Autonomy to public sector undertakings is a myth." Analyse in the context of the use of government expenditures by politicians who control governments at different levels.

Understanding PSU Autonomy – A Formal Framework

PSU autonomy, in theory, encompasses several dimensions: financial autonomy (control over investment and pricing decisions), operational autonomy (freedom from day-to-day political interference in management), and personnel autonomy (independent recruitment and promotion policies). Post-liberalization reforms (1991 onwards) aimed to enhance this autonomy through measures like the introduction of the MoU system, granting greater managerial discretion, and corporatization. However, these reforms have faced significant limitations.

Mechanisms of Political Control through Expenditure

The assertion that PSU autonomy is a myth stems from the significant control governments exercise through budgetary allocations and expenditure decisions. This control manifests in several ways:

• Budgetary Control: PSUs are heavily reliant on government funding, either directly through budgetary support or indirectly through guarantees for loans. This dependence creates leverage for political interference.
• Investment Decisions: Major investment decisions, even within ostensibly autonomous PSUs, often require government approval. Politicians can influence these decisions based on political considerations rather than purely economic rationale.
• Procurement Policies: Government procurement policies, often favoring domestic manufacturers (e.g., ‘Make in India’ initiative), can compel PSUs to prioritize political objectives over cost-effectiveness.
• Personnel Appointments: While PSUs have boards, key appointments (Chairperson, Managing Director) are often politically influenced, ensuring alignment with government priorities.
• Discretionary Funds: Politicians often utilize discretionary funds allocated to PSUs for projects in their constituencies, irrespective of their economic viability.

Illustrative Examples

Several instances demonstrate the limitations of PSU autonomy:

• Air India: Repeated bailouts and attempts at privatization were heavily influenced by political considerations, delaying necessary restructuring and contributing to its financial woes. The debt restructuring and eventual privatization were significantly impacted by political timelines and considerations.
• Coal India: Government directives regarding coal pricing and supply, often aimed at ensuring affordable energy for specific sectors or regions, have constrained Coal India’s profitability and operational efficiency.
• Oil Marketing Companies (OMCs): The government’s control over fuel pricing, particularly during periods of rising global oil prices, demonstrates its ability to override the commercial decisions of OMCs, impacting their financial performance.
• Bharat Heavy Electricals Limited (BHEL): Allocation of contracts and projects to BHEL is often influenced by political considerations, sometimes at the expense of competitive bidding processes.

The Role of CPSEs in Policy Implementation

Central Public Sector Enterprises (CPSEs) are often used as instruments for implementing government policies, even if those policies are not commercially viable. This further erodes their autonomy. For example, PSUs are frequently tasked with implementing social welfare schemes or infrastructure projects in politically sensitive areas, diverting resources from their core business objectives.

Area of Control	Mechanism	Impact on Autonomy
Financial	Budgetary allocation, loan guarantees	Limits investment freedom, creates dependence
Operational	Government directives on pricing, procurement	Constrains commercial decision-making
Personnel	Political appointments to key positions	Ensures alignment with government priorities