Topless and bottomless

It's commonplace to describe public sector units (PSUs) as bottomless pits, given how they’re such a drain on the exchequer. Compared to an operating profit-to-sales ratio of 8.5 for the private sector in 2002-03, that for non-oil sector PSUs was half that, at 4.3.

Include the oil PSUs, where profits are assured by the huge import duties levied as well as the fact that private sector players have just about begun to compete with the PSUs, and this figure looks more respectable at 5.9, but it remains significantly lower than for the private sector and of course lower than the government’s cost of borrowing. In other words, the public sector in its entirety is a net drain on the exchequer.

Now, going by a news report in this newspaper, it looks as if these PSUs are topless as well, given that there are nearly 100 executive jobs that are vacant in PSUs. Of the total of 240 centrally-owned PSUs, around 15 per cent do not have a chairman, and 58 director-level posts are vacant.

It would be a mistake to pass this off as something that applies only to C-category PSUs; till very recently, the navratna BHEL did not have a chairman and managing director, and the post was vacant for over six months.

Even for the sick PSUs, of which there are 42, not appointing directors doesn’t make sense as these companies will get even sicker without somebody to run them well, especially now that the UPA’s in no hurry to sell them to private investors.

Several issues arise. First, the obvious one, that PSUs can’t possibly be expected to function without chief executives and heads of important functional departments—can you imagine Tata Steel functioning without a marketing director for months on end, leave alone a chief executive?

Second, despite the UPA government being in power for nearly five months, and committed to restoring the glory of the public sector, it clearly hasn’t got a policy that begins to look for successors for the top PSU jobs well in advance of the incumbent retiring. At a time when their private sector counterparts groom people for jobs years in advance, this is a huge lacuna in the way PSUs function.

In all of this, of course, there is the core issue that affects PSUs as much as it does all ministries and government departments, namely the fundamental mismatch between the salaries they pay and those paid by their private sector counterparts.

While both the government and PSUs invariably pay above-market salaries at junior levels, especially to support staff and clerical functionaries, the salaries paid to senior managers, directors and chief executives are usually a small fraction of that paid by the private sector.

Considering how these PSUs are competing with the private sector for the same markets, it’s difficult to avoid the feeling that it becomes an unequal fight. Put it all together and it becomes clear why the returns on investment in the public sector are so much lower than in the private sector.