Having Your Cake and Eating It

Context:  The relative underperformance of Public Sector Unit (PSU) shares in the market reflects all that is wrong with the current ownership and governance structure.

Reasons for problems in PSUs in India

• Pulls and pressures on decision-makers (those sitting behind the desk in the ministry):
  • They are answerable to parliament and their ministers (thus neglecting recommendations from the stock exchanges or the Securities and Exchange Board of India)
  • They sacrifice commercial angle for the more significant social cause.
  • Their larger remit and relatively short tenure do not augur well for long-term decision-making.
• Dispersion across multiple ministries: E.g. oil and gas sector are under the purview of the Ministry of Petroleum and Natural Gas and companies linked to the railways are under the Ministry of Railways.
• Inability of ministries to run businesses: They lack serious intent running a business and end up behaving like absentee landowners.
• Social objectives of some PSUs prevent its corporatization: E.g. Social objective of running railways are very strong.

Way forward: to solve problems associated with PSUs in India

• Transfer the government’s shareholding to a government holding company: on the lines of Temasek Holdings in Singapore or Khazanah in Malaysia.
  • This will keep the government control while removing the control of particular ministries.
  • It will serve as a centre of “ownership excellence”, and like Private Equity (PE) firms, constantly learn and evolve as an owner of the business.
  • It will also enable the government to double its shareholding in PSUs by changing how the shares are held and exercising stewardship responsibilities.