Public Sector Enterprises – General Studies Paper - 2 [ Detailed Analysis (CA/GS) - Policies & Governance ]
The Central Public Sector Enterprises (CPSEs) is a strategic lever for Indian economic development before independence and after independence period, and it includes all those economic activities that are owned and managed by government agencies some examples are: education organization, health care organization, police sector etc.
Financial characteristic of CPSEs
Why CPSEs are not successful?
While implementing CPSEs some barriers restrict their growth and some of them are some of these include:
- Lack of proper governance structure frequently obstructs the transparency and free operative of these enterprises
- Lack of financial independence: Lack of financial independence like private counterparts delays in decision making
- Lack of a robust ecosystem is poor to attract private investors.
- Political interference schedule of political parties and objectives of CPSEs always clash & this damage their growth and autonomy
- Lack of proper governance, transparency due to bureaucratic and corrupt environment within some CPSEs made tarnished image of the entire set of CPSEs.
Guidelines for resource management issues of PSUs
- Force firm financial formulae to confirm frequent pay outs, share buybacks, bonus issues and stock splits
- Profit-making PSUs: Required to part with at least 30 per cent of their net profits or 5 per cent of net worth (whichever is higher) as annual dividends
- Firms with a net worth of Rs. 2, 000 crore and cash balances of Rs. 1, 000 crore: Should initiate share buybacks
- Consider bonus issues if their reserves top ten times equity capital and stock splits, if their market price/book value exceeds 50 times face value
Indian government has always acted as a promoter of PSUs and has watch out for them, but according to the global and outlook changes, they must have to adopt a proper method for corrections and they are:
1. The one-size-fits-all standards:
- Design a standard that fits in all instance like request minimum pay from PSUs nonetheless their own investment needs are returning
- Private sector companies different in manner of their dividend/buyback, and their policies are founded on
2. Tighten up Screws:
Without many discussions Centre always accepts the top-down approach with respect to the PSUs, regardless of their strains and commercial interests.
The lack of autonomy that the PSU faces.
The high focus on profit-making PSUs should be stable by spreading the focus towards those, who are effortlessly written due to their loss creation qualities so the approach should be seeking returns.
How to implement these methods:
- Set up complete ROE (return on equity) standards for different PSUs depends on the metrics for the sector and effective private sector peers
- Identify the minimum responsibility
- Pay attention to the strategy hired for attaining targets
It’s Time for correct view for PSUs:
- Development requires to be finalized and also pay outs extra to shareholders so that they should be stepped-up, boosting the Centre’s labors and permitting re-routing of capital to the sectors that desires it.
- Government have to grant the Central PSUs with better rules to deal with their capital for best returns such as low-cost purchases, cost allocations, evolving price structures, etc.
- To record growth requires both public and private sector participation developing a separate continuous organization.
- Investing private funds by suitable public private partnership models which is a most important for meeting investment requirements and henceforth comprehensive growth.
- Take development path as a consideration, institutions that will be favorable for better participation of stakeholders at various levels and for that continuous dialogue and action which is totally focusing on key sustainable development issues is require.
- Establish revision committee to solve the accountability problem which recommends employee salary should be connected to the performance of the company— function of success of enterprise and payments at the level of the separate employee.
- Published on: June 7, 2016