Public enterprises suffer from a
great deal of problems. These problems faced by the state enterprises are:
v
Choice of
the form of organization:
The success of an organization
largely depends on the choice of an organization. Before selecting the form of
organization, its nature, capital requirement, requirement of managers and the
state policy should be considered.
v
Autonomy:
In theory, it has been believed
that state enterprises have attained managerial autonomy. But in practice, the
estimates committee has suggested that these organizations are subject to
government interference and control. Maximum government interference has
affected efficiency of the organization.
v
Internal
administration:
Lack of adequate trained personnel
put a lot of difficulties on the administration of public enterprises. The
managing directors are senior personnel of the government who do not have
adequate technical knowledge on the management of public enterprises.
v
Price
policy:
The pricing policy of the state
enterprises is another problem of these organizations. A sound pricing policy
should him at earning some profit so that the enterprises will be economically
viable units. The pricing policy should be such that it will cover the cost and
meet the financial requirement for development plans.
v
Poor
project planning:
Investment decisions in many public
enterprises not based upon proper evaluation of demand and supply, cost benefit
analysis and technical feasibility.
v
Over-capitalization:
Due to inefficient financial
planning, lack of effective financial control and easy availability of money
from the government, several public enterprises suffer from
over-capitalization. The Administrative Reforms Commission found that Hindustan
Aeronautics, Heavy Engineering Corporation and Indian Drugs and Pharmaceuticals
Ltd. Were over-capitalized.
v
Excessive
overheads:
Public enterprises incur heavy
expenditure on social on overheads like townships, schools, hospitals, etc. In
many cases such establishment expenditure amounted to 10 percent of the total
project cost. Recurring expenditure is required for the maintenance of such
overhead and welfare facilities. Hindustan Steel alone incurred an outlay of
Rs. 78.2 crore on townships. Such amenities may be desirable but the
expenditure on them should not be unreasonably high.
v
Overstaffing:
Manpower planning is not effective
due to which several public enterprises like Bhilai Steel have excess manpower.
Recruitment is not based on sound labour projections. On the other hand, posts
of Chief Executives remain unfilled for years despite the availability of
required personnel. As many as 26 public sector units were top less on January
1, 1987.
v
Under-utilization
of capacity:
One serious problem of the public
sector has been low utilization of installed capacity. In the absence of
definite targets of production, effective production planning and control,
proper assessment of future needs, adequate supply of power and industrial
peace, many industrial peace, many undertakings have failed to make full use of
their fixed assets. The average capacity utilization in more than 5 percent of
the public enterprises has been less than 75 percent. There is considerable
idle capacity. In some cases productivity is low on account of poor materials
management or ineffective inventory control.
v
Lack of a
proper price policy:
There is no clear-cut price for
public enterprises and the Government has not laid down guidelines for the rate
of return to be earned by different undertakings. Public enterprises are
expected to achieve various socioeconomic objectives and in the absence of a
clear directive, pricing decision are not always based on rational analysis. In
addition to dogmatic price policy, there is lack of cost-consciousness, quality
consciousness, and effective control on waste and efficiency.
v
Inefficient
Management:
The management of public
enterprises in our country leaves much to be desired. Managerial efficiency and
effectiveness have been low due to inept management, uninspiring leadership,
too much centralization, frequent transfers and lack of personal stake. Civil
servants who are deputed to manage the enterprises often lack proper training
use bureaucratic practices. Political interference in day-to-day affairs, rigid
bureaucratic control and ineffective delegation of authority hamper initiative,
flexibility and quick decisions. Motivations and morale of both executives and
workers are low due to the lack of appropriate incentives.
v
Unsatisfactory
industrial Relations:
In several public enterprises
relations between management and labour are far from cordial. There has been
serious and frequent labour trouble in Durgapur steel. Plant, Bharat Heavy
Electrical, Bhopal, and in Bangalore-based undertakings.
v
Lack of
coordination:
Various public enterprises are
dependent on one another as the output of one enterprise is the input of
another. For instance, the efficient functioning of power and steel plants
depends on the production and transportation of coal which turn is dependent
upon supplies of heavy equipment machinery.
HOW TO IMPROVE THE
EFFICIENCY OF PUBLIC ENTERPRISES?
1.
The managerial autonomy of public enterprises
should be preserved through greater delegation of power and by reducing the
number of civil servants and bureaucrats on their boards of directors.
2.
A management culture different from the
bureaucratic culture should be developed to promote initiative and
decision-making. Greater representation should be given to non-official
part-time directors. Now the Government of India has decided to appoint
technocrats in place of civil servants on the boards of public enterprises.
3.
Chief executives should be provided tenure of 5
years and superannuary posts should be created for understudies of chief
executives.
4.
Special training programmes should be undertaken
for developing a professional cadre of managers in the various functional areas
of management. Participative management style should be promoted. Standing
conference on public enterprises (SCOPE) can help in its task.
5.
An efficient personnel management system is to
be developed to improve recruitment, selection, appraisal, promotion, job
satisfaction, compensation and industrial relations in public enterprises. Production
incentives should be introduced.
6.
The process of project appraisal an investment
decisions should be streamlined. Detailed feasibility studies should be made.
7.
A drive should be launched to improve capacity
utilization and to build up cost consciousness among public sector concerns.
8.
Continuous monitoring of cash flows, tight
control over inventory, and improvement in productivity is necessary for
prudent use of working capital clear-cut objectives should be laid down to
facilitate evaluation of performance.
9.
An efficient management information system and
early warning devices are to be developed to avoid delays taking and
implementing decision.
10.
An Effective machinery for periodic review and
appraisal of performance of public enterprises should be created so that their
problems are identified and remedial measures undertaken as early as possible.
On the
recommendations of the Standing Committee on public sector undertakings, the
Government has prepared a draft White paper to spell out its strategy and objectives
of the public sector. The planning Commission has constituted a high level
Working Group under the chairman ship of Mr. Krishnamurthy to:
v
Suggest an appropriate pricing policy for the
public sector.
v
Review the achievements and shortcomings of
public enterprises in fulfillment of the national development goals.
v
Suggest measures for improving management and
work culture in the public sector.
v
Identify the areas where the public sector
should be required to assume the role of the leader and trend-setter for
achieving excellence
v
Suggest measures for improving the autonomy of
public enterprises while maintaining their overall accountability.
NEW POLICY OF GOVERNMENT
In India, a number of joint sector enterprises
have been established, e.g., Gujarat State fertilizers Company, Indian
Telephone industries Ltd., Hindustan Machine tools, cochin refineries, Indian
Rate Earths Ltd., Praga Tools corporation, etc.
The central Government has laid
down following guidelines for the ownership and management o f joint sector
enterprises:
1.
Each proposal for setting up of a joint sector
project will be judged ad decided on its own merits.
2.
The joint sector projects are welcome in industries
from which the private sector has been excluded. But the undertakings covered
by the MRTP Act would not be permitted to use the joint sector as a device for
entry into industries from which they are otherwise excluded.
3.
If a big business house or a foreign majority
company wants to participate in a joint sector project, prior permission of the
Central Government is essential.
4.
Ina joint sector enterprise involving no foreign
collaboration, the distribution of equity ownership would be: Government 26 percent,
private enterprises 25 prevent and investing public and financial institutions
49 per cent.
5.
Where foreign collaboration or participation is
involved, ownership pattern is: Government 25% foreign investor 20% and the
investing public including financial institutions 35%.
6.
No single party can hold more than 25% share
without prior approval of the Central Government.
7.
Strategic or basic policy decisions are made by
then board of directors on which all the partners are represented. Tactical or
operational decisions are made by the chief Executive and his team of
executives. The Government will ensure for itself an effective voice in the management
and operation of joint sector concerns.
8.
Chief Executives in charge of production,
marketing, finance and personnel should have the status of whole time
directors. The chairman of the Board is exported to integrate the divergent
goals of all major partners so that the management may evolve policies required
to achieve the overall objectives of the enterprise.
9.
The boards of directors may consist of (a)
majority of Government nominees, (b) majority of non-government directors, or
(c) directors in proportion to the equity ownership of various partners in the
joint sector enterprise.
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