Why do we need PSUs (English Version) Rakshak News 16 Jan 19
http://www.rakshaknews.com/vishesh/why-do-we-need-psu-in-defense-sector
Why do we need PSUs? (English Version) Rakshak News 16 Jan 19
The Rafale deal has brought to fore multiple aspects concerning Public Sector Undertakings (PSUs), including ordnance factories functioning under the Ordnance Factories Board (OFB). The issues gaining prominence are the financial status of HAL, strike by the unions of the PSUs and the government reducing the manpower of these establishments.
A peep into the HAL would indicate a different story. In its balance sheet of 2012, it indicated a profit of 2339 crores. A deeper study revealed that of this profit, 2300 crores was interest earned from deposits taken from service HQs for future orders. Its own profit was a meagre 39 crores. Therefore, when it claims to have given its profit to the government, it is income earned by taking an advance from the government itself. It is also a case of grabbing defence funds for future utilization, most behind schedule.
Most of the PSUs and ordnance factories were established in the early years after independence, when India had a poor industrial base and needed to develop. This was the socialist approach adopted by Nehru. However, with passage of time, the private sector has developed must faster and is in most cases way ahead of government enterprises in both technology and reliability.
Further, most of the government owned industrial units occupy prime land in the heart of major cities. Being government units, their maintenance costs are higher than those of the private sector. Most have not been modernized and continue to apply ancient technology for production. The ‘overtime culture’ has become rampant in these establishments. Workers rarely produce during working hours, preferring overtime salary. This raises the cost of production, which is pushed onto its fixed customers.
Simultaneously, the quality of products produced by these establishments have begun to deteriorate as they have had a fixed market, hence its customers have no choice. A clear example was the refusal of the ammunition factory to recollect faulty leaking mines from the Pulgaon depot which exploded leading to the loss of 16 lives in May 2016.
For decades the private sector was prohibited from entering the defence market, the same is now being lifted. Its entry into the defence markets has become an open challenge to government concerns as the armed forces have found their products cheaper and of better quality.
The ‘make in India’ guns for the artillery has a large private sector component involved. Their technology levels are higher, quality far improved and reliability better. Orders for production of ammunition is now being outsourced to the private sector. Similar has been the case with most daily products for the armed forces, which was the preserve of government organizations. Thus, slowly the government has begun reducing its investments in PSUs.
It is this reduction in investments which has led to the unions of these establishments now seeking to go strike. They are demanding that the government invest more in them, rather than depend on the private sector. They have claimed that they remain crucial to the defence sector and hence should be developed. The strike is clearly an intention to pressurize the government to ignore developing its ‘make in India’ model while continuing with maintaining its white elephants.
Even if the government is hesitating in closing these concerns, it should support the private sector and force its own industrial units to compete with them by common bidding. It would soon become evident that PSUs would never compare in cost and technology with the private sector. This is because they have become lax, since for decades they neither had competition nor felt the requirement to modernize. Further, with their existing ‘overtime culture’ costs can never be competitive.
Closing or privatizing PSUs and ordnance factories would benefit the government in multiple ways. Firstly, it would open the defence market, inviting greater international investments. Investors at present are concerned about the governments long term goals and the impact of its decisions based on union actions.
Secondly, it would enhance technological levels as with investments would come modern technology. Thirdly, would be the availability of additional funds from sale of the prime lands held by PSUs and ordnance factories. Finally, it would open the defence budget for its true purpose, modernization of the armed forces.
The question is whether the government is willing to bell the cat or like others before it, continue wasting the limited defence budget on keeping these undertaking afloat, only because they are government organizations and can influence vote banks.
About the Author
Maj Gen Harsha Kakkar
Retired Major General Indian Army