How can PSUs become MNCs? CII-KPMG report pitches for next phase of reforms

PSE 3.0

THERE is no doubt Indian PSUs are playing a pivotal role in transforming the landscape of the economy in a globalised scenario. Many of them such as OVL, GAIL, are making their global footprints in quite an impressive way. State Bank of India (SBI) has over 100 branches across the world. But have the PSUs become MNCs in the true sense of the term? What are the obstacles that they need to surmount to compete with their global counterparts? These and many such questions are being raised and some answers being offered in a CII-KPMG report...
on Indian PSUs released during the Global PSE Summit organised by the Confederation of Indian Industry and the department of public enterprises in New Delhi on December 13-14, 2013. The report titled PSEs in India: Transformation, Empowerment & Sustainability says the need of the hour is to initiate the next phase of PSE reforms in the country which would enable them to become multinationals. This was the overall view expressed during the Global PSE Summit, says CII in a statement.
Outlining a success story of how a PSU can become a global entity, the report makes a brief reference to Temasek Holdings of Singapore. It was set up as the government’s private investment arm and the holding company. According to Temasek, the Singapore government should control and own companies. This perspective is driven largely by key areas where the ownership of a resource is of considerable significance to the country’s security and economic health. This was one of the driving forces behind the creation of Temasek Holdings’ model. Temasek’s focus on sound governance has allowed it to achieve a portfolio value of S$164 billion. The company’s value has multiplied more than 400 times since its inception in 1974. Temasek companies are known to adopt and adhere to a “glocal” (global local) model for integrated corporate governance. Thus, Temasek not only enhances investment for its shareholder, the Singaporean government, but also generates additional income for it.
Refering to the case of China, the report says China established a state-owned Assets Supervision and Administration Commission (SASAC) which launched a process of redefining the relationship between the central government and the so called ’central enterprises’. The underlying principle of SASAC contains both centralizing and decentralizing features and separate central, provincial and municipal SoEs and hands over their control to SASAC offices at the respective administrative levels. However, on the other hand, the central government asserted its authority by taking all central enterprises away from the control of various government agencies and putting them under the unitary supervision of an organ that reports directly to the State Council, says the statement.
Adil Zainulbhai, chairman, India, McKinsey and Company says that Indian PSUs must achieve world class scale. PSEs would need to reinvent themselves so as to become players in the global market and attract global talent, says the honcho.
PSUs must become leaders in technology and innovation leaders. There were few sectors that PSEs were seen to be leaders in technology and R&D. They must achieve the world class scale and size. There are very few Indian PSEs in the top 100 companies in the world and he was of the view that many more should figure on this list in the next ten years, said the chairman.
RS Butola, chairman, Indian Oil Corporation, echoed similar views when he said that a number of reforms need to be undertaken so as to make the vision a reality. PSEs still continue to remain shrouded in red tape and have limited risk appetite which is limiting their ability to grow and become global, he added. Butola questioned why the personnel of PSEs did so well in the private sector and not so in the public sector. He observed that in the 1970s, PSE were the preferred choice for people who graduated from premier institutions like the IITs. This was no longer the case and the PSEs need to revamp their HR systems to attract the best talent. He suggested that the compensation structures in PSEs needed to be reworked so that they compare well with the structures prevailing in the private sector. He called for the separation of ownership and management. He felt that by doing this, the company would be able to function more as a commercial entity.