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Protect local industry, says divestment panel chief

Indian industry needs greater protection, even if the consumers lose in the bargain. This is needed to in the interest of employment, declared Disinvestment Commission Chairman G V Ramakrishna today while inaugurating the Standing Conference of Public Enterprises's Centre for Development in New Delhi.

Ramakrishna warned that as a result of India's commitment to the World Trade Organisation, the country will forced to reduce quantitative restrictions and lower tariff rates. This, he added, will result in cheaper imports and the entry of multinationals, leading to increased competition between the private sector in areas traditionally reserved for the public sector. He stated that the public sector was facing new challenges.

Most countries, he pointed out, protect their domestic industry even if it hits consumer interests. According to a study by the University of London, the protection to the British local textile industry and preventing cheaper imports cost the consumer 975 billion pounds.

Similarly, the United States trade acts also protects its domestic industry. Americans lose about 300 billion dollars every year by being denied access to cheaper imports. It was, therefore, important in the larger interest of employment and industry that domestic industry is protected, said Ramakrishna.

Referring to the ongoing divestment of the public sector undertakings, he called for using the proceeds of the divestment of bluechip companies for modernising and restructuring these units.

The Disinvestment Commission chairman pointed out that disinvestment could occur only in a few profitable units. The returns from such disinvestment, he stated, should be used for the development of public sector. It should also be used for retiring the public debt. The chairman warned that if this was not done, the whole process of disinvestment could come to a halt.

Ramakrishna asked the government to sell off loss-making public sector enterprises to private companies who could then modernise such enterprises. Competition from the private sector had many public sector units unviable, threatening the jobs of thousands of employees. To save such jobs it was necessary to sell the PSUs to the private sector.

Ramakrishna stated that there existed 30 to 40 units in the public sector which could be retained. But these units needed autonomy and the right environment to enable them to face global competition and become strategic players.

Ramakrishna lamented that the public sector had grown in an uncoordinated and unplanned manner. The public sector was was supposed to command the heights of the economy, he reminded, but had completely failed to do so.

The chairman said the Disinvestment Commission's role is to clear the undergrowth so that the main plants can grow. He maintained that the the growth of other units had hampered the performance of leading public sector units. The government, he pointed out, will take a coordinated view of the public sector enterprises, and decide what to keep and what to dispose off.

Ramakrishna also blamed certain government policies for harming the growth of the public sector. He also said the capital goods industry was doing badly and it was important to rectify the situation.

Ramakrishna mentioned that the public sector employs about 2.5 million people, constituting about two per cent of the industrial labour force. The PSUs wage bill expenditure was Rs 210 billion. Cutting the workforce by 25 to 30 per cent will save about Rs 70 billion, said the chairman. He, however, added a rider: since the workforce cannot be dismissed, it was important to have an adequate voluntary retirement scheme.

Ramakrishna emphasised the need for better remuneration for the public sector employees to stem the exodus of talented managerial personnel to the private sector. He claimed that it was not a lack of patriotism but renumeration four to five times higher that lured the personnel to the private sector.

The Disinvestment Commission had, in its February 27 report, suggested the setting up of pre-investigation board. Commercial mistakes are often made, he pointed out, and it was wrong in such instances to let an external agency file criminal cases against those who commit errors. Only when and where the intention is mala fide reasons should criminal cases be filed, he said. Banks flush with funds are not giving loans as they fear being charged in a criminal case should something go wrong, he said.

Ramakrishna called for transparent procedures and urged the setting up of internal audit committees in the public sector. He added that the government, as the major shareholder, has to ensure a proper role for the non-governmental directors on the board.

Ramakrishna pleaded for providing attractive dividends from the public sector units. Earlier, all the dividend went to the government. But today, he pointed out that a shareholder will invest only if PSUs held out the promise of high dividend returns.

The chairman emphasised that shareholder today demanded greater transparency in and more information from the public sector. In this context, Ramakrishna said the PSUs must sensitise themselves to the capital market. The Planning Commission, he lamented, had only approved projects which had high internal resources so far, and urged projects with low dividend payoffs also.

P G Mankad, secretary to the department of public enterprises, who also spoke at the inauguration ceremony said the Disinvestment Commission has addressed itself to the wider area of public sector management. Over the last two years, the question of restructuring, strengthening, and making the PSUs more competitive have achieved sharp focus.

Mankad said giving autonomy to the navratna and miniratna enterprises and cancelling a large number of redundant guidelines were all part of the government's desire strengthen the public sector. The government is moving away from micromanagement to giving broad policy framework, and letting the public sector enterprises run and deliver.

Standing Conference of Public Enterprises's Centre for Development chairman Uddesh Kohli stated that PSUs are second to none and if granted autonomy, their performance will match the private sector. He said said the Standing Conference of Public Enterprises has taken steps in this direction also taken up the issue of contract labour, which affected the public sector enterprises.