Indian PSUs are not particularly known to feature in the reckoning of companies with highest efficiency; profitability or pay scales. Such has been their reputation that the best and brightest minds often leave them for greener pastures. But all of that is set to change for the better. And with the right results may even end up being the inflection point for Indian PSUs.
The PSUs are typically armed with legacy assets at very cheap costs. Ideally, these companies should easily give their private sector counterparts a run for their money. But inefficient execution and aversion to adopt technological changes has deprived them of high margins for years. The bane of contention has been very strict labour laws governing them. The latest approval from the nodal agency for India's 246 state-run companies thus comes as a welcome relief. It has allowed sacking of the non-performing staff in PSUs. The number could go up to 10% of the total workforce. This landmark decision could pave the way for companies to rationalize employee base. In addition, they could aim at improved efficiency and quality. The move to align pay scales based on employee performance could also become the bait for attracting skilled workforce. And not to mention the ability to compete effectively with the private sector.
This move may be seen as the government's attempt at making PSUs more attractive and stimulate its disinvestment plans. Nevertheless, given that the Navratnas (9 largest PSUs) alone contributed 16% of the country's GDP in FY10 (according to D&B), their higher profitability would certainly be in the interest of minority shareholders as well.
Do you think firing non performing employees will help India PSUs become more profitable? Share your views with us.
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