Excessive regulation in PSUs leading to 'fear psychosis' & indecision

Serving officials have whispered it in recent months and former officials, perhaps openly and loudly. And now their collective angst has found support from an unlikely quarter.

A top government-appointed panel has said a cocktail of stringent vigilance norms, excessive regulation and accountability measures has created a 'fear psychosis' in state-run companies, cramping the effectiveness of their managements.

The panel, headed by former SAIL chairman SK Roongta, has said in a report to the Planning Commission that a growing culture of indecision and risk-aversion has crept into state-run companies because of an environment of suspicion and easy presumption of guilt.

Noting that public sector companies were victims of "over-governance", it has suggested that these firms be spared of the oversight of central government-appointed chief vigilance officers and also sought a gradual disentangling of these firms from the government's bureaucratic system.

Even though most state-run firms have managements supervised by supposedly independent boards of directors, in reality the secretaries of their administrative ministries are the real bosses. "Compliance to summons from various quarters comes at a heavy cost of time and money," the report said.

"Over-governance, in turn, promotes conservative, cautious and risk-averse organisational culture, with procedures being paramount and outcomes becoming secondary."

The panel's observations come at a time state-run firms are under the spotlight, having to shoulder the burden of reviving faltering economic growth by investing their cash piles. With the government's own financial situation rendering it incapable of spending its way out of trouble, it is leaning hard on state-run firms to provide the 'fiscal stimulus'.

State-run companies are sitting on huge cash reserves - the country's top 10 PSUs have a combined cash pile of Rs 1,37, 576 crore, or $26 billion - but have little or no investment plans for this money. Cash generation for most PSUs is also vastly higher than planned investments.

For instance, the operating cash inflows of top 10 cash-rich PSUs, including monopoly coal miner Coal India and oil exploration firms ONGC and Oil India, are expected to be Rs 52,232 crore in 2010-11, according to an ETIG study, while investments total Rs 20,103 crore.

But PSU managers say deploying this cash pile is not easy in the present environment, which, they say, imputes motives to commercial decisions that are taken in good faith but end up wrong.

The Roongta Committee report, which was submitted to the Planning Commission late last year and whose recommendations are expected to find a mention in the 12th Five-Year Plan, says the fear psychosis relating to vigilance functions was leading to risk-aversion and was inhibiting PSU performance.

It said that not only are public sector units obliged to publish annual accounts, they are also answerable to the Comptroller and Auditor General of India, Central Vigilance Commission, their administrative ministries and various parliamentary committees.