Party Loyalists On PSU Boards: Modi’s Professionalism Promise Goes For A Toss

Should the news of the appointment of at least 10 BJP politicians as independent directors of public sector undertakings (PSUs) be making it to the front pages of newspapers? After all, this is routine for every government that is in power. As the Indian Express report starts with pointing out, the United Progressive Alliance government was also guilty of parking party workers in such posts. During the Atal Behari Vajpayee government, there was a scandal over the late Pramod Mahajan, as telecommunications minister, appointing a 29-year-old woman as independent director on the MTNL board.

Why, then, the big deal about the Narendra Modi government doing more of the same? Because the Modi government, we are constantly told, does things differently. One assumed handing out loaves and fishes of office would be one area where there would be a marked departure from old ways. Clearly one was wrong.

But there’s another problem with this conferring of director-ships. Any criticism of the Modi government shunning aggressive privatisation was countered with claims that it was focussed on making PSUs more efficient and running them in a professional manner. Indeed, even in his Independence Day address in 2016, Modi boasted about how his government had reinvigorated PSUs and held up the performance of Air India, BSNL and the Shipping Corporation as shining examples.

This continued belief in the public sector by someone who spoke feelingly about the government not being in business and waves the minimum government card regularly (apart from being a continuation of the Nehru-Gandhi legacy that Modi loves to revile) is deeply problematic, but let’s leave that aside for the moment.

How on earth is handing out independent directorships to party members who need to be accommodated, furthering professional management of PSUs? Saying one post of independent director in each PSU will not compromise corporate governance or the performance of the company is missing the point.

The post of independent directors is not the cosmetic one it was used to be at one point. As this article points out, independent directors are supposed to ensure good corporate governance; they have a responsibility towards minority shareholders. They are expected to be conscience keepers. Can people appointed for party affiliations raise red flags when the biggest shareholder in PSUs – the government, ruled by the party they belong to – or other politicians nudge, if not browbeat, managements to take decisions that are not in the interest of the company?

Sure, it would be unfair to object to a truly qualified, top-notch independent director just because of his or her political leanings, but when this affiliation appears to be the only criterion for appointment then that needs to be called out and opposed.

This latest episode of party affiliations being the sole qualification for independent directorships underscores the need to force the government to get out of running businesses. As long as the government has majority control, every party in power will place its own people on boards. Taxpayers’ money will be used to reward party faithfuls (sitting fees are quite handsome and there are other perks as well), who will be nothing more than rubber stamps, watching silently as the companies are run to the ground.

Turning around a couple of perpetually ailing PSUs means little when 77 out of 234 central PSUs are making losses, according to the Public Enterprises Survey 2014-15. The number has gone up from 70 in 2013-14. The figures in the Public Enterprises Survey are pretty damning. The total income of all central PSUs in 2014-15 fell 4.43 per cent between 2012-13 and 2014-15. The loss of loss-making PSUs, at Rs 27360 crore, was 28 per cent higher than in 2013-14. And the Rs 103003 crore profit of profit-making PSUs was lower by 12.8 per cent. These figures relate to the UPA period and the 2015-16 report is not out yet, but it is unlikely that all PSUs would have turned around dramatically in one year.

Some things have not changed. Most of the profit-making PSUs are in sectors where the government has a monopoly or has an overwhelming presence. The loss making ones are in areas where there is a fairly robust private sector – a clear indication that the government-managed firms do not have the nimbleness to respond to market requirements. And yet more and more taxpayers’ money is pumped into these PSUs just because keeping them going is a matter of prestige. This is not accompanied by steps to ensure that they are run on purely professional lines, no matter what claims Modi makes.

The many defenders of Modi will jump to his defence and say it will be wrong to blame this on him, that a Prime Minster cannot be micro-managing appointments to PSU boards. That’s a fair point, though it is a bit hard to believe since the credit for all good decisions is given to him. But then clearly his message about more professional management is not getting transmitted down the line. If Modi is serious about PSUs being managed in a professional manner and about a government that is different, he has to either get these appointments scrapped or at least ensure that future appointments are not so compromised.