IT'S a classic case of much hype and little action. Four months after the proposal was outlined in Finance Minister P. Chidambaram's Budget speech, the ambitious Navaratna scheme to make global giants out of India's nine leading profit-making public sector undertakings (PSUs) is foundering.
Despite the Industry Ministry led by the radical Murasoli Maran stepping on the gas to translate the proposal into action, there is still no proper framework for the scheme, nor an agreed set of rules and level of autonomy for the PSUs—one of the main premises for the exercise.
Despite Maran's intentions to give the nine PSUs "total autonomy", there is no consensus on the level of autonomy due to differences between their administrative ministries. The companies are: Indian Oil Corporation (IOC), Steel Authority of India Limited (SAIL), Hindustan Petroleum Corporation Limited (HPCL), Oil and Natural Gas Corporation (ONGC), Bharat Petroleum Corporation Limited (BPCL), Videsh Sanchar Nigam Limited (VSNL), Bharat Heavy Electricals Limited (BHEL), National Thermal Power Corporation (NTPC) and Indian Petrochemicals Corporation Limited (IPCL).
The usual suspects apply. For one, the UF government is still too preoccupied with internal political developments. The June 24 cabinet meeting, where autonomy for the Navaratnas was on the agenda, could not take up the issue due to "lack of time". The next meeting on June 27, say sources, managed little more than minor technical issues like delegating increased financial powers to the profit-making PSUs or allowing them unhindered capital expenditure of double the earlier amount of Rs 50 crore where the gross block's over Rs 500 crore.
At a meeting with the chiefs of the nine PSUs in the first week of May, Maran had circulated a draft note among the PSUs and their administrative ministries. Despite differences over the desired level of autonomy, the ministries agreed in principle to the outline of the scheme. A joint meeting of the PSUs, the ministries and their respective secretaries towards the end of May clinched the issue, and the draft note seeking operational and financial autonomy for the PSUs to make them global giants was sent to the cabinet. Where it has been gathering dust so far.
Naturally, the PSUs are cynical. They feel that the government announced the scheme in a hurry, without going into the logistics and putting in place a framework. But behind the government's great haste to make mountains out of the PSUs is the poor show by the public sector in recent times. The bulk of the units were either in the red or recorded losses for consecutive years. Out of a total of 246 public sector enterprises involving an investment of over Rs 160,000 crore, 104, or 42 per cent, were sick or sustained losses for the last two years. In fact, minus the oil companies, some of which are on the Fortune 500, the public sector's return on capital employed is a measly 1.98 per cent. Since a total reform was neither feasible nor affordable, say government sources, a cluster reform of the PSUs was the best and possibly the only available route. Navaratna was the first step towards this.
And while the Navaratnas have been selected out of the best performers of the last few years, their performance too have been flashes in the pan. The oil PSUs have fared well, but their performance has come under the shadow of higher borrowings and a climbing debt-equity ratio. VSNL's globalisation efforts have taken a beating, while sales of BHEL and SAIL have suffered a setback. SAIL, whose revenues dipped by 60 per cent in 1996-97, is expected to make losses next year.
That, unfortunately, hasn't deterred the nine PSUs from promptly giving the Industry Ministry their views on the desired level of autonomy. In fact, the PSU wish list came as a shock and surprise to the government. Never before had the pampered PSUs shown so much discontent over government control as they have now done. What would especially rankle with the government is that many of these want their owner's stake brought down below 51 per cent.
"We are really asking for everything under the sun," says a director from SAIL. And why not, since the floodgates have been opened for everyone else? The existing controls over PSUs have really left them high and dry vis-a-vis private and foreign companies. Agrees J.S. Sekhon, head of planning, ONGC: "The government is paving the tracks for others, while the domestic runners are being kept in chains." Substantial differences in perceptions exist even within the Navaratnas. The Petroleum Ministry, which controls IOC, HPCL, BPCL and ONGC, stresses that the proposed autonomy would have to be strictly within the system of administrative pricing mechanism. Barring this, the demands for autonomy have scaled all areas of operation. "We want freedom from all possible hindrances and this would include Parliament questions, vigilance, appointments, commercial decisions," says the SAIL director.
The major demands of the PSUs include full powers to the board for capital investment of up to Rs 1,000 crore and powers to the board for sourcing funds through different debt-equity options within and outside the country, powers to the board to decide on employees compensations based primarily on performance; powers to induct experts in boards; flexibility in formation of joint ventures, mergers, acquisitions or formation of subsidiaries.
A major bone of contention is the amendment of Article 12 of the Constitution so that the PSUs are no longer part of the 'state'. The undertakings argue that this delinking will enable faster decision-making, as the demand effectively translates into freedom from control and interference of statutory bodies like the CAG, Central Vigilance Commission and parliamentary committees.
The government's delay on taking a stand on the autonomy level is taking its toll on the PSUs, which are now a demoralised lot. Says K.G. Ramanathan, chairman and managing director, IPCL: "For the PSUs which have been on a down cycle for long, the Navaratna proposal came as a morale booster. But until the logistics of such an exercise is clearly put into place,this will not translate into reality."
Adds a top executive from SAIL: "The government delay in moving further proves that the Navaratna proposal is doomed from day one." According to him, the administrative ministries were unlikely to agree to one single format as the demands of the various PSUs differed. And despite presenting—or perhaps because of—a detailed demand sheet, an IOC director is not too hopeful about its future.
Ironically, the Navaratna scheme is one of the best put forward by the government in recent years. On paper. In practice, it might turn out the worst, considering the government's own prevarication and the constraints under which PSUs work. It may be too much for the PSUs to expect the government, which is the source of most of their problems, to bring about the solutions.