Slash state stake in psus below 25%

Slash state stake in psus below 25%

To bring it just below 51% is to shed accountability.

The Budget speech announced plans to reduce the State’s stake below 51% in some public sector undertakings (PSUs) to give them greater functional autonomy. There is, indeed, a case for unshackling PSUs. PSUs, it is said, are in dread of the three Cs: Central Vigilance Commission, Central Bureau of Investigation and Comptroller and Auditor General. They fear that any original thinking or non-conformist initiative may attract accusations of malfeasance, making PSU managers shun risk and stick to procedures and precedents rather than break out boldly in new directions.

No official is penalised for taking ages to reach decisions or implement projects, but can be prosecuted for attempting to hasten things. This focus on procedures over outcomes is a recipe for bad management, and explains why PSUs tend to perform so much worse than their private sector peers. Lowering the government’s holdings in a PSU below 50% will take it out of the jurisdiction of the three Cs, giving PSU managers much more elbowroom for good management decisions. However, this will give rise to fresh dangers. The public sector has been called the private sector of politicians, used for creating patronage networks and kickbacks. Dozens of scams have highlighted the scope for political misuse even with the three Cs looking on. If oversight by the three Cs is withdrawn, who then will ensure accountability of the PSU? In the case of a private company, the owner’s money is involved and the need for public supervision is correspondingly lower. But the public money in a PSU requires a much higher degree of accountability and scrutiny.

If the government really wants to free PSUs, it should reduce its stake to below 25%, allowing a change of management. Once that happens, the government stake can be viewed as portfolio investment, requiring a lesser degree of oversight. Even better will be outright sale, reducing the government stake to zero. But merely reducing the stake from 51% to 49% will mean moving from one hazard to another, from the frying pan to the fire.