SubscriberWrites: Solution to privatisation puzzle – Govt needs to look it as HR rather than budgetary issue

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This all is understood by the government and still they want to do privatisation in the national interest, and they are obviously failing. We all have seen fancy figures churned out by the finance ministers in various budgets and failing to fulfil the numbers at the end of the financial year.

I think government needs to relook at privatisation as a HR issue rather than a budgetary receipt issue:

Pension by government of India

One of the major demands of the employees and retirees is that pensions should be paid by the government. PSUs have separate liability funds for pensions or they get fund management done by LIC. The actuarial valuation of pension liability can be carried out and pension fund can be carved out before privatisation from the PSU and absorbed by government of India’s consolidated accounts. Thus, the opposition from pensioners towards privatisation will completely vanish in thin air. This will also take away some opposition from employees. This will enhance the value of the enterprise for sale. Businessmen dislike uncertainties, the life expectancy is rising, which will increase their liability. While bidding, they will take all these liabilities into consideration and in fact pad-up the expected liability thereby reducing the enterprise value. Free from pension liability they will bid aggressively.

Early retirements with full salary

Government can retire employees early based on their VRS compensation. Let us assume that average compensation of employees is four years of salary. PSUs which are privatised, their employees of eight years or less can be asked to sit at home and can draw full salary from the enterprise if the new owner wants so. This is neither a loss to the entrepreneur taking over nor employees. In fact, many employees don’t have skills matching to the fast-changing business. The incoming owners will welcome it and it will allow them to staff new human resources better suited to run business. This will again increase the enterprise value of the PSU as incoming owners always offer VRS schemes and the government puts restrictions of 1-3 years for offering VRS. For 3 years owners are stuck with employees they don’t want.

Absorbing PSUs employees in the government

Enterprise should be free only to keep those employees they want. Others can be offered VRS immediately or can be absorbed by the government. This sounds dreaded to the government as the government is not hiring fresh employees and trying to reduce the burden of wages and pension bills. My counter argument is that pension liability has already been taken care of. The new owner can pay the government the eligible VRS fund to the government for each employee offloaded to the government, softening the liability of wages to the government. The privatisation process should include assessment of the number of employees required to be absorbed by the government.

Again, those employees who are retained by the new owner, should have a choice after a certain period of being absorbed by the government or take VRS. Some employees will have only 8 years or less service, which can be paid full salary till retirement at home. Others can be absorbed, and the government can receive equivalent VRS amount from the new owner.

Incentives for accepting VRS

Government should set aside some portion of the expected sale receipts for incentives for accepting VRS.

Government employees are very-2 sensitive towards the education of their children. Seats in educational institutions like IIT/IIMs/central universities can be created from this money and only employees/ward of employees taking VRS can compete for these seats. This in-fact will be investment in youth and not expenditure.

They can also be given soft loans for business. I am sure bureaucrats can come up with better suggestions where incentives may cost little or nothing to the government.

Government can offer these VRS incentives to existing employees as well to absorb the incoming PSU employees in their place.

Conclusion

I think the above suggestions will take away much of the opposition from retirees and employees. More importantly the chances of backlash at the ballot by retirees, employees and their families will go away substantially. Again, the focus of the government should not be the revenue but the number of employees that can be absorbed and cost of opportunity lost with negative RoI on PSUs every year and privatisation of market share with each passing year.