Thursday, February 29, 2024

Meghalaya’s dysfunctional PSUs


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In 2017, the Meghalaya Assembly Committee on Public Undertakings found that 15 of the 17 public sector undertakings (PSUs) were functioning but the cumulative losses incurred by the PSUs was to the tune of Rs 400 crore. Two PSUs had gone belly up while the rest relied on Government funds. Only three PSUs posted nominal profits but even they were not up to date with their accounts. The Comptroller and Auditor General (CAG) ticked them off time and again for failing to update their accounts. Indeed, book-keeping and internal auditing has always been a major challenge with PSUs. The reason is because those who run them are not accountable to shareholders since the only shareholder is the Government which does not seem to care about the losses.

PSUs fail for many reasons but mainly because they are not run professionally. Their book-keeping is irregular and many don’t post their profit and losses in the public domain because they keep making losses. Second, they are not led by people with management experience but by bureaucrats who also head other departments and are therefore temporary managers. Third, they employ far too many employees when the principle of all profit-making companies is “lean and mean.” This means employing only as many as are needed and extracting work out of every employee. Outcome must equal or exceed input. That’s not the case with PSUs. Those who manage these companies are not accountable to the Board of Directors as private companies do where profit and efficiency both matter a lot.

Take the case of the Mawmluh Cherra Cements Ltd (MCCL) which has all the potential to be a leading cement producer but poor management over the years had turned the Company into a sick undertaking incapable even of paying salaries to its employees. The same is the case with the Meghalaya Electrical Corporation Ltd and its subsidiaries. When the Government underwrites the losses made by PSUs it is only to be expected that the management will continue to post losses. After all, the Government does not have to share profits with the Board of Directors who are supposed to be shareholders in the Company.  The Chief Executive Officers and Directors on the boards of state PSUs are all political appointees or bureaucrats who don’t have the wherewithal to manage the boards/corporations. As of December 2019, the cumulative losses posted by these PSUs were to the tune of Rs 410 crore.  This includes the MCCL.  What has added to the woes of the state-owned cement company is that it has to compete with a business-savvy private sector. Can the Government continue to bear the losses incurred by PSUs especially at this juncture of scarce finances?

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