Exam Question # Q.12. What are the Administrative Problems of State Enterprises?

 

Ans. Since independence, a large number of State enterprises have been established and the State has been facing the problems relating to their administration. The various experts’ committees that were constituted to advise the government on the management of State enterprises have given divergent and over-contradictory views.

Nevertheless, they have thrown some light on the nature of problems and have given some valuable suggestions. Without going into the details of the suggestions made by the various experts’ committees, a general reference to some aspects of administrative problems of State enterprises may be made here.

1. Choice of a Form of Organization:

In India, company form of organizations have been found favorable with the government as against the consensus of experts for public corporation. The reasons for favoring company form of organization are as follows – (i) the opportunity that it provides for attracting private investment, both domestic and foreign; and (ii) the executive arm of the government did not want the public to get the full information about the undertaking which is the case if it were a public corporation.

Prof. Galbraith in 1956 and the Estimates Committee in 1960 have recommended the establishment of larger companies in order to derive the benefits and economies of large-scale organization and management. A beginning has already been made in this corporation, the Hindustan Steel Limited, Fertilizer Corporation, and the Harvey Electrical Limited.

2. Management:

The board of directors appointed to various public undertakings are nominated by the government, mostly from the government officials of the various departments The Estimates Committee has felt that these directors cannot play any useful role. It has, therefore, suggested that the membership of the board should be closed to the officials of the departments, members of parliament, and ministers.

Krishna Mennen Committee has suggested that the directors should be drawn from the ranks of the company and should consist of financial talent, technical skill, administrative talent, and representatives of labor.

3. Autonomy:

The Estimates Committee has pointed that in India State undertaking are often treated as departments and offices of the government which are subject to all the usual red tape and procedural delays. This greatly affects the productive activity of the undertakings. They should be run on business principles and there should not be interference by the Ministers on the pretext of regulating them.

The need for autonomy of management for State enterprise has been emphasized by E.C.A.F.E. Seminar as well as by other experts’ committees, which were constituted to examine the working of public enterprises.

4. Internal Administration:

One important problem faced by the State enterprise is the lack of trained personnel to manage them. At present the managing directors are mostly the senior officers of the government departments who do not possess technical knowledge and experience.

The problem of personnel can be solved either by direct recruitment of young men through special recruitment boards or by drafting people with good record in the private sector. It is gratifying to note that recently it has been decided to create industrial management service for staffing enterprises in public sector.

5. Parliamentary Control:

As the State enterprises are set up mainly to render service to society and safeguard its interest, it is necessary that parliament should exercise some control on their working. The parliament has to see that – (a) the consumers are provided with quality goods and service at reasonable prices and (b) interest of labor is protected.

Parliamentary control over the State undertakings is exercised by the methods such as – (a) questions in parliament, (b) debates on the annual grants of the various ministers, (c) Annual reports on the government companies, and (d) Public Accounts Committee and the Estimates Committee reports.

There can be no objection to parliament’s control of State enterprises in which huge public funds are involved. However, it is necessary for parliament to allow a certain amount of flexibility in regard to control to be exercised from time to time.

6. Pricing Policy:

Another important problem faced by the administrators of public enterprises is improper pricing policy. While formulating a price policy for public enterprises, the administrators have to bear in mind many complex considerations such as generation of surplus for reinvestment, nature of demand for the products, purchasing power of consumers, policy of the State, attainment of the optimum level of production, competition from private enterprise and from foreign producers, availability of substitutes, etc.

Economists also are not unanimous in their opinion regarding the pricing policy of public enterprises. While some economists advocate that public enterprises should function in the public interest on a no-profit-no-loss basis, some others have stated that the public enterprises should be able to generate enough surpluses both for their requirements of growth, replacements and development, as well as for financing other developmental plans included in the Five Year Plans.

In this connection we may note that the Administrative Reforms Commission’s Study Team on Public Undertakings recommended that our public enterprises should pursue a pricing policy that ensures not merely that the cost is covered but also the financial requirements of other developmental plans of the country can be financed through their surpluses.

In accordance with the recommendations of the study team, the Fourth Plan gave a general direction to all public enterprises to aim at a rate of return of not less than 11-12 per cent.