PSUs ~ Current Models

PSUs have played a humongous role in building the infrastructure of our country. The model which some of the old timers (people around 50 plus today) are familiar with are the additional role they played in generation of employment, building of local infrastructure such as hospitals and schools. NLC is a standing example. Slowly they became tools in the hands of politicians to scurry favours starting from favouring their constituencies for the next capital investment to influencing employment etc.

Slowly the PSU transformed to behemoths and became a sink which draining the public exchequer.  So we saw action taken to wound down some of them.

We also witnessed in the utilities sector emergence of some central utilities like NTPC, PGCIL, NHPC, NHAI and so on so forth. These PSUs are different in as much as they were incorporated by the centre, but as per the concurrent list their main functions fell in the domain of the states. So here we have central utilities built with the cost of equity paid by the state and still not receive any return on the equity, while paying for the services at market determined rates, linked to international bench mark! Over the years, these central utilities have become behemoths and now a need is felt to encourage Private sector.

So we witnessed a burst of growth in private sector investments especially in two sectors Power Generation and Roads. But that has come down to a trickle owing to various factors. Now efforts are being taken  to entice the corporate back and hope their appetite will emerge.

In the process, some of the initial roles of PSUs and prime responsibilities got hijacked and we saw unparalleled imports, which has built some of the huge global brands in South Korea and China. This made the Indian corporate to attach themselves to some of these corporations for sustenance. Services rendered by Indian corporates, their accountability to the Indian corporate tax structure never figured in the factors, which weighed in the awards of contracts and investments. Chasing foreign borrowed capital, we threw some of our main strengths ~ namely the size and the strength it offers to negotiate a deal which would benefit the large mass of Indian citizens. 'Made in India' was given the go by. Thankfully once again we hear many nosies about the theme 'Made in India'.

What else can be done to correct, and bring back the focus the roles PSUs must play:

• Any capital project constructed in Indian soil shall be done by a Firm registered in India and hence are assessed under the Indian Tax structure. 
• Open siphoning of margins through 'High Sea Sale' contracts and 'Divisible Contracts' should be done away with.(Any way some of the projects are assigned the exalted status and claim exemption). 
• Each major infrastructure project generates employment, in the manufacturing sector, services sector and construction sector. PSUs are aware and actively encourage, under the garb of 'L1' bid, firms to work and optimise the cost of engagement of labour. There must be mechanisms which ensure that 'Direct' employees are employed and even 'Contract' labour are eligible for all the benefits. Open recognition of the cost of engaging 'Direct Labour' shall be factored for evaluation of a bid. They shall ensure that the employees who build the project, including the unskilled work force derive all the benefits starting from wages. These should be budgeted and expenditure monitored and shall become reportable in the statements of PSUs. 
• Cost benefit analysis should include factors like long term benefits to the Economy. Amounts spent in local area development including providing public health services attached to a Power Generation project of a PSU for instance, must be able to access cheap credit from the special schemes of the centre or grants. 

PSUs have become more important for their ability to raise capital and the other more important factors are being ignored. It is time a major structural reengineering is done and their role is substantially modified.