The Public Sector
The Private Sector
The Merits of a Mixed Economy
Broadcast on 'Autonomy and Framework of Controls', All India Radio, New Delhi, October 7, 1970.
he problem lies in the fact that autonomy must co-exist with accountability. unfortunately, autonomy and accountability are to a large extent mutually exclusive. Autonomy carried to an extreme would totally frustrate the principle of accountability, while accountability also carried to an extreme would totally nullify the concept of autonomy. Determining the right midpoint between the two extremes is what has been found so difficult to achieve in practice.
Autonomy cannot emanate from a Parliamentary statute alone. It must come also from a voluntary abdication and delegation of powers by those who hold power initially
It was perhaps natural that when a large number of public sector enterprises were created in India after Independence, the Ministries concerned, with no previous experience to go by, sought to keep tight control over their new creations. Autonomy, at first, was thus conspicuous by its absence.
There is still an excessive degree of government control over the management of public sector enterprises. For instance, the Government's prior approval is still required for the extension of service of an officer for a year beyond normal retirement age even in the case of employees who are not permanent Government servants but employees recruited by the enterprise itself.
Again, although public sector enterprises are notionally free to fix their own salary scales, in practice they are still controlled by the Government. As a result, not only are the emoluments of the chiefs of great public sector enterprises limited to one-fifth or even one-tenth of those of their counterparts in other countries and to one-half of those in the Indian private sector, but the salary scales of all non-technical officers are in practice automatically related to those of civil servants.
While pay is obviously not the only criterion of job satisfaction, it is an important factor and by limiting the salaries of the men in charge of public sector enterprises to those prevailing in government service, public sector enterprises are deprived, to their great detriment, of the opportunity to attract the best commercial and industrial talent in the country.
The degree of freedom allowed to the management of public sector undertakings in Britain, France, Germany and Italy is incomparably greater than in India. Except in cases where the enterprise requires subsidies from the State to make up losses, or State funds to finance capital expenditure, the powers of the Board are indistinguishable from those enjoyed by the Boards of private sector companies. With rare exceptions, accountability consists in little more than submitting an annual report, and the Boards have total freedom of action, including the freedom to raise loans from the market.
While I do not suggest that our own Parliament and Government should go that far, I do suggest that they have not gone far enough. Only important strategic decisions, such as those determining long-term objectives, capital expenditure, requiring the investment of government funds, and matters involving wider national interests should remain with the Government, along of course with the exclusive power to appoint the Chief Executive and members of the Board.
I suggest that while some government control and supervision over the management of public sector enterprises is necessary to ensure not only that they are efficient and profitable but that they also fulfil their social obligations, the time has come when the Government should grant to their Boards and Management a much greater degree of autonomy than they have at present.
Let the Government or Parliament, as the case may be, or both, lay down for each public sector enterprise a clear statement of its objectives and obligations, as well as guidelines for the appraisal of its subsequent performance. Thereafter, let the enterprise function freely within this framework, subject only to the discipline of the balance sheet and to such constraints as national interests may specially require.
The public sector has a great role to play in the economic development of the country. In the industrial field, it has in 1970 well over twenty years of experience. Sound traditions have been established and considerable managerial skills developed. The Boards of the public sector enterprises consist of able, experienced and trustworthy men. There would be little risk in giving them a freer hand, including the important freedom to make occasional mistakes. I have no doubt whatever that, given the freedom they need to produce the results expected from them, they will not let the Government or Parliament or the country down.
Making the Public Sector Succeed
The Tata Oil Mills Co. Ltd., Chairman's Statement, August 10, 1981.
It is time that the Government undertakes a concentrated and determined programme aimed at raising the productive efficiency of public sector enterprises. The first step required in that direction is, I suggest, to limit its own role in their management. From my long personal experience of public sector management, I am convinced that a prime cause of the inefficiency and high cost prevailing in most public sector enterprises in our country does not lie in the quality, competence or dedication of their Management and staff, but in the continuing denial to them of the degree of managerial freedom of action essential to the efficient management of any large undertaking.
I have, on many occasions in the past, drawn attention to the serious harm done to the country by the excessive politicisation of economic policies and their implementation, and by the Government's interference, often under Parliamentary pressures, in the day to day operations of public sector enterprises. As a result, speed of decision and action, discipline, morale and efficiency vanish, production levels remain low and costs continue to rise, all to the serious detriment of the long-suffering consumer and of the economy as a whole. Through their multiplier effect, the resulting shortages and rising costs of fuel, power and rail transport in particular, have permeated throughout the economy and raised the cost and therefore the price of almost every product and commodity in the country, including agricultural or agro-based products.