In 1954, while inaugurating the Bhakra Nangal dam, the then Prime Minister Jawaharlal Nehru christened it as the 'temple of modern India'. And so were born Nehru's 'temples' - public sector undertakings (PSUs) - that took the onus of making India self-sufficient. 

Today, India Inc. proudly boasts of over 2 crore people employed in PSUs, which are largely owned and managed by the Central Government. Once criticised for their laissez-faire approach, PSUs have since shed that image and emerged as partners of progress in India's economic march. 

It was in 1948 that India got its first PSU in the form of ITI (Indian Telephone Industries Ltd). Over the years, the number and significance of PSUs grew enormously. In the first Five-Year Plan, there were just five central PSUs. By 1980, the number had grown to 163. Just before India embarked on the privatisation or disinvestment drive in 1991-92, the number was 244. 

As on March 2006, according to CAG, there were 404 central PSUs, including six corporations and 94 deemed government companies, operating across a wide spectrum of businesses that included sectors such as banking, coal, engineering, power, oil, steel, textiles, etc. 

During the same period, there were 1062 State Government companies.PSUs were set up to play a pivotal role as envisaged in the economic model adopted by the country in the post-Independence era. This was essentially a socialist model, inspired by the Soviet model. A large number of PSUs were set up across sectors and they played a significant role in terms of job creation, social welfare, and overall economic growth of the nation. 

This is because the policy of the public sector was guided not purely by profits but also by efforts to spur growth in remote and backward areas of the country and to provide employment. It has succeeded in both. In fact, if the public sector had not ventured into extremely backward and tribal areas like Jharkhand, Orissa, and Chhattisgarh, among others, the fruits of development that people of these regions enjoy would have eluded them. 

Cities and towns like Ranchi in Jharkhand, Bhilai in Chhattisgarh, Durgapur in West Bengal and Rourkela in Orissa would not have seen the prosperity and progress that they have become symbols of.

Even though the public sector has had its share in the Indian success story and transformed the economy from being agro-based to industry-led, it has attracted criticism and adverse opinion. The critics charge that the PSUs are in the black only because they have the financial backing of the Centre. However, much has changed since the economy opened up.

Today, most - if not all - PSUs have transformed themselves from being 'babu-driven' companies to professionally run organisations. Today, the Steel Authority of India Ltd. (SAIL) is India's largest steel manufacturing unit, ONGC is touted as India's highest profit making organisation, and the Indian Oil Corporation Ltd. (IOCL) is reckoned as India's largest commercial enterprise.

In today's changing times, our PSUs have realised that for them to become successful businesses, they must shed their lackadaisical approach and transform not only their approach to their business objectives, but also their people management practices. In fact, according to a survey conducted by Hewitt Associates, NTPC was the third 'Best Employer' in 2003 as well as 2004. Similarly, Power Finance Corporation Ltd. (PFC) posted healthy net income figures for the year-ended March 2009, with little over 300 employees on its payroll. 

In order to foster growth in organisations, inspiring a sense of ownership in them is a key condition, and our PSUs seem to have taken active steps in this direction. This is evident from the low attrition rate that the PSUs witness. For example, Bharat Heavy Electricals Ltd boasts of an attrition rate as low as 2 per cent. 

This is mainly because most PSUs offer a comprehensive range of products and services and as a result, each employee goes through various skill nurturing processes and practices, which add tremendously to their knowledge base. 

The changed strategy that the PSUs have embarked upon is evident from their strong performance as compared to private sector counterparts even during an economic downturn.

According to the prestigious Fortune 500 list released in 2008, while only two companies from the private sector made it to the list, as many as four PSUs found their place. They included the IOC, BPCL, HPCL, ONGC and State Bank of India. 

Consider what happened towards the latter half of 2008, when the world began facing the pains of recession. It was the PSUs and the nationalised banks that continued to contribute to India's emerging status as a growing economic power. 

While it is true that India did face some economic pain as the world economies plunged into a recessionary wave, the deep roots of the PSUs in the Indian economic system ensured that the pain was only temporary and the nation came out even stronger. The global financial meltdown affected Indian PSUs as much as their private counterparts. 

Take, for instance, the steel industry. While private players were reeling under the tremendous cost pressures due to increase in raw material prices, SAIL acted wisely by using alternate resources and streamlining its employee strength. It was something it would not have been able to do if it had not changed its management practices. 

Clearly, with the competition increasing in the liberalised economy, the public sector has shaken off its lethargy and started functioning in a way that today there is healthy competition between it and the private sector.

What India can learn from Singapore & China's successful PSU models

Malini Goyal, ET Bureau Jun 8, 2014, 12.32PM IST

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(The models pretty much exist…)

If elephants can't dance, India's public sector pachyderms just haven't learnt to polka. They're huge, even powerful, but nimble-footedness hasn't exactly been the virtue of most of India's state-owned enterprises (SOEs).

Also known as public sector undertakings or enterprises (PSUs or PSEs) — the ones controlled by the Centre earn yet another acronym, CPSEs — the leaden-footed movement of many of these giants is reflected in a set of bloated numbers.

According to a CPSE survey of 2012-13, gross revenue of 229 CPSEs stood at Rs 19,45,777 crore, and they chipped in with Rs 1,62,761 crore to the government kitty by way of taxes, duties and dividends. Some 79 of them are in the red, and although the remaining 150 do make profits, their margins pale in comparison to their private sector counterparts.

PSUs have a problem of multiple bosses with no accountability. Take for example the national carrier Air India.

It administratively reports to the Ministry of Civil Aviation but it also needs to report to the finance ministry when it comes to imperatives like capital expenditure, and its appointments are managed by the department of public enterprises.

"We have so many bosses but nobody has ownership in a real sense," says Arup Roy Choudhury, chairman and managing director, NTPC.

The scenario is bleaker for PSUs at the state level. A recent report by global investment bank CLSA reveals that barring Gujarat, Kerala and Madhya Pradesh, PSUs in all other states are cumulatively loss making.

"PSUs face multiple problems and the new government must address them urgently," says SK Roongta, a former CMD of state-owned steelmaker SAIL, who also chaired an expert panel and put out a comprehensive report on PSE reforms in 2011.

A Global Phenomenon

PSUs exist virtually everywhere. Consider Asia where PSUs or SOEs have played an important role in shaping the economy.

According to a slightly dated (2010) but comprehensive OECD report on SOEs in Asia, PSUs pull plenty of economic might — in China they account for 30% of GDP, in Vietnam 38%, and they account for roughly a fourth of GDP in India and Thailand. PSUs are also big employers in many of these countries — 15% in China, 5% in Malaysia.

PSUs play an important role in BRIICS economies — Brazil, Russia, India, Indonesia, China, South Africa. According to a recent KPMG report, of the 2,000 largest companies globally, 260 are from BRIICS economies.

About 123 or 47% of the largest BRIICS enterprises are SOEs. The market value of SOEs amounts to 32% of GNIs (gross national income) among all BRIICS countries. India isn't the only economy that's trying to get a handle on its PSUs.

Over the past two decades, many countries have rolled out a range of initiatives to get their PSUs in shape. Three former planned economies have set up centralized holding entities — SASAC in China in 2003, SCIC in Vietnam in 2007 and Druk Holdings and Investments in Bhutan.

In 2006, the Philippines pioneered the development of an SOE governance scorecard which has become an important tool for pushing SOE reforms. Since 2004, Malaysia has rolled out a comprehensive 'transformation programme" to overhaul its PSUs. But if there is one PSU story that the world is keenly watching, it is China.

The China PSU Story

Since the 1950s, China's growth has been largely SOE-led. By the late '80s, they controlled 75% of China's industrial production. By then, they had also become inefficient with many SOEs becoming insolvent.

The '90s saw the first wave of SOE reform in China with financial infusion, huge layoffs, debt reduction and ownership reforms that included public listings and non-government buyouts.

By the early 2000s, when China faced global competition with its entry into the World Trade Organization, SOEs became the core pillar for China to build its global economic prowess. In 2003, it set up holding company SASAC (State-owned Assets Supervision and Administration Commission) to manage SOEs.

Today, SASAC is a onestop shop for SOE management — from strategic decisions to appointments to M&As. Between 2001 and 2010, size and power of SOEs in China surged.

According to a paper by Calgary University, SOE contribution to GDP rose from 8% to 10% and per-firm assets more than doubled from below 500 million yuan to almost 1.3 billion yuan.

These impressive numbers, however, hide the mess underneath. SOEs in China are often inefficient and a drag on the economy. They've underperformed the wider industrial sector in nine of the past 13 years in terms of profit growth.

According to the National Bureau of Statistics, profits in state-owned industrial firms fell 0.2% in the first two months of 2014 even as China's overall industrial profits grew 9.4%. Under new president Xi Jinping, China is making fresh attempts to overhaul SOEs and make them efficient.

The way state-owned companies have grown over the last 20 years in India is noteworthy. They contribute significantly to India's economy and promote industrial and urban infrastructure. They are big employers and contribute large portions of their profits towards development and corporate social responsibility. 

The contribution of central PSUs in terms of total turnover has been 20-24 per cent of India's GDP during 2008-12. Despite subdued growt .. 

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