Importantly, the directive dated August 16 also shifts the levers of control over all capital restructuring programmes of public sector undertakings from the administrative ministries to the finance ministry.

For the first time, release of financial assistance has been made contingent upon the company achieving the milestones indicated in the MoU. The targets will cover items like production, productivity, profitability, loan repayments, cash flows, cost cutting and reduction in manpower.

What is more, the directive says that the "management of PSUs will be held responsible for any failure to achieve the results promised in the approved capital restructuring proposal." The MoU between the PSU andthe finance ministry is to be signed immediately after the proposal for capital restructuring is approved by the cabinet or the cabinet committee on economic affairs.

The directive is candid in its appraisal of the present system. "In most cases, capital restructuring involves sacrifices on the part of the government and costs money to the public exchequer. This support is provided to the PSUs in the expectation that certain benefits will flow as a result of this assistance. It should, therefore, be undertaken in a serious manner and not casually or as a cosmetic exercise."

The administrative ministry role has become peripheral as it will only "periodically review the performance of the PSU with reference to the provisions contained in the MOU". Control will now vest with the finance ministry.

Further consolidating North Block's grip over ailing PSUs, the directive says that the administrative ministry must consult the financial advisors (who are representatives of the finance ministry) and the jointcontroller of accounts who heads the capital restructuring cell in the finance ministry.

The process of consultation has been made compulsory. Earlier, rehabilitation plans were formulated by the PSU in consultation with the administrative ministry and submitted, in the form of a note to the cabinet committee on economic affairs, to the finance ministry for comments.

Elaborating on further, the directive says, "the administrative ministry shall draw on the expertise of the capital restructuring cell even at the stage of formulation of the restructuring proposal and will make available all information that it requires, as quickly as possible". The cell will also be free to interact directly with the administrative ministry or PSU involved to obtain all the information it needs.

The attempt at ensuring a free flow of information is to prevent PSUs and administrative ministries from fobbing off intrepid finance ministry analysts.

The directive follows in the wake of serious reservations expressed by thefinance ministry in the manner in which PSUs handle their restructuring exercises. For instance, the ailing Rashtriya Ispat Nigam Ltd. (RINL) was granted a massive capital restructuring involving expansion of equity but it came back to the finance ministry a year later seeking a huge equity write-off. Clearly, the first plan did not work as it was poorly executed. It is precisely to avoid this kind of fiasco that North Block has decided to move on to the driver's seat as far formulation and execution of rehabilitation packages.

Insight
Targets should be realistic

Considering the continuous poor performance of some of the PSU's in spite of capital restructuring packages, the Government has finally woken up to the fact that these packages will now be cleared on a performance related basis. As the onus of meeting the targeted MoU will now lie on the management, tightening of belts can now be expected in these ailing PSUs. However, the exercise can be extended to others which have reportedpoor performances in the past few years, in order to prevent them from coming to the Government for aid. Further, the targets set under the MoU should be more realistic in line with other companies in the industry so that these companies will be able to survive on their own.

Shishir Asthana