Dialogue  April - June, 2004 , Volume 5  No. 4

Governance of Public Sector Undertaking in Assam

Dr. S.B. Medhi

Quality or nature of governance is a crucial factor for Public Enterprises in any country at any point of time. There are ample examples in history to show that governance is more important than natural resources or foreign aid. In fact good governance is needed not only for public sector but also for private sector, and the Cooperatives and the Civil society (including the NGOs or EGOs). Today corporate good governance is a very important subject in all countries and various measures have been attempted for corporate good governance. Good governance requires good government and government depends both on state structures as well as political parties. I remember – as a student I read an interesting and highly thought-provoking article – “PUBLIC SECTOR WASTAGE” – by the famous Indian Economist late Prof. B.R. SHENOY – who wrote as early as in 1970 to tell about the mismanagement of public sector enterprise and inter alia recommended phased de-nationalisation and listing of public sector undertakings on stock exchanges to improve their financial management.

In the pree-1970 era, the Public Sector in the country was confined to (i) the Railways, (ii) the Post & Telegraph Department, (iii) Port Trusts, (iv) the Reserve bank of India, (v) the Ordinance and Air Craft Factories and (vi) some state managed units like Government Salt factories, Quinine factories – as these required large investment (with long gestation periods) and the private sector did not come forward to serve the people – as they were mainly concerned with profits. But with the Indian Industrial Policy of 1948 the growth of Public Sector became noticeable. In the First Plan the ratio of investment in public and Private Sectors was 46:54 – and in the Seventh Plan it changed to 60:40. from just 5 PSUs at the beginning of the First Plan (total investment Rs 29 crores) the number increased to 242 at the end of the Eighth Plan (with total investment of more than Rs. 2 lakh crores). In 2002 out of 235 operating Central PSUs more than 100 were found to be loss-making – and one-third of these had less than 50 per cent capacity utilisation.

 A close look at the working of the PSUs indicate the following problems – viz., infrastuctural support, cost-effective technology and their development, quality management and performance, customer service quality, organizational structures and the over-staffing problems, automation needs etc. Various high-level Committees – such as the LK JHA Committee, Arjun Sengupta Committee, the Economic Advisory Council (GOI), the Capoor Committee etc. put forth effective recommendations – but these were not given due importance.

Assam:

While in charge of the Department of Public Enterprises of Assam (DPE), I worked hard to print and publish the first ever detailed REVIEW of the 48 state PSEs (public sector enterprises) in Assam – and it contained both enterprise-wise as well as total macro review under different heads such as – date of incorporation, administrative department controlling the undertakings, basic objectives, capital structures, status of account, financial performance, physical performance, employment (category-wise) major constraints, steps taken for – disinvestments, extent of idle capacity, joint sector participation, VRS attempts, financial reengineering, arrear accounts, improvement of office-procedure, internal management, pay-scales, special remedial measures under any scheme etc. This published/printed Report was widely circulated in and outside Assam and sent to various Departments, MLAs, MPs etc. It also contained the report of a SPECIAL SUB-GROUP on role of STATE PSUs constituted by the Planning Commission of the Government of India under the Chairmanship of the Secretary, Department of Public Enterprises, Government of India. I was priviledged to be member of this 6-man Committee and hence the Report of this Committee was also printed in the Volume noted above in Annexure – I. Unfortunately none in the state reacted or commented – not to speak of taking any action for implementation as desired by the Government of India.

The PSEs in Assam came into being on account of historical necessity and consist of entities incorporated under a variety of statutes, e.g., the Companies Act, Cooperative Societies Act or Special Acts of the central/State Government (e.g. State Financial Corporation Act of Government of India, Assam Khadi & Village Industries Board Act etc.) As such these enterprises differ in their objectives, roles, financial strength, profitability, area of operation etc. the sectoral pattern of State Level Public Enterprises (SLEP) indicate that these enterprises are engaged in a variety of activities from financial promotion to agro-industries, minerals, tourism etc. The Assam Pay Commission for Public Enterprises (of which I was also a Member) categorised the Assam SLEPs into 5, cognate groups- viz., promotion-8, mining and manufacturing-14, trade and service-4, agro and plantation-based -7, construction- 7, and miscellaneous-3.

The Assam Rules of Executive Business, 1968 (Rule 54 C)-states that before setting up any PSU each administrative department will have to consult Public Enterprises Department and obtain its view. Moreover, all appointments in the Board, as well as positions like Managing Director or Chief Executives should be done in consultation with the Public Enterprises Department. The Rules also give guidelines on capital investment and accounts etc. But these Rules are rarely followed. There is also a Committee on Public Undertakings (from Legislative Assembly) for the review/examination of the workings of the PSUs with very wide powers. But the Committee rarely visits fields and even the meetings in the Head Quarters are quite mechanical and stereotyped – as I observed during my tenure. This matter needs serious attention of all concerned.

The most important work of the Public Enterprises Department is holding of Public Investment Board Meetings and implementation of as many as 45 circulars/instructions/guidelines on various subjects like- Public Investment Board, Public Enterprises Selection Board, Role of Board and Chief Executives, Corporate Planning, marketing, honorarium, perks, audit and accounts etc. The Department is only a review or reference department and it has no power to do anything in any PSU. As such it was (and even today) considered an unattractive posting. As such the Directorate of Public Enterprises – having a Director, 3 Advisers, several statistical and research officers was totally neglected by the state government (Administrative Department-PLANNING & DEVELOPMENT ) and most of these officers were working as temporary employees for decades. The result was a demoralised staff lacking initiative and motivation.

There is no State Bureau of Public Enterprises in Assam as in many States although the Assam Pay Commission (1988) recommended that the Department of Public Enterprises should be enlarged and redesignated as the State Bureau of Public Enterprises. Some other very important recommendations of the Pay Commission – on performance evaluation, training etc. are yet to be implemented even after more than 15 years. The Committee on Public Undertakings (7th Assembly – 12th Report) also recommended in September 1983 that – “the pattern of Bureau of Public Enterprises in the Central Government may be adopted by the State Government for more efficient control of public undertakings in Assam. Besides, the Department of Public Enterprises should also be strengthened …”. The same Committee also recommended that Government should examine the feasibility of delegating special power to the Secretary, Department of Public Enterprises over the Administrative Departments to enable him to exercise supervisory control in relation to Public Undertakings. The powerful Assembly Committee further recommended that the Department of Public Enterprises should strengthened to exercise efficient and effective control over all the public undertakings by delegation of special power to it. The Committee also strongly recommended that this Department should be made responsible for SUBMISSION OF ANNUAL REPORT TO THE LEGISLATURE one the financial and physical performance of the undertakings, including the steps taken by the government to improve the efficiency and output. It is a fact that in many other states the State Bureau of Public Enterprises have very wide powers as these monitor performance and scrutinise the Annual Budgets of PSUs.

The Government of India announced on 24 July, 1991 a Statement on Public Sector Policy – as a part of the Statement of Industrial Policy – in order to improve PSU performances. This statement contained many important decisions such as formulation of revival schemes and reference to BIFR, thrust on performance improvement through the MOU system etc. as already indicated. As such in September, 1992- the Assam Government set up a Committee to explore the possibility of obtaining private participation in running some of the public sector undertakings of the state. The Committee was also asked to function as the State Level Steering Committee for scrutinising and approving the proposals for the National Renewal Fund before submitting the same to the Government of India. A guideline on various aspects of privatisation of SLEPs of Assam was issued by the Department of Public Enterprises.

The national 8th plan proposed major public sector reforms initatives consisting of several integrated strategies – viz., restructuring, autonomy, technological upgradation, liberalization etc. the WORKING GROUP on MANAGENT OF PUBLIC ENTERPRISES instituted by the PLANNING COMMISSION for the 9th plan met in January 1996 and constituted sub-groups. I was included in the GROUP ON ROLE OF SPUs and we finalised the Report in time for action by the government. But there was no decision and action at all. In fact there is an example of a very good private party who came to revive a Paper Mill and actually started producing excellent quality paper after many years but the party had to leave the State after some time – when there was no protection from extortionists of various kinds (including some political people) for corrupt reasons.

During the tenure of this writer the Department Public Enterprises took some significant initiatives (in 1995) through Special Studies of PSUs, Workshop for Management, Seminars on Accounts Finalisations etc. We organised two major lively workshops – one on Public Sector Reforms and Management, which was inaugurated by Dr. Manmohan Singh, the then Union Finance Minister. Dr. Singh even at that time emphasided on “MANAGEMENT CONTRACT” and made clear to the participating MDs/CEOs of NE States that there is a difference between “Privatisation” and “Disinvestment”. The important point is that such discussions should be continuous and regular, which does not seem to be the case similar exercise with outside input is needed in respect of accounting. Accounts in arrear are a major problem. Accounts are also not finalised for many many years as disclosed by many PSUs; Cachar Sugar Mills – 15 years ASIDC-II years, ASCON-13 years, APL-13 years, ATL- 19 years, Assam Govt. Marketing Corporation-19 years, AHSIDC-14 years, ALPCO-15 years, AHSIDC-14 years, ALPCO- 15 years, APTDC-14 years, ASDC (OBC)-13 years, ASDC(SC)-II years, ASTP & PCL- 12 years, AOCDC-13 years, ASMIDC- 12 years, ASC-10 years, PSUs having arrear accounts are mostly government companies. As such the question of listing PSUs with arrear accounts in the local or any Stock Exchange is beyond imagination and future resources to the PSUs from the Capital Market is a mere moonshine.

From the latest meeting of the Assam State Level PSUs –held in August 2002 we have the following picture. Number of SLFEs – 49, total capital investment – Rs. 4614 crores, total turnover – Rs. 1014 crores, total employees – 55,696 nos, net loss- Rs. 505 crores, accumulated loss – Rs. 4062 crores, state government investment- Rs. 3225 crores, (as in Central PSUs – the Assam State PSUs, spent highest amount on service sector) net worth Rs. (-) 1777 crores, statutory dues- Rs. 177 crores, loan liabilities to FI.S – Rs. 1495 crores, receivable – Rs. 961 crores and salary dues ranging from 0 to 95 months (compelling some employees to commit suicide) (Source Deptt. of Public Enterprises: Status Report circulated in the Meeting dtd. 20.8.02)

In the same Meeting the Assam Government stated the current status of state PSUs as follows. Inoperative – 11 in severe financial crisis – 16, in operation but losing –13, Improving –3, performing reasonably well-6 (which includes Assam Gas Co and Assam Petrochemicals Ltd. as such it is natural, but Assam Text Book Production Ltd. which is included is daily criticised in the media for its failure to provide textbooks all over the state for various classes).

The Meeting also indicated a list of PSUs which can be improved, or revived or merged/transferred, disinvested or wound-up. But there is no public debate to go into details of such measures till today. It appears – considering from various angles – revival of PSUs is more important than all other alternatives if we want to have PSU reforms with a human face. And revival is not difficult with proper management provided the Government put right persons in right places with all seriousness and provided the Government takes decisions on PSU matters very quickly as in the private sector – instead of taking six months or a year to give reply to a simple question. It appears – although we talk of PSU autonomy – today almost everything is controlled in any PSU of the state – by the State Government through its Administrative Department).

Taking very recent data from Assam PSUs the major problems of our PSUs are found out as follows:

1.  Management Problem: Improper selection of CEO/M.D, with Public Enterprises Selection Board having been marginalised. Appointments are made at the whims of top political bosses or top administrative persons non-professional M.D.s their tenure enjoy and just pass time. Evidently they lack commitment and the need to learn.

2.  In many PSUs there is no full Board or Chairman or even the M.D. for a long time. The Administrative as well as the Public Enterprises Department are callous in this regard.

3.  Financial Problems: due to restricted funding capacity of the State, lack of working capital, mounting overdues to P.I.s /Banks, increasing salary and PF dues, lack of institutional finance etc. but here again the fault is mainly with the PSU itself – as most of them have not updated their accounts for many years. No time-bound steps are taken by PSUs to recover their dues. Most of the Assam PSUs have no ACCOUNTS MANUAL as we find in central PSUs (banks or LIC etc.). As such State PSUs also have failed to send well-knit, scientific proposals, for relief or financial packages to the Government of India.

4.  Human Resources Problems: PSUs have surplus staff and they are not trained properly in diversified activities in field or desk. VRS is also not possible in large degree in Assam owing to various reasons. There is also no proposal for a CENTRAL POOL for excess staff so that they can be posted in other PSUs if required.

5.  Many PSUs have some inherent inefficiencies – as they are providing social services or they have outlived the original objectives. Unfortunately the Memorandum & Articles of Association of the PSU’s are not reviewed even after many years to bring in necessary amendments to suit the needs of time by the Deptt. of Public Enterprises and Administrative Department.

6.  Assam has also many PSUs having similar objectives esp. – in the welfare and construction activities. PSUs having same or similar functions can be merged for reducing various costs.

 Coming to PSU-wise problems we note various factors. But for the paucity of space let us take the case study of Assam Financial Corporation only.

Assam Financial Corporation (AFC):- I can give clear picture of this PSU as I have made an indepth study of AFC. In this PSU the major problems are – selection of beneficiaries are not proper, there is poor recovery, shortage of fund, competition from NEDFI, absence of professionalism in top management etc. and the suggestion from the Department of Public Enterprises is that- the restructuring proposal sent to Government of India some years ago be pursued vigourously and there must becrecovery drive on war footing”. But this is only incomplete or partial medicine. We must go deeper to find out why all this had happened. The present state is not the result of one year. It is the cumulative effect of the past misdeeds of the AFC for last ten years or so. I found out several causes as noted below.

(a) The AFC has not done any diagnostic study (as done in good SFCs in many states) at all to find out the disease – the weak areas and the leakages. Any good consultant can do this work at reasonable cost quite quickly. But despite the order of the Administrative department (the Finance department) and the Board Resolutions, the AFC has not taken any action to have a consultancy till today.

(b)                The AFC did not have any M.D. or any Board for one year after the earlier MD retired in 2001 March,

(c) Even today the AFC does not have the full Board and the share holders are not represented in the Board in due manner,

(d)                As per SFC Act this PSU must have several Committees – esp. the Advisory Committee to go into details of various issues. But the formation and discussion by Advisory Committee was resisted by the Union being instigated by a coterie. Neither the M.D. nor the Government has taken any action against the unruly union for disturbing the activities of this Committee due to ulterior motives.

(e) The Board Meetings are not held regulatly – as such there is no proper monitoring. Many important items are also not discussed in the Board as the Agenda is prepared by the M.D. with few officers of AFC. There is no Company Secretary in AFC as such there is problem of drafting minutes properly and also the problem of circulating Agenda papers in right manner.

(f) Many important decisions of the Board are not implemented by the M.D. for reasons best known to him. In the absence of a Company Secretary there is not even a Compliance Officer to see the implementation of Board resolutions in time.

(g)                Accountability (and work culture) is affected as there is no MANUAL or clear cut guidelines in AFC for important functions like Loan Appraisal, sanction, release of Loans, Implementation, Recovery, Legal Affairs, Default Cases, Taken Over cases etc. No clear cut guidelines were found even for sale of taken over assets and Accounts. The AFC’s accounts are not uptodate.

(h)                We talk of e-governance and simplified procedures to help the customers. But even today the AFCs individual loan application form runs upto 36 pages as it was made some 50 years ago.

(i)  In AFC no body wants training as they feel they know everything, and that there is no need for continuous and frequent interactions with various agencies like the Govt. of India Ministries, DONER North Eastern Council NE States, SFCs in various States, NEIBM, NSIC, SISI, etc.

(j)  The AFC have not yet linked itself with several national agencies like – National Womens Development Corporation, National SC & ST Corporation, National Backward Classes Corporation, National Minorities Commission for getting funds for helping unemployed entrepreneurs in small and micro-enterprises although these are good and new sources. The idea is that like good old days the state government would pump in share capital and funds would come from SIDBI as usual.

(k) The AFC’s customer service quality is poor and despite several suggestions it has not yet introduced CITIZEN’S CHARTER (as done in many Central PSUs).

(l)  The AFC has not started reviving its assisted units as done in many SFCs – despite Finance Secretary’s written instruction of September 2003.

(m)                Mere VRS cannot help AFC although this is emphasised now. It would need fund and best people would leave keeping only the undesirables.

The most important point is that the AFC must have a ROAD MAP – a clear CORPORATE PLAN and a vision.

CAG REPORT ON PSUs OF THE STATE:

The CAG report on State PSUs indicates every year many serious irregularities – causing great loss to the state and the people. For example – the CAG (Controller & Auditor General) indicated fraudulent drawal of central Assistance of Rs. 1.15 crores and its fictitious utilisation – by Assam Livestock and Poultry Corporation. Assam State Electricity Board failed to arrange joint testing of grade of coal at the loading point that led to loss of Rs. 1.13 crores. And failure on the part of ASEB to terminate a contract as well as delay in arriving at an amicable settlement with the contractor resulted in avoidable expenditure of Rs. 4.82 crores. The CAG also noted that in case of AFC subsidy paid to a loanee without adjusting the same against its loan account resulted in non- realisation of outstanding dues amounting to Rs. 0.25 crore. Progressive states like. Maharashtra, Karnataks, Andhra Pradesh allow their assemblies to discuss CAG reports so that the guilty officers/employees can be penalized to stop recurrence of such affairs. But in Assam it appears CAG comments are printed every year without any action by concerned PSUs/Department and the guilty officers go scot free.

WAY OUT:

PSUs are given a bad name by those who want to go for complete privatisation – instead of thinking of various alternatives such as joint ventures, management contract, formation of cooperatives etc. They forget that central PSUs earned foreign exchange (about Rs. 25,000 crores) and generated internal resources (about Rs. 38,000 crores) during 2000-01 – despite the fact that many PSUs face the problem of lack of level playing field for increasing returns. Many CMDs are capable people. In fact the BRPL (Bongaigaon Refineries) in Assam – where I was a Director for some years – has earned Rs. 304 crores profit in 2003-04. The public sector is said to be inefficient but the same executives who run PSUs are often in high demand by the private sector. Moreover, the number of sick private companies registered with the B.I. F. R. (Board for Industrial and Financial Reconstruction) is higher than those in the public sector. (Private sector about 3000: public sector about 200). Many sick units taken over by the Government have become profitable and top 100 PSUs are comparable to top private sector companies.            Thus privatisation/disinvestment is not the only solution for PSUs – and the task of disinvestments/privatisation has many problems – such as selection of PSUs, pricing of equity, logistics of disinvestment, methodology of valuation of shares, timing etc. As per available information only 18 states in India have drawn up medium-term fiscal reform programmes in consultation with the Central Government and this includes PSU reforms as well. In Assam no clear cut policy in regard to disinvestment/privatisation or revival of sick PSU is seen in available reports. The Economic Survey of Assam published by the Directorate of Economics & Statistics simply mentioned that …” state PSUs are to be restructured from National Renewal Fund” and that …”the policy also aims at reviving the sick PSUs” (page 61 – Report on 2001-02). The same Survey states that – “the State government appointed a Committee to recommend steps to revitalise the PSUs …. And that the Committee has recommended that the units are to be handed over to carefully selected private parties on lease for a period of 5 years and thereafter to go in for a joint sector participation … The State Government has approved the signing of MOUs with 4 private parties – for 4 PSUs (Page 66 of the Survey Report). The Economic Survey of Assam 2002-03 simply states that the new state Industrial Policy of Assam (which come into effect from April 1997)- “aims at reviving the sick Public Sector Undertakings”. But clear action is not visible till today.

It appears that in Assam we do not have a very clear cut policy as well as proper and complete updated data relating to PSUs. The story so far indicates lack of commitment both at the political and bureaucratic levels to improve the matters. PSU’s have come to be main draw on state budget deficit and its mismanagement a loss to people of the state. Lack of any accountability at any level completes the picture.   Alongwith such statewide movement by intellectuals and thinkers – it has become urgent to take the following steps from the side of the State government.

1.  Publish an Annual report on State Public Enterprises Survey as done by the Government of India (in the Department of Public Enterprises) – where details are given in several parts indicating – growth, management, pricing policy etc.

2.  Setup a Special Cell/Division/Department for PSU reforms in Assam as NODAL

AGENCY in Assam. This State NODAL AGENCY should maintain close report

with Central Government Ministries and various Government Departments

including the DONER.

3.  The State Department of Economics & Statistics should also publish correct and complete data in time so that corrective steps can be taken for PSUs after public debate at frequent intervals.

4.  The state government’s should club together all allied PSUs to bring it under one undertaking – in the interest of economy and efficiency. This step can be initiated by the Department of Public Enterprises, Assam, - if it is given wide powers and may be the Nodal Agency (point 2 above).

5.  The State government should try to understand that we can increase the efficiency of our PSUs despite government ownership – if we have proper management. I am convinced that PSU recovery is mainly a managerial problem and that disinvestment of management is the key for economic recovery and increased efficiency. We need a radical change in our outlook with regard to efficiency, discipline and concern for the country- and not treat public property as our private property.

6.  The Government should be more serious about accounting and on settling CAG’s comments on PSUs and if necessary MD/CEOs should be given exemplary punishment for inaction and default.

7.  The State government should also think of a Public Sector Enterprises Development Fund (PSEDF) to solve major problems viz., to help loss- making but viable units to finance winding up and pay off creditors and labour, to meet operating expenses before closure or revival, to have VRS money.

8.  Creation and updating of proceeding and accounts manual should be given a priority to streamline the functioning.

In our country the PSU’s have a future and the public sector will continue to play an important role as the state has the primary function of preserving and protecting the human rights of all the people with out any discrimination. We have to strike a balance between the social cost of a closures of PSU’s and the competitive efficiency needed for survival in a “market friendly” economy.

Today when we talk of good governance – we have in mind catalytic government, community-owned government, competitive government, mission-driven government, results-oriented government, customer-driven government, decentralised government, market-oriented government etc. Governance is the act or art collectively solving our problems. Government is the instrument that we use. The instrument in Assam is outdated or blunt and it is time to remake it. It is already late. But for a state like Assam better late than never.