Model Answer
0 min readIntroduction
Public Sector Undertakings (PSUs) have historically been the cornerstone of India’s industrial development, playing a crucial role in achieving self-reliance and promoting social welfare. However, many PSUs have struggled with inefficiencies, mounting losses, and a lack of competitiveness. The recent emphasis on ‘Atmanirbhar Bharat’ and the need for a leaner, more efficient public sector necessitates a paradigm shift – PSUs must learn to operate on a commercial basis, fostering innovation and entrepreneurship without relying solely on government budgetary support. The NITI Aayog has consistently advocated for PSU reforms, including privatization and consolidation, reflecting this changing perspective. This requires strengthening their autonomy and devising effective strategies for reviving sick PSUs.
Strengthening Autonomy of PSUs
Granting greater autonomy to PSUs is paramount for fostering a competitive spirit and enabling them to respond effectively to market dynamics. This can be achieved through several measures:
- Financial Autonomy: Reducing government control over financial decisions, allowing PSUs to raise capital independently through market mechanisms (IPOs, bond issuances), and providing greater flexibility in pricing their products/services.
- Operational Autonomy: Empowering PSUs to make independent decisions regarding investment, production, marketing, and human resource management. This includes streamlining bureaucratic procedures and reducing the need for constant government approvals.
- Board Composition: Ensuring that PSU boards have a majority of independent, professional directors with relevant expertise. This will bring in fresh perspectives and enhance accountability. The Companies Act, 2013, provides a framework for board governance, but its effective implementation in PSUs needs strengthening.
- Performance-Based Incentives: Linking managerial compensation and employee benefits to performance metrics, such as profitability, efficiency, and innovation.
Reviving Sick Public Sector Undertakings
Addressing the issue of sick PSUs requires a multi-pronged approach, tailored to the specific circumstances of each undertaking. A ‘one-size-fits-all’ approach is unlikely to be effective.
- Diagnostic Assessment: Conducting a thorough assessment of the root causes of the PSU’s sickness, including financial mismanagement, technological obsolescence, lack of demand, and inefficient operations.
- Restructuring and Rehabilitation: Developing a comprehensive restructuring plan that may involve financial restructuring (debt waiver, recapitalization), operational improvements (technology upgradation, cost reduction), and organizational restructuring (downsizing, outsourcing).
- Strategic Disinvestment: Considering strategic disinvestment (partial or complete sale of government stake) as a viable option for reviving sick PSUs. This can bring in private sector expertise, capital, and management practices. The government’s disinvestment policy has evolved over the years, with a greater emphasis on strategic sales.
- Merger and Acquisition: Exploring the possibility of merging sick PSUs with healthy PSUs or private sector companies to create synergies and improve efficiency.
- Asset Monetization: Monetizing underutilized assets of sick PSUs to generate funds for revival.
Specific Suggestions & Recent Initiatives
Beyond the broad strategies outlined above, several specific suggestions can further strengthen PSUs and facilitate their revival:
- Promoting Innovation: Establishing dedicated R&D centers within PSUs and encouraging collaboration with academic institutions and private sector companies.
- Digital Transformation: Leveraging digital technologies (AI, IoT, Big Data) to improve operational efficiency, enhance customer service, and develop new products/services.
- Skill Development: Investing in skill development programs to upgrade the skills of PSU employees and prepare them for the challenges of a rapidly changing economy.
- Strengthening Corporate Governance: Implementing robust corporate governance practices, including transparent financial reporting, independent audits, and effective risk management.
The government has initiated several reforms in recent years, including the establishment of the National Investment and Infrastructure Fund (NIIF) to provide funding for infrastructure projects and the implementation of the Public Enterprises Selection Board (PESB) to ensure merit-based selection of PSU board members. The ‘Project Sashakt’ initiative aimed at resolving stressed assets in the banking sector also has implications for the health of PSUs that are borrowers.
| Reform Area | Specific Measures |
|---|---|
| Financial | Reduced government guarantees, market-based financing, performance-linked bonuses |
| Operational | Technology upgradation, process re-engineering, outsourcing non-core activities |
| Governance | Independent board members, transparent reporting, strengthened audit mechanisms |
Conclusion
Reviving the health of PSUs and ensuring their long-term sustainability requires a fundamental shift in mindset – from being reliant on government support to operating as commercially viable, entrepreneurial entities. Strengthening their autonomy, implementing targeted restructuring plans for sick PSUs, and embracing innovation are crucial steps in this direction. A pragmatic approach, combining strategic disinvestment with genuine efforts to improve efficiency and governance, will be essential for unlocking the full potential of India’s public sector and contributing to the nation’s economic growth. The success of these reforms will depend on strong political will, effective implementation, and a commitment to transparency and accountability.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.