CMA Arif Farooqui

Nowadays a debate is going on that Public Sector Undertakings (PSUs) must be privatized as they are not performing, their employees are not efficient etc. Rajiv Kumar, Vice-Chairman of NITI Aayog believes that the new government should privatised one PSU every week. Government starts privatization of PSUs by either selling its shares or completely shutting them down.

One has to understand objectives and working environment of PSUs before comparing with MNCs / Private Sector. Objectives of PSUs is not profit maximization, but profit should be fulfilling social responsibilities in form of employments, training, environment protection etc. They have reservation in jobs as per government policy and also have reservation in Jobs for person with disability. PSUs also pay maternity / paternity leaves, sick leaves and not thrown out its employee, who fail to perform at later stage of their life.

From my experience, I can say that below are the obstacles in the growth of PSUs:

Incapable HR Department: 

Human resource management is Important for PSUs. Lack of Proper HR Policy and reasonable decisions effects   moral and confidence of its staff.  PSUs recruit through competitive exam and have some of best brains of the country but they find it difficult to retain them.  Critical HR Challenges faced by the PSUs are hiring right staff, retaining talent, staff, development of staff, Satisfactory Salary Increment,  Changing Working Conditions, Re-skilling its staff and Adoption with changing technology.

Inability to retain talent:

Employees’ salary in PSUs has little relationship with performance. There is no difference between a top performer and non-performer in terms of salary if both are on same designation. Promotions are not based on performance but on seniority and reservation. This leads to a situation where a deserving candidate has to works under his undeserving junior. Therefore, many talented employees resigning and joining in private sector and HR is not questioned on high employee turnover.

Inefficient Management:

Mostly bureaucrats are recruited as Chair­persons or Directors of PSUs and some of them may  don’t have competency and experience to run Banking Business. A leader of ruling party can become Director of a Maharatna PSU. Tenure of competent authority (CMD, Directors) is mostly 3 years, this period is not sufficient to implement big changes in an under performing PSU. Unlike Directors of MNCs, their money is not invested in company and hardly affected by performance of company once they retire. Feeling of belonging may lack in them towards  enterprise they serve.

Political Interference:

Respective ministries have decision making power rather than Board of Directors of that PSUs. Interests of the PSU is sacrificed or compromised just to satisfy political leaders. In most cases, political rather than commercial factors has influenced decisions about location of projects / factory.

Long Formalities for Decisions:

Decisions are delayed due to red-tapism and bureaucratic procedures. A file will have to pass through many officials for approval before a decision can be taken. By the time a decision is taken, the business environment might have undergone considerable changes and not useful or became less effective. Not only this, but because of vigilance department fear, officers are afraid to sign, this resulted in unnecessary delay in decision making. The private sector excels in the speed at which decisions are taken and can respond much more quickly to market changes than the PSU.

Discrimination between Officers and Workmen:

Employees of a PSU are divided into two types, Officers and Workmen. Attitude of both are more or less same but former one is still under control and later one is behaving as adamant child which is beyond control of his parents (management) and parents has to agree with his all acceptable / unacceptable demands. Officers are threatened by management for promotion, transfer, so they have to complete given work but workmen are spoiled by trade unions and management, hence it is difficult to keep them under control and get the work done.

Excess Staff

Excess staffing is one of the problems faced by many PSUs. Recruitment done in large numbers without considering actual requirements, resulted over-staffing and high employee costs.

Job Security:

Unlike MNCs, job security is there in PSUs, no lay off even when one is not doing anything.  There are strong labour unions with political affiliations to protect workmen interests.

When an employee becomes secure in his job, he starts losing the hunger and zeal which he had earlier.  Which affect his efficiency and productivity levels. Missed targets, poor performances and bad results are a common scenario in cases where the employee believes his job is secure. Job security leads to complacency and instead of hunting for new challenges the employees start relying on assigned workloads. Employees who are secured in their job are unable to reach full potential because they lose their curiosity and passion for work.

The ‘L-1′ Game:

Unlike MNCs where they care more about quality of their purchase, in PSUs it all has to go from a long tender process and the one with lowest bid is awarded that contract. Tender process is not bad but this lengthy process takes lot of time and ultimately costs the company. For example purchase of goods value Rs 5000 takes same amount of time which is required for a goods worth Lakhs of rupees. This is also one of the reasons for delays in completion of the projects.

Accountability: 

Sense of responsibility and accountability is not in PSU employees and there is always a ‘blame game’ to make someone else scapegoat. Also, there is no proper working coordination within different departments which badly affects output of the company. One of the reason for that is, taking a risk in public sector for the betterment of the company commands punishment if the idea fails, hence PSU’s employees avoid resorting to innovation and blindly follows rule books.

Unnecessary Expenditure:

PSUs spend lot of money which is not related to their work. For example, expenditure on Hindi Pakwada’, Swach Bharat Pakwada, Vigilance Pakwada etc. This leads to unnecessary wastage of money and production hours.  Can one believe they conducted numbers of workshops on cash less transaction at the time of demonetization and it was compulsory for employees (who are well educated) to attend such workshop.

As a professional who worked in private sector for more than 5 years and working in a Navratna PSU since 2013, can say, PSUs are not so inefficient what they are projected and can perform at par with MNCs, if they are provide autonomy and with little bit overhauling in their work culture.

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20 Comments

  1. D SATISH KUMAR says:

    A very nice analysis of PSUs. Arifji it is nice to read this sort of an article. One small comment on HR. I think HR must be an independent body and no interference must be there.

  2. Surendra Kumar says:

    Dear Arif
    First of all congratulations for such a nice article. I fully agree with your observations what I also felt since last 10 years of working in different PSUs. The observations may vary from PSU to PSU what other readers shows their disagreement. But in totality all the observations are absolutely true.
    The GoI, has never been tried to resolve the ground level issues, problems, ethics, internal control systems, decision making processes etc which causes inefficiencies in PSUs. Rather tried every time to privatise them which is the easiest way to do.
    The Govt. may earn one time lumpsum amount by seling the PSUs which may help it to achieve 5 trillion economy but will looses a great pillar which always been considered as a backbone of Indian economy and always stands in difficult times like calamities and crises.

    There are also some PSUs where the Govt. had invested below 100 crores in 30/40 years back. Those PSUs have returned back more than 1000 to 1500 crores by way of Dividends and taxes. Also every year 150 to 200 crores are returned back as dividend in recent years.
    Which investment in the world will give you 100℅ to 200℅ return annually in the world? But still the Govt wants to privatise those profitable PSUs also.

  3. R.veeraraghavan says:

    Mr.Arif
    Nice article.
    The question of government being in business have been always a debate whether it is a conservative margerat Thatcher or Labour leaders.
    The initial and even today the objective is controlling essentials and strategic assets and services.
    Profit should never be the parameter of measurement of.performance since any gov service was cost plus.
    The business of doing business is with private …right. at the same time.it is the government whose responsibility is to generate employment as reflected in capitalist states on unemployment doles.
    Can gov just leave the employment generation to private individuals big question.since technology is throwing.millions.out.of jobs and governance world.over lacks foresight to accommodate.nor is it really ready to.learn from.hindsight.
    But public investment.or.private or a balance will be a continuos debate considering.chinas entrepreneurship.
    Structural.influence of.labour skilling.and.increasing.propensity to.consume.is amcomplex.game beyond.karl.marx fundamentals and impacted by globalisation.where communism.is.filled.with.capitalist brains.

  4. DD says:

    I have worked with PSB and pvt both. I think private sector banks are better as commercial organisations. These are better managed, more efficiency of manpower and capital and lesser corruption. The corruption of Yea Bank is exception. There are benefits of PSBs are also immense, but they do not touch definition of efficient commercial institutions. All banks must privatised except one public sector bank. To promote industry, government form a board and advise banks for financing with 75% guarantee of loans and left 25% risk with bank. All social scemes must be run through either all banks or some department. In this all settlement, corruption is big issue. That must be handled with strong hands.

  5. Sumer bajwa says:

    You are absolutely right mr. Arif.i am working in psu.employees are working according to thier pay.some work very hard but 70% staff just pass there time and get salary.there is no accountability.

  6. Tausif Alam says:

    Do you have any experience of working in PSU?
    Can you give an example of a Chair­person or Director of a PSB who don’t have competency and experience to run Banking Business?
    Can you clarify the reason why Yes Bank collapsed and SBI rescued it?
    Mr. Farooqui, PSUs are working for nation, giving secured jobs to people whereas MNCs are working for maximisation of profit and throwing their employees when required.
    Let’s save PSUs to save our nation.

  7. Raghavendra Rao j says:

    I fully agree with you , in some points like very poor knowledge of HR dept, not retaining productive people in organisation, favaritism, internal politics which kills the productivity, this is my personal study with kapl a govt undertaking, and iam vrs taken most productive ex employee in marketing

  8. Subhash Bhasker says:

    Your views are half baked. There can be comparison between public and pvt sector only if the playing field is level. PSUs are answerable to 4 Cs-CAG, CBI, CVC and Civil society. Even when pvt sector is playing with public money in form of bank loans and equity, there is little or no control. They are able to declare bankruptcy after siphoning off all money’s and public left with no remedy against them. The pvt sector is also full of inefficiency- civil aviation, steel etc. The PSU HR systems are among the best, but sadly as politicians and bureaucrats do not like to lose these golden geese, the career progression becomes based on WHO you know rather than WHAT you know. Even today the best of pvt sector companies in Oil, Power, Infrastructure are being run by the best of ex PSU talent. So please revisit your facts. This will help you gain the right perspective and the fact that Apples and Oranges can’t be compared.

  9. Amit says:

    Mr. Arif Farooqui,

    Really this is your independent study or you are also prejudice by some external factors.
    One thing to remember, despite so many challenge, there are many PSUs who have delivered continously good ROC for decades. The best think about the PSUs are highest ethics and social responsibilities, which these PSUs have delivered for several years.

    In the past few years, You have seen the very best private corporation involved in biggest scams of this country and nothing had happened to them yet.

    Now doing business becomes a matter of leveraging the balance sheet for high growth in the initial few years and later filling bankruptcies.

    DO U WANT THIS KIND OF BUSINESSES MODEL.

    Just evaluate the no. of companies who are having high debt to equity ratio and when a slight recession comes, such private companies are force to shut their operations or they always requires bailout packages from government or they stop paying to their employees.

    How long the government can support such models.

    If you really want to test the performance of these private sector, first stop granting loans to private companies by the PUBLIC SECTOR BANKS and then u will find even private companies are incompetent to run the businesses.

    For the bad shapes of Public Sectors Banks of India, only these so called private sector are responsible. We all can see this, so please check your analysis once again.

  10. Kiran Kumar says:

    Still very good student’s of our country want to park them in PSUs.People are over paid and over valued in terms of responsibility and performance… Operating cost is 3 times higher than MNC peers in same sector.Very much egoistic culture..They almost enjoy market monopoly so structural changes will unleash their potential for the better value for people of India…

  11. Shivashankara C says:

    It is 100% real situation now a days PSU’S suffering. It is like a un recoverable decease. The only medicine is that gradually privatisation is to be made. Now a days lot of unions are active in PSU’s. Their main propaganda is not doing better relationship with mgt and employees. These are the agents of the mgt and employees. The union leader will having all benefits excess to his colleagues. These situations is also mgt is having. Undoubtedly HR department in PSU’s is very very worrest.

  12. Bikram says:

    This is not fare ,as well as solution, as our economy is socio-capitalism structure ,we r going to privatized the most profitable psu as big bilioneries always point their eyes to puechase or being a part of them as they only want their benifits not for millions of people who dream to serve them,in my point of view please save psu as these r the assets of our country. Let me sorry but if my father give a house for me . there is need some rectification or to maintained it then what i have to do maintain it or else to sell it. lots of students dream to get a job to these mini nawratna and ratna company who belongs to middle class family so please modiji donot do this. Please rectify the psu management system but donot sell it .please please modi ji feel the pain of young and unemployee youths who have no any source or money to to get a job or making a small business rather than to hard study to get a job in govt sectoror to get job in psu. Thank

  13. AMAN says:

    So how do you explain the failure of Yes Bank? Or the current state of Indiabulls which has completely eroded investor wealth n seeking moratorium to stay afloat? Why does the govt need PSUs like SBI to rescue private players? Or the recent layoffs in Zomato, Uber n Swiggy bring efficiency to the system? PSUs should follow their private peers n start firing people?

  14. Rajib Patra says:

    I partially agree with you. You have not mentioned Corruption of PSU. It is most important that Corruption in PSU & Government organisation spoil Country most.

    1. Bikram says:

      Sir this is not fare that only corruption is the reason to sell psu.and most of it how u know that there is corruption in psu sir corruption is every where mostly in politics. Some Political leaders as u know how they loot the ….. Please fell the pain of young uouth. And most of it if they means billioneries purchase these psu then what impact will happen to the economy of india and how long .

  15. Rahul Gupta says:

    Nice analysis, few more points
    Failure of regulatory bodies to ensure compliance from private sector whereas PSU’s have to.

    Social welfare schemes of govt which are only implemented in PSUs.

  16. Ashish kr jha says:

    This is a completely biased research.. I think you should work with PSU then rather comment.. Most of the PSU are running with very less staff members.. Further research requires..

  17. Arif Farooqui says:

    Thanks for appreciation. Agreed with you that PSU spent very less amount on welfare of its staff but spend wasteful expenditures on so many others things.

  18. Arun Jain says:

    I partially agree with your judgement, my wife is working with PSU for last 3 years and i have worked in MNC for around 7 years and i came to know many things about PSU. So i disagree at some point like Excess Staff :- Some PSU are running with shortage of Staff. , Unnecessary Expenditure :- If you compare a MNC Party expenses in comparison to PSU than PSU Expenditure are 1/10th of what MNC spend in the name of Employee Welfare ( Parties, Tours). But yes PSU lacks in lot of point in comparison to MNC but here again i will blame politics as they want to run PSU as per their political gain. Some of PSU were making great profit but due to govt pressure they had to compromise on business and that business handed over to Private Players in the market. Any how nice observation.

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