India - The peanut parable

In February 2004, every one per cent of ONGC’s equity was priced higher than Rs 1,000 crore, getting Rs 10,200 crore for 10 per cent divestment in the global market. In two years, the value had doubled. Investors did not have any issue with the extensive disclosures, but one question came up repeatedly, hesitatingly: Was the chairman’s salary, about twenty dollars a day, a typo? My standard response was that the cabinet secretary as COO, India, got a few dollars more. This was the best I could do to keep the chin up and not spoil the enthusiasm by admitting that back home, chief executives of companies with one-tenth the valuation earned a hundred times more.
Public sector compensation in India is not simply a comparison of absolute numbers with those for the civil services. There are anomalies galore. Nehru had prescribed that public sector executives, facing business risks, should be paid more than their counterparts in the civil services. This differential has been whittled down in every round of pay revision, but when it comes to compensating inflation, civil servants get a higher dearness allowance, the ostensible logic being that the public sector’s “basic pay” is higher. Public sector executives are denied a pension because they get a one-time gratuity, while the pension for civil servants goes up with every revision. There are complicated bureaucratic processes to differentiate between two sets of “public servants” — a joint secretary is a joint secretary but a chairman comes in shades of A, B, C etc, with different compensation structures.
There are also anomalies within the public sector. Directors are paid less than the executives below the level of the board, and these executives take home less than non-executive supervisors and workmen. Executives getting fast-track promotions may get a lower pay than those stagnating in the lower grade. These lists can go on. But two questions need to be answered: Why should anyone join the public sector or, having joined, continue there? And, why do managers vie with one another and civil servants, to become directors and chairmen?
Till the mid-nineties, retention was not an issue in the public sector. Private investment in state-of-the-art technology or infrastructure or mass distribution was negligible. Private sector businesses hardly ever upgraded their technology, exploiting the protection of the licence-permit raj — remember the “Bombay Club”? There was no appetite in the private sector for mega investments, and the government was quite happy with this reluctance. Things changed when, in spite of the licence conditions, the private sector brought in massive fund mobilisation, high technology and global scale. Project implementation was done by enticing technical and managerial personnel from the public sector. The flood gates widened and then crumbled.
At the same time, the reverse trend came up in the public sector. Thanks to political re-orientation and bureaucratic innovations that ensured managerial subservience, the public sector went into decline. State-of-the-art technologies from the 1970s became obsolete in the 1990s. Capacities stagnated. Public sector companies sat pretty on funds parked in public sector banks and financial institutions which financed private sector projects. Pleasing the master overwhelmed any effort to please the market.
The public sector continued with its culture of training and nurturing executives, building human resources. In manufacturing, HAL, HMT and BHEL were among the nurseries. In communications, it was MTNL, BSNL and the erstwhile VSNL. In oil & gas, the outflow from ONGC and IOC became a flood. Take shipping, banking and financial services, power, aviation ... you name it, the story was the same. The other irreplaceable asset of the public sector — intellectual property — was compromised by subverting senior and superannuated personnel. Then came the clincher, selling off entire companies for peanuts.
The traditional comparison of peanuts in the public sector versus peanuts — albeit with a thin coating of chocolate — in the civil services has become irrelevant. A driller trained and developed by ONGC over 20 years can perhaps get 15 times his basic pay in the private sector, making nonsense of the debate between Central DA and Industrial DA. For the same reason, the civil services are also losing people, but this is a trickle as of now. The other day, a “Schedule A” chairman asked me if he should accept a private sector offer for 50 times his basic pay, and I told him to wait for the multiple to increase to 100 at least.
The public sector is no longer a preferred choice for employment. Entire batches of engineering students are being recruited after completing six out of eight semesters to become techno-coolies. Banking and financial services companies are sweeping the MBA colleges clean. The public sector’s training system is going downhill: as senior personnel leave, mentoring becomes a casualty. The impact will play havoc with succession plans. Who will provide trained, experienced professionals to India Inc. in the years to come?
Why do senior personnel stay on? Many genuinely believe that the public sector (which includes non-corporate enterprises like the Railways and the Defence Research & Development Organisation) serves the national purpose. Even today, almost all the essential inputs of daily life are provided by the public sector, directly and indirectly. There are many who thrive in the freedom of action, in making things happen, in managing incomparable resources. There are many who are set in the given way of life with all its warts and blemishes, and don’t want a change. Many are resigned to their “fate”. There are many without any takers.
A revision of the compensation policy is certainly important. One does not expect the reported proposal for performance-linked compensation to be approved, and if so, the decision to be honestly implemented. A new bureaucracy will be created, as has happened for the ill-fated MoU policy or the Navratna policy, and the process will be confused beyond redemption. Reform of the public sector is the real issue; given the way the report of the Ad hoc Group of Experts on Public Sector Empowerment (the “Arjun Sengupta Committee”), appointed by this government, has been screwed up by the same government, one has no hope there, either.
Is the public sector pointless? Then keep selling it for peanuts.