Read this essay to learn about the public sector. After reading this essay you will learn about:- 1. Concept of the Public Sector 2. Social Objectives of Public Sector 3. Classification and Growth 4. Pattern of Management 5. Board Policies and Functions 6. Structural Pattern of the Board of Directors 7. Delegation of Power 8. Control by the Government and Other Details.
List of Essays on the Public Sector in India
Essay Contents:
- Essay on the Concept of the Public Sector
- Essay on the Social Objectives of Public Sector
- Essay on the Classification and Growth of Public Sector in India
- Essay on the Pattern of Management in Public Sector
- Essay on the Board Policies and Functions in Public Sector
- Essay on the Structural Pattern of the Board of Directors in Public Sector
- Essay on the Delegation of Power in Public Sector
- Essay on the Control by the Government in Public Sector
- Essay on the Role of the Board of Public Enterprises
- Essay on the Public Accountability and Control vis-a-vis Autonomy
1. Essay on the Concept of the Public Sector:
Notwithstanding the vital importance of public sector units (PSUs) in a modern mixed economy, the meaning of the public sector continues to remain vague and varying. The term ‘public enterprise’ refers to an enterprise which is owned and controlled by public authorities in the interest of the public at large.
The three essential characteristics of a ‘public enterprise’ are:
(a) Public purpose,
(b) Public ownership, and
(c) Public control.
The term ‘public purpose’ refers to the desire to attain some broader developmental goals and range of socio-economic objectives.
The ‘public ownership’ refers to ownership — directly or indirectly — through the shareholding of PSUs by central, state and local governments as well as autonomous public institutions. In India, for companies under Section 619B of the Companies Act, 1956, 51% or more of the paid-up capital is held by the Government along with one or more PSUs, or by one or more PSUs, without the Government holding any share.
These enterprises have only partial public control inasmuch as the provisions of Section 619 of the Companies Act regarding the appointment of auditors by the Government on the advice of the Comptroller and Auditor General (CAG) apply to them.
The term ‘public control’ refers to the exercise of top management functions of PSUs. This implies that decisions on investment policy, pricing, wage policies, corporate plan, top management appointment, etc., are exercised or closely regulated and controlled by the government. The basic significance of public control is public management, that is, top PSU managers are appointed by other public authorities.
The public ownership, public control and public management lead to public. In private enterprise, the accountability is to the shareholders, primarily in respect of dividend and returns. On the contrary, PSUs are accountable to a variety of authorities and interests, having different point of views.
The most important among these are:
(a) The minister,
(b) Politician both in power and out of it,
(c) Parliament,
(d) Bureaucracy headed by the secretary of the department,
(e) The BPSU,
(f) Trade unions and officers’ associations,
(g) The Court, and
(h) The CAG.
Typically, a public enterprise is defined as “an activity of the government, whether Central, State or local, involving manufacturing or production of economic goods, or making available a service for a price: such activity being managed either directly, that is, departmentally, or through an autonomous body with the government having a majority ownership, that is , more than 50% of equity.”
The term ‘enterprise’ implies a business characteristic. A public enterprise is one which sets prices for its goods and services in such a way as to cover the cost. Some enterprises incur losses because prices charged do not cover costs, but the long-term objective is to cover all costs, i.e., to break-even.
According to the definition suggested above, if a distinct organisational unit of activity is always expected to operate at a loss, or on a subsidy, it is not to be treated as a public sector unit or public enterprise. The term does not cover social services and the administrative apparatus of the government.
Likewise, non-economic and non-profit seeking activities like universities and hospitals are not included in the category of PSU. Such institutions do charge a fee for their service, but as they do not cover costs fully, such activities are not PSU, though these are owned and management by the State.
On the contrary, public utility services like the post and telegraph departments, railways, airways, etc. are to be treated as PSU, though managed departmentally, if the objective is to reach the break-even point — at least in the long run.
If the Government temporarily takes over an enterprise, the former just acts as a trustee or caretaker. Unless law is passed to nationalize the unit, it does not automatically become a PSU.
The sick textile mills, for instance, which were first acquired under the Industries (Development and Regulation) Act, 1951, subsequently became public sector units when the new act—the Sick Textile Undertakings (Nationalization) Act — was passed.
In India, the two terms ‘public sector’ and ‘public enterprise’ are used interchangeably. In India’s five year plans the term ‘public sector’ is used in a wider sense to cover all governmental activities including public industrial enterprises and commercial establishments.
A related term is ‘public undertaking’. In the strict sense of the term, any government activity — commercial or not — is treated as its undertaking.
In Western countries the term PSU refers to a ‘nationalised industry’. In Britain this is the accepted practice because most of the PSUs there is the result of nationalization or state takeover of the existing industry. By contrast, in India, most PSUs have come into existence due to the Government’s Entrepreneurial efforts.
2. Essay on the Social Objectives of Public Sector:
In developing countries like India public enterprises are treated as one of the principal agents for rapid economic and social transformation, by establishing an integrated infrastructure and the core sector, and closing the gaps in the industrial structure. In fact, PSU is expected to enable the planners and policy-makers to move toward the goal of faster economic growth with social justice.
As a UN Resolution rightly stated, PSU has an important and vital role to play in developing countries: it helps in capital formation, in fuller utilisation of natural resources and in achieving an equitable distribution of income and wealth. ‘Redistribution with growth’ is the most important objective of PSUs.
The following statement of (late) Mrs. Indira Gandhi focuses on the need for, and role of PSUs in India:
“We advocate a public sector for three reasons: to gain control of the commanding heights of the economy; to promote critical development in terms of social gain or strategic value rather than primarily on considerations of profit; and to provide commercial surpluses with which to finance further economic development.”
Essentially, PSU serves a number of purposes. But what is most important is that it has a large element of social purpose.
Four social objectives of PSUs are:
(i) Reduction of concentration of wealth and economic power in private hands:
One of the major objectives of setting up PSUs was to assure that private ownership and control of material resources of the community does not result in undue concentration of wealth and means of production to the common detriment. The objective is sought to be achieved often through nationalisation and through entrepreneurial activity of the government, supported by other regulatory measures.
(ii) Reducing income inequality:
By giving a favourable and generous treatment to labour, and by fixing a comparatively low ceiling on managerial remuneration, PSU has helped in rationalizing the pay structure and, in the process, in reducing disparities in income over a large area of employment.
(iii) Help to the weaker and vulnerable sections of society:
PSU has also helped to promote the development of certain backward sections of the society, viz., the scheduled castes and scheduled tribes. PSU was also instructed by the Government to make reservations in low level appointments for the handicapped.
One of the objectives of nationalisation of commercial banks in India was to help the economically backward and vulnerable sections of the society.
This important social purpose was largely ignored by commercial banks in the pre-nationalisation period. In this context, we may make reference to the Differential Rate of Interest Scheme (DRI). Under the system the weaker sections of society, especially in rural areas, are supposed to pay only 4% interest per annum on commercial loans meant for certain specific purposes.
Moreover, the scheme has stipulated that at least 40% of this credit should flow to eligible SC and ST borrowers who would be eligible to borrow without providing adequate security.
(iv) Development of backward regions:
One of the objectives of the Government of India’s industrial policy was to ensure balanced regional development. This necessitates rapid growth of the backward regions of the country. The Government of India takes this factor into account while establishing new PSUs. Moreover, public financial institutions like IDBI, IFCI, etc. give preference to those entrepreneurs also obtain loans at a concessional rate of interest.
Since most people in India live in rural areas, PSUs have to achieve rural development. The public sector banks are giving special attention to this programme. Soft loans are provided to co-operatives, weaker sections of society and for backward areas.
The Rural Electrification Corporation Ltd. was set up primarily to assist state electricity boards and rural electricity co-operatives to undertake a crash programme of rural electricity co-operatives to undertake a crash programme of rural electrification with a view to helping the development of agriculture as also small scale and village industries.
In short, PSUs pay due consideration to certain social aspects such as creation of increased employment opportunities and wages, provision of cheap and plentiful consumer goods and development of an integrated infrastructure (which consists of irrigation projects, railways, roads, bridges, post and telegraphs, telecommunication, etc.).
The PSUs often provide these goods and services at a loss for maximizing community’s welfare. The business of these involves huge investment and low return. So no private enterprise would be eager to provide these. These are, of necessity, to be provided by the Government.
In short, the performance of PSUs and their role are to be judged from a wider social angle instead of profit-earning purpose. Larger social purpose represents the addition it makes to the flow of goods and services and to society’s welfare.
3. Essay on the Classification and Growth of Public Sector in India:
Public sector enterprises can be organized in various ways. It is widely believed that if centralization and bureaucracy is to be avoided in the day-to-day operations of public sector enterprises, the latter must be allowed to enjoy considerable autonomy — both financial and administrative.
Keeping this norm in view PSUs in India have been organized in different ways as distinct autonomous units, with varying degrees of legal-cum-operational independence.
The First Industrial Policy Resolution of the Government (1948) declared that, as a rule, public enterprises in India will be under the statutory control of the Central Government.
The major forms of public enterprises; in India are:
1. Public (or Statutory) Corporation:
There is wide agreement among economists, business managers and public administrators that the public corporation “is peculiarly adapted to the administration of such government programmes which are revenue-producing, or at least potentially self-sustaining, and involve a large number of business-type transactions with the public.”
Principal Characteristics:
Public corporations have seven major characteristics:
Firstly, a public corporation is owned by the State. It is normally fully-owned by the state, but not necessarily so. A part of the capital may be held by private individuals as in the IFCI or the Central Warehousing Corporation.
Secondly, it enjoys autonomy in its day-to-day working, but is accountable to the Parliament in matter of policy. Although such a corporation operates on business principles, it is guided by the directions of the Government in matters of policy involving public interest.
Thirdly, the permanent employees of a public corporation are not civil servants. Therefore they are not at all governed by State regulations in respect of their service conditions.
Fourthly, it set up a special law which lays down (or specifies) the form of management, its equation (relationship) with the government, and so on.
The Air Corporation Act illustrates this feature. Both Air India and Indian Airlines are incorporated under the Act which provides that “the management and direction of the affairs of the corporations shall vest in a Board of Directors which will exercise all powers on behalf of the corporation.”
The corporations will provide “safe, efficient, adequate economical and properly coordinated air transport services at reasonable charges. And in carrying out these operations or in discharging their duties, the corporations shall act to the maximum extent possible, on business principles.”
Fifthly, a public corporation enjoys independence in financial matters. For example, the Air Corporations Act provides that any corporation — such as Indian Airlines — shall have its own funds from which all payments will be made and to which all receipts will be added. However, it can approach the Government or the public for additional funds, as and when required, if authorised by the Act of its incorporation.
Sixthly, it is outside the purview of the budget, accounting and audit laws applicable to government departments. In India, however, we see a modified application of this principle as much as most of the public corporations are audited by the Comptroller and Auditor General of India and any capital expenditure beyond prescribed limits requires the prior approval of the Central Government.
Finally, it is a body corporate in the sense that it can sue, be sued, enter into contracts and acquire property in its own name. The LIC Act, for instance, states that “the Corporation shall be a body corporate having perpetual succession and a common seal with powers to acquire, hold and dispose off property and may by its name sue and be sued.”
2. Government Company:
According to Section 617 of the Companies Act (1956, amended 1974), a government company has been defined as one in which at least 51% of the paid-up capital is held by the Central Government company, at least for the purpose of audit by the Comptroller and Auditor General under Section 619B.
It is interesting to note that most government companies are 100% State-owned. A few exceptions are, of course, there. For instance, the Madras Fertilisers, and Madras Refineries have foreign participation. FACT, Praga Tools and Nepa Mills are having private Indian participation. Moreover, the National Projects Construction Corporation Ltd. is having the equity participation of several state governments.
Main Features:
Eight major features of the government company are:
Firstly, it is governed by main provisions of the Companies Act. However, the central government is at liberty to exempt partly or fully the application of any provision of the Act (except those of Sections 618, 619 and 619A) to government companies.
Secondly, the permanent employees of the government company are not civil servants. In its personnel policy it is guided by the restrictions imposed in the Articles of Association.
A government company, for example, is not permitted by the Articles of the Central Government companies to employ those above 58 years of age in the scale of Rs.2,500-3,000 and above per month, without obtaining the prior approval of the Central Government.
Thirdly, the accounting and audit laws and procedures of government departments do not generally apply to the government companies. The auditor of a government company is appointed on the advice of the CAG by the Central Government as per Section 619 (This point will be discussed in detail in the context of ‘Public accountability’ of PSUs).
Fourthly, its funds are largely obtained from the Central Government, partly from private shareholders if it is not owned by the Government and partly from revenues obtained by selling goods and services.
Fifthly, as per the provisions of Sections 619 and 619A of the Companies Act, its audit and accountability to Parliament is statutory. Accountability here refers to the submission of annual reports.
Sixthly, it is a body corporate like the public (statutory) corporation created under a general law. Thus it can sue and be sued, enter into contracts and acquire property in its own name.
Seventhly, it is governed by its Memorandum and Articles of Association which lay down not only its objectives but also rules of internal management.
Finally, it is created by an executive decision without bearing a special character of its own. Its creation is to be approved by the Parliament. On this point there is a major difference between a statutory corporation and a government company.
3. Departmental Form of Organisation:
The oldest form of managing government enterprise is the departmental undertaking.
The railways and the post and telegraph department are examples of undertaking which are managed (or operated) departmentally. There are other examples of departmentally run commercial enterprises — Tarapur Atomic Energy Plant, Overseas Communication Service, Delhi Milk Scheme, and a number of state road transport agencies (corporations).
Main Features:
There are four main features of departmentally run commercial enterprises:
Firstly, any revenue made by it goes into the Treasury. Likewise, it is financed by annual appropriation from the Treasury.
Secondly, it is subject to all the accounting and audit controls which are applicable to other government activities.
Thirdly, its permanent employees are all civil servants and are subject to all the methods and rules of employment and conditions of service applicable to civil servants.
Fourthly, it enjoys hardly any autonomy. Rather, being a part of the Government, if is accountable to Parliament even for matters relating to its day-to-day operations.
However, from the very beginning, the Government was not in favour of such PSUs. As the First Plan stated: “the drawbacks of departmental management of public enterprises are well known. Successful conduct of such enterprises requires a great deal of initiative and power, to take quick decisions on the part of the executive in-charge and these can hardly be secured if the enterprise is under government department.”
Other Organisational Forms:
These are other organisational forms of PSUs as mentioned below:
1. Semi-autonomous Enterprise:
The Railway Board is such an enterprise in the sense that it functions as a ministry of the Government of India and also as an autonomous body whose source of power is the Indian Railway Board Act (1905). It consists of four members, each in charge of staff, civil engineering, mechanical engineering and transportation functions.
These members are responsible to the Chairman, who is incidentally the senior most member. The Chairman reports to the Minister. In case of any disagreement the matter is referred to the Minister by the Board members. The Ministry can avoid any decisions of the Board.
Another variety of semi-autonomous enterprise is the Post and Telegraph (P & T) Board which is a non-statutory body. It exercises all the powers which are vested in the Ministry of Communication at the time of its formulation in 1959. The 7-member Board consists of a Chairman, three senior members and three ordinary members.
The Director-General of P & T was the Chairman up to 1963. Since 1963 the Secretary, Department of Communications, has been performing the duties of the Director-General. The three senior members of the Board are in charge of three functional areas: finance, postal services and operations and maintenance.
Three ordinary members look after three other functions, viz.,
(a) Administration,
(b) Postal life insurance, savings bank, and other agency functions, and
(c) Planning and execution of telecommunication projects.
2. Control Board:
Except a few river valley projects all others are managed by control boards which came into existence on the basis of the resolution of the Central or State Government, as the case may be. In most cases the chief ministers are their Chairmen.
Since the Board is not a statutory body (but created by executive authority) it does not enjoy autonomy of a public corporation. But the Board is in overall charges of the project, including its technical and financial matters.
3. Commodity Boards:
Such boards like the Tea Board, Coffee Board and the Tobacco Board are statutory bodies. They are supposed to play developmental roles in the areas assigned to them.
4. Essay on the Pattern of Management in Public Sector:
As in the case of a private enterprise, the Board of Directors of a PSU is the top management organ responsible for implementing the objective of a PSU. But a PSU Board is not nominated by the shareholders, as in the case of private sector, but by the State which seeks to achieve certain declared socio-economic goals.
It may be noted at the outset that typically a PSU is an economic entity which is under the charge of a Board. The Board owes allegiance- to a political entity for its short-term existence and long-term survival.
It is because of the mix-up of economic and non-economic factors regarding the constitution, autonomy and functioning of PSU boards that the subject of public sector management has received considerable importance and much attention in recent years.
5. Essay on the Board Policies and Functions in Public Sector:
A PSU Board is a statutory organisation responsible for efficient and successful operation of an enterprise, and it is supposed to have sufficient power to discharge its functions. In theory, a public sector Board has sufficient power. But in practice its power gets diluted because of Government interference. The Government keeps a close watch on the way the Board functions and exercises its powers and often interferes with the policy formulation in an important way.
Critics often argue that the Board is not entrusted with the full responsibility of managing a PSU. Since the Board has to operate within the boundaries rigidly set by the Government the former hardly enjoys any power to shape the enterprise. The Board has only to manage the enterprise as dictated by the Government.
Functions:
The function of the Board are quite akin to the Government’s function of legislation and policy-making as opposed to execution of policies.
The Board’s functions, to quote Prof. Laxmi Narain, “are essentially similar to those of the legislative wing of the government inasmuch as it breaks new grounds, establishes the basic policies, lays down general principles for the conduct of business and watches and regulates the outcome of its policies.”
According to G.E. Milward, the functions of the Boards of nationalized industries in the U.K. are more or less similar. In such industries the Board is primarily responsible for determining the ‘ends’ or ‘goals’ to be followed by the enterprise as opposed to the ‘means’ or ‘resources’ used to achieve the ‘goals’.
It is true to say that the Board does not perform any ‘executive’ function in ‘trusteeship’. It has also to perform certain entrepreneurial functions. As Laxmi Narayan puts it, “the Board acts as a trustee for efficient operation of the enterprise and in a PSU this trust is not just a group of persons — the shareholders, but the nation as a whole, including particularly the consumers and labour employed in the enterprise.”
However, this is only one of the functions of the Board, viz., efficient and economical management of a PSU so as to sub serve the best interests of the nation. But the Board also performs an entrepreneurial function in the sense that it takes an active part in the decision-making process of an enterprise.
Decision-making, it may be recalled, is perhaps the most important function of the Board of Directors of a private enterprise. But it is also an important part of the role played by a public enterprise Board. Decision-making is a broad function and it encompasses continuing, discovering and promoting innovation within the enterprise.
In a dynamic business environment it is absolutely essential for any enterprise or its management to perceive and introduce change. By managing change properly an enterprise can stay flexible and fulfill its objectives.
The pressure of change varies from industry to industry and time to time, but it cannot be ignored or totally eliminated. Adjustment to a changed situation and voluntarily introducing a change (innovation) demands rational decision-making under risk and uncertainty.
In fact, according to some writes on public enterprises, the whole of the Board’s functions boils down to risk-assessment and risk-bearing.
The Board is not, of course, directly concerned with the latter because initially it has not made any decision regarding what organisational framework of an enterprise to choose, what to produce and sell (i.e., essential or unessential commodities or service), how to produce desirable goods and services, and where to produce (i.e., the choice of location of a PSU).
Rather the Board is concerned with the former in the sense that once an enterprise starts functioning, the Board may influence decisions on various matters and policies in an important way. There is no denying the fact that no enterprise — private or public — can succeed in the long run, if there is lack of sufficient entrepreneurial spirit in its working.
The executive functions are conventional or routine functions and consist mainly of implementing the policies laid down by the Board. These functions are performed by the managers of PSUs and consist of necessary supervision, co-ordination, decision-making, etc. so that the Board policies are smoothly and properly carried out.
In various matters the initiative usually comes from the executive level but its implementation is left to the discretion of the Board.
For the purpose of analysis the functions of the Board are usually divided into four broad categories:
1. Establishment of basic policy including questions involving general strategy:
It is not very easy to identify basic policies. In general these “include such questions as the determination of the kind and amount of product or service to be produced, price policy, re-organisation and development schemes, training and research programmes, labour problems including questions of wages, incentives, morale and consultation with employees, maintenance, and improvement of organisational structure.”
Furthermore, the Board has to consider general strategy of a PSU which includes such issues as parliamentary criticism by the public at large, equations with the Ministers and other PSUs, the wider impact of the policy of a PSU from the broad social and national points of view.
2. Decisions on major financial matters:
Since most of the policy questions have financial implications the Board gets an opportunity to give decisions on all vital financial questions.
Such questions relate to new investment, fixed and continuous expenditure beyond prescribed limits, financing investment by raising capital from internal and external sources, declaration of dividends, creation and management of reserve funds, consideration of the ways and means, position of the enterprise and so on. However, in all such matters the Government has a substantial say.
3. Selection of key personnel:
The third major function of a PSU Board is to secure efficient and competent executives to get any enterprise going, and to ensure smooth functioning of such an enterprise, it is necessary to ensure the continuity of able management.
For efficient operation of a PSU and for its continued success,it is absolutely essential to permit the Board a sufficient degree of autonomy in hiring, firing, fixing terms and conditions of service of the key personnel who are entrusted with the task of carrying out its policy. The PSU Boards in India are at liberty to create any post except at the Board level and make appointments without imposing any restriction on salary.
4. Receiving reports on the working of the enterprise and passing judgement on them:
The Board is under the legal obligation to keep itself well-informed about all the necessary details of the operation of a PSU.
This type of information provides necessary feedback for control purposes, i.e., for measuring the effectiveness of its policies and for future planning. Reports on diverse matters such as R & D, production, sales, industrial relations, labour turnover, financial position, etc. give the Board a rough and ready picture of the operation of the enterprise.
Corrective measures, if necessary, can be taken in time on the basis of this report.
6. Essay on the Structural Pattern of the Board of Directors in Public Sector:
Public sector boards are of two types — functional boards and policy boards. A functional board consists of full-time experts in charge of various spheres of operations of an enterprise, e.g., personnel, production, marketing, and finance.
A contract policy board consists of members having no specific assignments and thus not individually responsible for any one or more spheres of the working of a PSU. Such a board may consist of full-time or part-time members. However, the distinction between the two types of boards is not always transparent.
A Board may also be an admixture of the two, i.e., it may be policy-cum-functional. It may be composed of some members having no portfolios assigned to them, and others being responsible for certain work or certain functional areas or divisions.
The Boards of most Indian PSUs are composed of Part-time directors, with only one full-time chief executive.
In such a scheme of things part-time directors find it difficult to devote necessary time and attention for the purpose, more so because most of them are either busy private business executives who agree to serve as Board members just to enhance their prestige and social status, or senior government officials who are preoccupied with other more important assignments and responsibilities of their respective ministries than as members of a team entrusted with the management and development of an undertaking.
In most cases, the part-time directors are neither fully aware of the problems of the undertakings, nor in a position to make any significant contribution to the functioning and growth of the undertakings.
In India no clear-cut policy has been followed for a long time. However, it is felt that Boards in large business organisations are to a great extent functional.
The Fleck Committee, which carried out necessary investigation about the performance of the nationalized coal industry in Britain, recommended a functional Board for the coal industry; and the National Coal Board was recognized on the basis of these recommendations.
The Parliamentary Committee in India has also favoured such functional boards.
For example, the CPU has stated that “the Board of a large-sized militant industrial undertaking like the Fertilizer Corporation of India has to take various decisions regarding planning and policy matters. It has to provide guidance on new projects, initiate policy, effect alterations in the overall plan, enter into foreign collaboration and agreements with the suppliers, contractors, and the like. On the execution side also, it has to deal with various issues and problems of an urgent nature involving unexpected bottlenecks and difficulties that might affect the progress of the projects.”
The committee thus arrived at the conclusion that “all this load of work would surely be too heavy for one chairman-cum MD” and it felt that having full-time finance and technical directors would confer a number of advantages.
In truth, the stress on functional boards is the result of the large scale complicated nature of the operations. But where the operations are not on a large scale, the appointment of full-time directors may imply unnecessary expenditure.
Supporters of policy Boards put forward the argument that functional directorship leads to friction among the directors and also blurs the authority of the chief executive. Functional directorships renders effective decentralization difficult, and curtails the control of the head of a unit to a very large extent. So “there should be only one captain in a ship.”
The government policy for large multi-unit enterprises and the large trading organisations seems to have full-time Chairman-cum managing directors, who are assisted, in their day-to-day functioning, by at least two functional directors.
One may also note that functional Boards do appoint part-time members to get an independent and dispassionate point of view on matters which are placed before the Board. It appears that the Board of a PSU enjoys full authority. However, it is demanded that the Board of a PSU enjoys full authority as between the chairman and the managing director.
In most non-governmental enterprises in India the convention has been to have a full-time or part-time chairman in addition to having a full-time chief executive, often called the managing director.
If the chairman is not the chief executive he is in a position to take a more objective and detached view of the matters before the Board. As a result the distinction between authority and responsibility may get blurred. A large number of PSUs such as the LIC or IOC have part-time chairmen in addition to full-time managing directors.
If the chairman also happens to be the chief executive a distinction has to be drawn between his two functions. A chairman has, of necessity, to preside over the Board’s meetings. But this is not the whole truth. He has also to ensure that adequate information is furnished to the Board, so that it can comprehend the matter which is placed before it.
He has also to make use of his skills not only to extract the contribution of the directors to the decision-making process but also to maintain proper relations entrusted with the responsibility of carrying out the policies assigned by the Board.
Thus he is wearing two caps at the same time and has to maintain a delicate balance between the two so that any confusion between the Board and executive functions can be avoided.
7. Essay on the Delegation of Power in Public Sector:
According to Laxmi Narain:
“Delegation is the granting of authority and the creation of responsibility between one individual and another, and decentralization is the situation which results from a systematic delegation of authority throughout the organisation. Decentralization is thus somewhat institutional in its connotation.”
Low Level of Delegation in PSUs:
It often appears that PSUs have less delegation at various levels and are more centralised than necessary or desirable. The problem crops up initially at the top because the Boards of PSUs do not have as much power as their counterparts in the private sector.
But whatever powers are given to the Board (and in most cases they are pretty substantial and wide), they remain concentrated in the Board itself or in the chief executive.
Delegation in Practice:
The nature of delegation at various levels varies from situation to situation.
As Laxmi Narain puts it:
“Generally, the Board of directors have about the same delegation in all PSUs except in regard to capital expenditure for which the limits differ depending upon the size of the enterprise. The Board in turn delegates authority to the chief executive. The chief executive or the Board delegates power to the GM or the person in charge of operations, who in turn sub-delegates down the line. Generally, the Board does not bother itself about the sub-delegation at various levels. It is thought that the MD or GM would himself sub-delegate as much as possible in the best interests of the organisation.”
This presumption, however, often fails to work in practice.
The Government of India has attached considerable importance to the matter of delegation in public enterprises. It has recognised that there should be suitable decentralisation of powers not only between the Government and the Board of Directors but within the undertaking itself.
In fact, in order to enable these undertakings to work with greater autonomy, enhanced powers — both administrative and financial — have been delegated to the enterprises following the recommendations of the Administrative Reforms Commission (ARC).
However, except in few cases, there has not been any substantial delegation of powers within the enterprises. Reasonable powers have been given to Chief Executives in most cases. But still there are enterprises where they have not been given sufficient power to deal adequately with day-to-day problems of the enterprises.
In other cases, further rationalization is possible. As for delegation to Functional Directors, General Managers of constituent units and other Heads of Departments in the enterprises, etc., the position is still worse.
In a large number of enterprises, almost all the powers are concentrated in the Boards or the Chief Executives who are now delegated lesser powers than they used to have in some of the major multiunit enterprises or lesser than what it used to be a few years ago.
It, however, is to be realized that management is essentially a team-work where the different aspects of management are entrusted to competent persons and both responsibilities and powers are shared.
This underscores the need for sufficient delegation of powers down the line within the enterprises to the various functional areas in the enormous scope for improvement in the process of delegation in most of the undertakings.
8. Essay on the Control by the Government in Public Sector:
PSUs have a close and long-term relation with the Government. The Government has to supervise their working and control their operations in the national interest.
The Government exercises excessive and close control over PSUs. The basic objective is to ensure that policies of PSUs are compatible with the national priorities and objectives.
Prima facie, “in all financial matters the Government has a substantial say. In fact, in all cases the Government provides capital, either as equity or as loans. The terms and conditions on which money can be borrowed are also regulated by the Government. In case of LIC and some other enterprises, the Government reserves the right of directing the flow of excess revenue.”
Moreover, the approval of the Government is necessary “for increasing or reducing the share capital, for issuing shares and debentures at a premium or discount, for declaring dividends, for creation of reserve fund, and for plans of development and capital expenditure budget.”
The various ways in which the Government can exercise control over the PSUs are:
1. Matters requiring prior approval:
PSUs can discuss various matters only after obtaining prior approval of the Government.
PSUs would require such approval in the following matters:
(i) Capital expenditure involving a case where the detailed report has been approved by the Government, in case variations in the approval estimates exceed 10%.
(ii) Capital expenditure on works taken up in advance of the preparation of detailed project reports, or expenditure on an individual project beyond the prescribed limits. The limits are set with reference to total capital investment in an enterprise.
2. Power to issue directives:
The Government enjoys power to issue directives for matters considered very important and for which there is no provision of control anywhere else. In case of government companies, “The President may, from time to time issue such directives or instructions as may be considered necessary in regard to the finances, conduct of business and affairs of the company, or the directors thereof. The directors shall give immediate effect to the directives so issued.”
The implication is that “formal directives can be issued to cover a wider area for the government companies as compared to the statutory corporations where directives are generally limited to matters of policy.”
3. Circulars and Office orders:
These cover almost all operational issues. Although these are informal in nature they are generally adhered to by PSUs. As stated before, the Government is empowered to issue directives, which have legal sanction, but it does not prefer to follow this course to avoid compulsion which will give an impression of compromising the autonomy of PSUs.
In issuing an instruction in the form of guidelines, on bonus and prohibition of a general revision of wage, the Government provides for operational flexibility on both sides.
4. Appointments:
PSUs have been delegated full powers to make appointments, except those at the Board level. The power of the Government is generally restricted to appoint the Board as per the articles of the status of a particular enterprise.
The government usually appoints the Board members, particularly the chief executives, for a short period of one to two years. This makes it necessary for making them to look to the Government for renewal of their tenure more often. This enhances Government control.
5. Reports, returns and meetings:
Numerous reports and returns are reviewed by ministers and departments.
As Laxmi Narain puts it:
“The government has a statutory right to call for such returns, accounts and other information with respect to the property and activity of an enterprise as may be required. In practice, numerous reports, returns and statements are received by the government, with the ostensible object of having information about their working; overseeing their performance and exercising control, if and when necessary.”
6. Power to supersede:
In a few selected cases the Government can supersede a statutory corporation as in the case of the Reserve Bank of India, the International Airport Authority, and the Road Transport Corporations. The supersession has to be reported to Parliament within three months of the order of supersession.
However, the power to supersede a corporation is a weapon of the last resort and has not been used so far in the case of any public corporation.
9. Essay on the Role of the Board of Public Enterprises:
There is controversy regarding the role of the PSU Boards. Critics often argue that “as substantial authority in policy matters vests in the Government the Board is nominal or decorative and an administratory custodian or director would suffice for each PSU to represent its legal entity and the formality of a Board can be dispensed with.”
In fact, “the number of circulars, guidelines, office memorandum and instructions issued by the government shows that in the most matters of policy and operations, sufficiently detailed guidance is made available to PSUs. The chief executive or the director-general, or general manager of the concerned enterprise could thus replace its Boards, and, if necessary, a committee comprising departmental heads would assist him in regard to, his functions.”
10. Essay on the Public Accountability and Control vis-a-vis Autonomy:
The word ‘accountability’ refers “to accounting for one’s actions and report on the achievement (and failing, together with necessary explanations) of the declared (and prescribed) goals (objectives). The need for accountability arises because investments in PSUs are made from the public funds. So the public would be interested in knowing how this money is being utilised and whether the objectives for which the PSUs were established have been achieved.” In other words, the public is supposed to have the final say in the matter of controlling PSUs.
Three major components of PSU accountability are:
(a) Accountability to Parliament;
(b) Accountability through Audit;
(c) Accountability through Annual Reports.