Exam Question # Q.11. What are the Problems Faced by Public Sector Enterprises?

 

Ans. Some of the important problems of the public sector enterprises stated above have been analyzed here and if these problems could be tackled, certainly we can expect a much higher rate of return on the investment in the public undertakings.

i. Poor Project Planning:

Due to several mistakes, flaws, and omissions in project planning, many of the public enterprises take longer time to complete, which results in increasing the cost of the project and considerable delay in their completion. For instance, the commissioning of the Tomboy project delayed by 3 years, Barony Refinery by 2 years and Antibiotic Factory at Hardware by 1 year. To overcome this drawback, adequate feasibility studies and detailed planning should be undertaken.

ii. Bad Financial Planning:

The financial planning of many public sector enterprises also suffer from several drawbacks due to which they face the problem of over­capitalization. According to the study team of the Administrative Reforms Commission, many undertakings such as Hindustan Aeronautics, Heavy Engineering Corporation, Heavy Electrical, Fertilizer Corporation, and Indian Drugs and Pharmaceuticals were found to be over-capitalized.

The various reasons that have contributed for over-capitalization are the inadequate planning, surplus capacity, delays in construction, heavy investment on housing and labour welfare, and bad location of projects.

iii. Heavy Overheads:

These enterprises have incurred huge expenses for the provision of amenities to the employees and townships to accommodate them. It is estimated that the average investment in township accounts to about 20% of the cost of a project.

iv. Faulty Production Planning:

Lack of proper production planning in these undertakings has resulted in the under-utilization of capacities leading to heavy losses. Further, there is absence of proper materials and inventory management and also budgetary and inventory controls. All these have affected the efficiency and the rate of return on investment.

v. Poor Manpower Planning:

Because of working estimation of manpower requirements, over-staffing is a common feature of all public enterprises leading to increase in wage bill and operating costs considerably. The Administrative Reforms Commission has observed that “a comparison of the forecast made in the detailed project report of various steel plants, fertilizer project, heavy electrical plant, etc., shows the actual staff strength is much in excess of that estimated in the project reports.”

vi. Poor Labor Management Relations:

In a majority of these undertaking industrial relations are far from satisfactory in spite of the fact that the huge sums have been spent for providing amenities to the employees. This resulted in strikes and lockouts leading to fall in output and increase in the cost of production.

vii. Problem of Personnel:

The salary and wage scale of the personnel of these undertakings are comparatively low than private sector undertakings and due to this capable people are not available. The method of recruitment and training is also outdated and faulty. Further, these undertakings continue to depend on deputationists from the cadre of civil servants for filling the middle- and top- level posts. These civil servants lack business acumen and experience, which are essential for efficient management of the undertakings.

viii. Lack of Autonomy of Management:

The government, the minister concerned, and the Parliament interfere in the day-to-day working of these enterprises and due to this interference, it has become difficult for these undertakings to run on sound business principles. For managing the units efficiently, there is need to run them on business principles and further they should be given a large measure of autonomy in the day-to-day administration.

One of the methods adopted by the government to improve the management is to establish holding companies to take over the management of some public sector undertakings. The government has already established a holding company, Steel Authority of India Ltd. (SAIL), to administer the steel units in the public sector. It has already shown good results.

In conclusion a reference may be made to the policy proposed in the Fourth Five Year Plan in relation to the operation of public sector enterprises. The policy is linked with action proposed in two separate directions. First is in the direction of much greater co-ordination and integration. Though investments in the public sector have been large and their composition varied, the different units within the sector do not act sufficiently in concert.

It is suggested that this defect can be removed by creating appropriate machinery for effective co-ordination. When this happens, the plans of individual units will become more purposeful and their operations efficient. Secondly, it is proposed that detailed decision-making in the individual units should be effectively decentralized. This is a specifically stated objective of government policy, which has yet to be attained.