Will PSUs see Acche Din any time soon?

Tue, 26 Aug Pre-Open

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The success story for any business a mix of three basic elements: strong fundamentals, efficient management and a congenial policy environment. A lot of businesses in India, despite showing good promise, have underperformed for the lack of regulatory support. And no one deserves to be blamed as much as the Government when it comes to policy mess in the country.

One of the worst victims of the Government's apathy in this regard has been Public sector firms. The impact can be seen across sectors such as power, oil and gas and banking to mention a few. Such firms have faced double whammy due to ineffective management and due to poor regulations. This is because of the Government's policies and the fact that vote bank politics rule at the end of the day, mostly at the cost of investors' interests and efficiency.

Such apathy has been one of the major reasons for the downfall of UPA Government. Now that people have elected the Modi Government to power with a clear majority, expectations are huge for the turnaround in the fortunes of these companies. In turn that of the economy.

However, if an article in Business Standard is anything to go by, harboring high hopes is likely to lead to disappointment. Disinvestment of the PSU firms was supposed to serve dual purpose - reducing the fiscal deficit and more autonomy to PSU firms. While the Government may get success in achieving the former, courtesy bullish sentiments in the markets, any significant change with regards to the way they are run is unlikely to happen. The Government known to be quite aggressive with growth targets seems to have turned conservative when it comes to ownership in PSU firms. This can be seen in the case of PSU banks, where Government is resistant to bringing down its stake below 51%.

Take the case of companies in the oil and gas sector. So far, the private companies have been hesitant to enter oil marketing space because of regulated price mechanism. The state run firms get compensated for selling fuel below market rates. This sets a high barrier for private oil retailers. Basically, some of these regulations have benefited state run companies, at the same time making them less competitive. The ultimate impact of such distortions is being borne by the public. Now imagine a situation when all pricecontrols will be removed. Will these PSU firms, leaning on Government support so far, be able to withstand high competition from private players. What happened in the telecom sector gives quite an insight in this regard.

One of the ways true potential of PSU firms is to privatize them. However, the Government does not seem too comfortable doing that . In this case, it is time the Government takes steps to make the Public sector firms more efficient. This will ensure that these firms can withstand the competition from private players once reforms are introduced. It will also be in the best interests of the public.