What are the problems of Public Sector Enterprises in India?

A number of charges are leveled against the public sector in India. Some are lopsided and some are genuine, to a certain extent.

Objective and Role:

In the history of planning in the country, over the last six decades, there has been a definite shift in the assigned role of public enterprises in the country through various Five Year Plans from ‘attaining the commanding heights’ in the national economy and ‘easing out private sector’ to the ‘opening up’, ‘liberalisation’ and ‘globalisation. It has been a perennial problem for the policy makers to set the role of the public sector in the Indian economy and it would continue to be so.

Secondly, the objectives of public sector have been defined and goals being set not very systematically in each case. Even the objectives at the macro level have been mixed-up with a number of propositions, sometimes contradictory in nature.

Extent and Coverage:

Whether the public sector should extend to wide variety of economic activities or to be confined to a selected few only, is a very crucial decision of great magnitude.

Similarly, whether the economy of the country should be open to private sector or be confined only to the public sector monopoly or both should be given a competitive share in open market becomes another crucial political decision. The problem is consistently persisting in the Indian polity, more particularly from the recent past.

Organisation and Management:

The organisation and management of the public sector enterprises has been on ‘trial and error’ ever since independence in the country. Initially, the enterprises were organised as departmental undertakings owing to their simplicity of operations and management.

Then came a time when the government company form was most prevalent. Following the developments in the international field, particularly in England, corporate form was adopted in India too.

And a host of corporation was created, both sectoral and multipurpose as well as development corporations. Lastly, joint ventures came on the scene again taking a cue from the development in the world.

The management has all along been a problem to tackle. In the first place, there has been a consistent dearth of managerial skills in the country, both at the initial stages as well in recent past.

The constitution of management boards is the other major problem, which merits attention most. Here, the government burdens the governing board with the civil servants, undermining the principle of autonomy of the enterprises. The management board tilts the balance of decision making on policy matters greatly in government favour and thus reducing the enterprise to, more or less, a department.

Personnel Administration:

The personnel management of the public sector is beset with a plethora of problems which are mostly responsible for it’s inefficient, uneconomic and below standards performance. The recruitment to public enterprises is done by individual enterprises or by a central personnel agency for a group of enterprises in a given sector following general guidelines of the government in matters of reservations, etc.

The tendency to second the civil servants to top management is so rampant in the country that it negates the initiative of inbreeding and the insiders are disillusioned, not to talk of their disappointment and disinterestedness.

Remuneration or compensation to the employees is another area, which needs prompt attention. While compensation to top managers is usually high in most of the enterprises with innumerable perks and other amenities and benefits, it is progressively lower in the middle and lower level managements.

The performance appraisal in most of the public enterprises is done only as the annual recording of character rolls. These results in the low standards of performance and the efficiency of the enterprises go down progressively.

Financial Management:

The prime requirement of majority of the enterprises is the sound and scientific financial management as they lack financial discipline, consciousness and professionalism.

The financial advisor has to play a crucially important role in the management of finances of the public sector enterprises.

Budgeting, the most crucial of all the segments of financial management, is not properly practised in the public enterprises in most cases.

A number of agencies are involved in the planning and control of financial management of public enterprises in the country, viz., Board of Management, Administrative Ministry, Ministry of Finance, Bureau of Public Enterprises, Planning Commission, Director General of Technical Development and Public Investment Board.

Workers’ Participation in Management:

With a view to ensure increased productivity for the larger benefit of the enterprise, the employees and the community, to give workers’ better understanding of their role in the production process and to satisfy their demands for self-expression leading to better industrial relations, worker’s participation in management (WPM) was launched.

The process of WPM involves four main steps, viz., information sharing, joint consultations, joint decision-making and self-management. The workers are involved at all these levels to take the decisions in the best interest of enterprise.

With regard to workers’ participating at various levels including board level, it is beset with a number of problems relating to selection of employees to be represented on the Board of Management.

Autonomy and Accountability:

‘Autonomy’ implies “freedom to act” and is related to “freedom in internal management”. Autonomy in the case of public enterprises does not imply ‘full freedom’ to act as desired by the individual enterprise management. The Public Enterprises are accountable to Parliament through the concerned minister and therefore cannot act freely.

At the same time the public enterprises should be accorded sufficient autonomy to run their operations on business lines. It facilitates quick decision-making and encourages initiative.

Accountability of the public enterprises implies rendering of accounts to the public – the ultimate owner of these enterprises. According to S.S. Kher, “accountability involves measurement of top management. It must be remembered that the accountability that we are talking of, is accountability, which has a particular purpose – a demonstrably useful purpose.

A distinction has to be drawn between accountability and control. Control is active function while accountability is a passive function. Control means directing, restraining, or stimulating an organisation or individual to a certain action. In fact, control facilitates accountability. An accountable individual or organisation has to possess control power to give true account.