with Air India, but once again the question is: why does a BSNL need his advice? Can a 300,000-strong organisation be run on the advice of a committee? Why not just appoint Pitroda (or someone equally capable) as CEO and be done with it? The incentive to do the right thing by BSNL varies depending on whether you are a committee chairman trying to show up its faults or a CEO trying to fix them.

A small example will suffice. Pitroda has asked BSNL to scrap its 93-million-line equipment contract on the ground that it is better to rent these facilities than buy them outright — as many private sector rivals do.

Knowing how things work in the public sector, Pitroda is surely right in guessing that some neta or babu would have had a hand in this decision, and may well have made money on the side by clearing the contract.

But this begs the question: if the public sector giant is unworthy of deciding even a simple thing like a purchase contract, how is it going to do any better if that contract now involves renting equipment from private sector vendors? This is nothing but second-guessing the management’s reasons for taking one kind of decision and not another.

By giving public sector managers autonomy, we may court a few failures, for some CEOs will surely take the wrong decisions. By giving truckloads of committee reports and criticism, we will ensure that they will all fail.




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