Welcome 2014: Find out the big challenges for PSUs in New Year

DPE Secretary Ms Sidhu

THE year 2014 is likely to be a memorable one for the public Central public sector undertakings for more than one ways. The year will see the coming into power of a new, and hopefully stronger, government at Centre and lot of changes will definitely be on the cards for these public entities that have been playing a pivotal role in shaping up the health of the economy in many ways. Let’s have a quick look on the challenges before these PSUs in the New Year...

First and foremost, during the next few months till general elections, no major policy is likely to be announced vis-à-vis the PSUs. However, one policy that is likely to be implemented very soon is the Roongta Committee report on the PSUs. A fixed tenure of three years for the heads of the PSUs is the main recommendation given by the former head of Steel Authority of India Limited (SAIL). The Centre is likely to announce a fixed tenure for the chiefs of the PSUs before the general elections. The decision may benefit some honchos of PSUs. Some of the PSU heads will remain in office beyond the age of 60 in order to complete their three year tenure. In other words, the retirement age for most PSU employees will remain at 60, but some of their bosses may stay in office two to three years beyond the age of retirement. Such a move will ensure transparency and efficiency in the functioning of the PSUs, and will put an end to uncertainty about the tenure of the chiefs.
Another significant challenge for the PSUs will be how to achieve the target of capex (capital expenditure). Cash-rich PSUs are expected to pump in about Rs 1.4 lakh crore as capex this fiscal. The target for the first half of the fiscal was about Rs 50,000 crore and of this about 96 percent was already invested. A slowdown was seen in capex by PSUs last year and now, the finance ministry has seen this as a signal of uptick in growth.

Corporate social responsibility will be another significant area for the PSUs to deal with in the backdrop of the new Companies Act that seeks to encourage firms to use CSR to integrate economic, environmental and social objectives with their operations and growth. The Act seeks to actively engage top management by constituting a CSR board committee of three or more directors. Section 135 of the Act makes it mandatory for companies “having net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more or a net profit of Rs 5 crore or more during any financial year” to spend two percent of their after-tax profits to the society.

Now, if a company fails to spend the specific amount on CSR, instead of a penalty, they will have to issue an annual statement about the reasons for it. The Act has stated in clear terms where the company can spend and they have the liberty to choose areas that are the most beneficial for them as per their CSR policy. Nine activity areas like education, healthcare, environmental sustainability, gender equality, employability etc are specified where they can spend funds.

Another challenge for the PSUs in 2014 will be how to deal with the issue of listing more and more PSUs especially the smaller ones in the bourses. Recently President Pranab Mukherjee also pitched for listing more and more PSUs in the bourses.  As on November 30, 2013, of the total of 260 CPSEs and subsidiaries of CPSEs, 50 were listed in the bourses. 46 of these were listed at BSE, which constituted 15 percent of the total market capitalisation of 5,116 companies listed at BSE. In addition, 28 public sector banks (PSBs) accounted for another four percent of the total market capitalisation in BSE. Thus, all PSUs together constituted 18.7 percent of the total market captalisation at BSE or Rs 12.72 lakh crore.

However, the Herculean task for the cash-rich PSUs will be to achieve the target of Rs 40,000 crore target of disinvestment set out by the Union finance ministry by March 2014. How tough was the task was manifested after few stake sale of the PSUs. The government thus far managed to collect only Rs 3,000 crore through stake sale in six companies to meet Sebi's listing norms and another Rs. 1,600 crore through disinvestment of Power Grid Corporation in December. There are strong opposition both from the trade unions and the respective PSUs for selling stake, what the PSUs feel, at lower prices.

There has been a lot of discussion about a level playing field between the private and the public sector companies. So the PSUs may not have the luxury of government protection for long. Even President Mukherjee said, "Much more needs to be done to provide a level playing field between the public and private sectors in terms of flexibility of operation and quicker decision-making."

One area where the PSUs must pay special attention is its management. Management is the key for the success of any PSU. In order to enhance their competitiveness to deal with market forces, management has to be of the highest professional level, enabling the attainment of global benchmarks in productivity and efficiency and meeting the multiple objectives expected of contemporary global enterprise.This was the view aired by former finance minister and the current president of India. 

Another big challenge is to make global forays. In other words, we expect more and more Indian PSUs to turn MNCs in 2014. However, there are obstacles here. Many of such cash-rich PSUs such as OVL, GAIL are making their global footprints. State Bank of India (SBI) has over 100 branches across the world. In a recent report on India PSUs titled PSEs in India: Transformation, Empowerment and Sustainability, it was advocated that the need of the hour is to initiate the next phase of PSE reforms in the country which would enable those PSUs to become multinationals. This was the overall view expressed during the Global PSE Summit.
Will the PSUs get more autonomy in their functioning in the New Year? "As vital members of a thriving industry sector, PSEs must drive overall industrial and economic growth. It calls for increased autonomy to enable PSEs to meet the demands of the market in a responsive manner," said President Mukherjee recently.