Multiplicity of authorities in PSUs

This article was written on 2010.

Public Sector Undertakings have been formed mostly under the Companies Act in which the shareholding pattern decides the nature and governance of its affairs.  A Govt. company is usually defined as the company in which more than 50% of the total equity share capital is held by Central Govt. / State Govt.  It is the Govt. owned PSUs which are often controlled by directions from various authorities.  The Board of Directors in the PSU are mostly Govt. Officials nominated by Govt.  The policies and procedures and decisions on long-term planning and short-term planning are taken by the Board of Directors and set the direction.  Ideally like in a private company the Board should be the sole authority which is involved in planning, execution, and monitoring of the affairs of the PSU.  However, due to conflicting objectives between social motive and the profit motive, the focus of decisions changes as per the focus of the Govt. in power.

The decisions in the PSUs are affected by a number of authorities to whom the PSU is required to report for compliance mechanism and questions.  The prominent among them are following:

  1. The Administrative Ministry to which the PSU belongs
  2. Department of Public Enterprises, Ministry of Heavy Industries.
  3. Ministry of Finance
  4. The Comptroller and Auditor General of India
  5. Parliament of India
  6. Various legislations affecting the working of Company viz. Income Tax Authorities, Sales Tax Authorities, Excise Authorities, RBI guidelines, financial institutions, Provident Fund Authorities, ESI Authorities, RTI Act Authorities, etc.
  7. Central Vigilance Commission
  8. Parliamentary Committees.
  9. Rajbhasha Vibhag for Hindi compliances.
  10. Govt. Rules and procedures under General Financial Rules.


The administrative ministry

The administrative ministry plays the most important role in the functioning of a PSU. It controls the direction of the growth of the PSU through the Chairman and Managing Director and Govt. nominees in the Board of the PSU. The directions of the Ministry mostly relate to Socioeconomic agendas of the Govt. in power. The Minister of the Ministry lays down and monitors the Govt. agenda. The ministry also caters to Fund requirements of the PSU by way of Grants, Loans, Guarantee and Capital. In the Board meetings especially where private directors are present it protects the PSU’s interests. The reverse is also true when the vested personal interest of Govt. nominee Directors results in huge losses for the PSU.

In the recent pasts, as a result of a focus on economic viability and business profitability in a PSU, the growth, and faith in the Capability and reliability of Indian PSU’s in the eyes of the world have increased. This is evident in the share markets where the market prices of the shares of PSU gained prices as compared to private sectors. With the opening up of the world markets, the Indian PSU’s are bagging prestigious projects for the Country.

The Controls on the PSU by Govt. sometimes acts as a negative factor in as much as the conflict between Social objective and business profit objective. The latest example is the OIL PSU’s which are suffering due to the decisions of the Govt. on controlled pricing. The sick PSUs are a burden on the exchequer which has been allowed to become sick due to Govt. apathy. With the cut on investments in PSUs, the genuine requirements of Capital as a Shareholder is not being met.

On the one hand, the PSUs which faces neglect goes sick, the profit-making PSUs are being disinvested. The disinvestment decisions and sale of shares in such PSUs benefits Govt. but it also benefits personally who take such decisions. The sick PSUs are mostly closed down by selling the property of the company at a lesser rate but the real beneficiaries are big corporates who later sell them at hefty prices.

In the garb of controls, the ministry allows power from the front door and takes it back from the back door. Most PSU’s bear considerable financial burden in providing infrastructure to its Govt. officials in order to avoid displeasure in clearing the proposals/grants etc. Many times the commercial expenditure on inspection by various parliamentary committees, advertisements and publicity are passed on to the PSU adding to its overheads.



D.P.E is the nodal authority for taking the decisions as a whole for all the PSUs for the sake of uniformity in the government directions for the PSU. In earlier years, various directions were issued from time to time which was compiled as a compendium of guidelines for management of PSUs. These guidelines have now mostly been withdrawn in the light of corporate governance guidelines. The constraints in which the PSU worked under those guidelines are still in practice for examining the proposals of PSU’s referred by the administrative ministry for pay scales.

D.P.E not only acts as an appointing authority for CMD’s and directors but also as an administrative authority in deciding the Mission, objectives and the plan of action –long-term as well as short-term, through the Memorandum and Understanding to be signed between the PSU and its administrative ministry. The guidelines for the MOU are framed by DPE every year and PSU’s are free to specify the individual parameters under which it is evaluated. The MOU also acts as the appraisal system of the PSU as well as its. CMD. Though the PSU can select its parameters, these are often modified by the administrative ministry and later by the Taskforce during MOU negotiating meetings. The method is more coercive than elective. The part of the MOU which deals with the performance of the PSU is more strictly followed than the parameters to be achieved by the Administrative ministry. This renders the very exercise one-sided and de-motivator.


Comptroller and Auditor General of India (CAG)

CAG is the single most indirect influential authority which affects the working in the PSU’s. In spite of all the rules and regulations in place for governing the PSU, the CAGs comments/ reports on the working of the PSU attracts a significant importance about flouting the rules and regulations. PSUs are subject to a multiplicity of CAG audits in addition to Audits by chartered accountants under companies act, Tax audits under Income tax act, state sales tax act etc as compared to the private sector where there is no CAG audit. The PSU’s have to deploy additional resources, manpower and costs for Audits by CAG. The whole exercise not only delays the process of completion of accounts but a hindrance in the working of the PSU. The CAG audit is just a post-mortem of the decisions taken after the decisions are taken without considering the factors and information available at the time of decision making. This affects the decision makers action and slows it down which in the present age of fast speed comes out by way of lost opportunities

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