When unions talk sense and the government doesn’t

Three events of the last fortnight bring to light what is wrong with the government’s handling of the public sector.

One event was the death of Subir Raha, former chairman of Oil and Natural Gas Corporation (ONGC), India’s premier oil producer. Raha was the last public sector manager with the gumption to stand up to babudom and fight for autonomy. He fought the minister, he fought the bureaucrats, and as long as he was there, ONGC had a fighting chance of retaining its operational autonomy. His untimely death earlier this month — he was just 62 — should give all public sector managers reason to examine their own powerlessness and what they should be doing about it.

In a report last year, Goldman Sachs put a figure to the loot of ONGC. “Since 2003-04, the promoter (i.e. the government), which owns a 74% stake in the company has taken away cash from the company on a quarterly basis for subsidising loss-making state-owned downstream companies. So far, ONGC’s promoters have taken cash of almost $20 billion from the company without consulting the minority shareholders,” Goldman Sachs said.

Raha’s comment: “Public-sector companies cannot be treated as government departments. Companies are expected to make profits, departments are not.”

The second event —- the underwhelming response to the public issue of NTPC Ltd (formerly National Thermal Power Corporation) —- is a telling example of Raha’s comment in action.

The Rs 8,300 crore issue was rescued by two public sector companies —- Life Insurance Corporation (LIC) and State Bank of India (SBI). This is a ringing vote of no-confidence in the government’s intentions vis-a-vis NTPC. The issue —- force-fed to the market by the finance ministry to raise resources before the Union budget —- merely ended up transferring ownership of 5% of NTPC from government to government-owned companies.
Government department won over commercial enterprise.

The third event is a letter written by two public sector employee unions to the prime minister for bringing in an outside management team for Bharat Sanchar Nigam (BSNL).

Normally, unions are the first to fight on behalf of internal candidates and oppose outsiders. But the Sanchar Nigam Executives Association (SNEA) and the All-India Graduate Engineer Telecom Officers Association obviously think otherwise. Their letter was bitterly critical of the management.

“This company cannot survive under such servile management, which, we are sure, cannot rise above the interests of the lords (ministers and babus). Thus, the issue fundamentally boils down to the induction of the rarest of rare talent on the board, definitely not through the orthodox and primitive mechanism that Public Enterprises Selection Board has in place at the moment,” the SNEA said in its letter. It went on: “The criterion cannot be just be… seniority, based on redundant performance mechanism” to decide on “top slots to run a gigantic company, virtually in shambles today.” Strong words, but it goes to the nub of the problem. If public sector managers are servile, there is no way the enterprises they run can succeed.

Now contrast this with the revenue-oriented approach of the finance minister. Pranab Mukherjee said in his last budget speech that “public sector undertakings are the wealth of the nation, and part of this wealth should rest in the hands of the people. While retaining at least 51% government equity… I propose to encourage people’s participation in our disinvestment programme.”

Sure, there is nothing wrong in any disinvestment programme or sharing public sector wealth with the people of the country. But the critical question is: how can public sector managers create wealth when they work for their bosses rather than the enterprises they run?

The finance minister’s rush to disinvest public sector shares is all about selling family silver, not about creating wealth. The NTPC issue that nearly failed is a case in point. The 5% disinvestment brought no money to NTPC; Pranab swallowed it all. Not only that, the wealth of two other public sector enterprises — LIC and SBI — was used to feed that bottomless pit called government. This is the kind of servility the BSNL employees are talking about. Why should the shareholders of SBI pay for plugging Pranab Mukherjee’s fiscal deficit? Why should taxpayers allow him to transfer money from LIC’s pockets to his, when LIC could use the resources for its own growth? How is Pranab helping create wealth in SBI and LIC when these two public sector financial giants are being denuded of it? Quite clearly, their servile leaders have been armtwisted to invest in a power company owned by government. They had to put their money where their boss’s mouth was.