Employees in India’s public sector units, including state-owned banks, are increasingly turning restive. Their unions have called for industrial action in the coming days and weeks to protest the Narendra Modi government’s open exploration of a proposal to either privatise some public sector enterprises or divest government equity in them. Many of these entities, such as the national carrier Air India and telecom players BSNL and MTNL, are loss-making, and in the case of BSNL, so cash-strapped that they are unable even to pay their employees’ salaries on time. Public sector banks, on the other hand, are carrying the burden of non-performing assets (NPAs) from their borderline-indiscriminate lending of the past; and after a series of mergers and consolidation efforts, they find themselves overstaffed. All this has heightened public sector employees’ sense of anxiety about their continued employment and wage growth.

A fiscally constrained government, such as this, can ill-afford to throw good money after bad in the fruitless enterprise of keeping sick units on life support. Which is why the government has been compelled to even consider some tough choices and politically unpalatable options, including outright privatisation.

Just how far the government will go in effecting these disinvestment or privatisation proposals remains to be seen, but whatever option it chooses, there is no case for dealing with the grievances of the agitated employees in heartless fashion. It is, of course, true that some of the blame for the low productivity levels in public sector units must lie with the labour unions. They have in the past erected hurdles in the enterprises’ embrace of productivity-enhancing technology on the ground that they would affect workers’ continued employment.

However, an honest consideration of the reasons why some of these public sector units are in such a pitiable plight must also acknowledge the role of successive governments in gaming the system in favour of new entrants, particularly in the private sector. Indicatively, at a time when the Indian telecom market was opened up to the private sector, BSNL and MTNL were actively denied critical technology interventions that would have enabled them to make a quantum leap in the quality of services they provided. That wilfully enforced loss of momentum effectively provided the space for private players to spread their wings – from which handicap BSNL and MTNL never really recovered. Today, they are being painted as low-productivity laggards, which does them enormous injustice. Worse, it puts jobs on the line today whereas, in fact, the primary blame for these units’ failings lies with policymakers in an earlier time.

Similarly, in the case of public sector banks, it is the unwillingness on the part of successive governments to give effective functional autonomy to the banks’ chairmen – and, worse, to use PSBs to underwrite political projects, including farm loan waivers - that contributed substantially to the overall rotting of the financial system.

As if to overcompensate for these failings, the government has taken occasional recourse to hiking wages and inflation-linked components without pegging them to labour productivity gains of the sorts that are common in the private sector.

So, how should the government respond to the strike call by public sector employees? For one, it can initiate an honest discussion on the reasons why public sector units are tottering – including an admission of previous policy failings - and on the need for (and the inevitability of) tough measures. It can then treat the workers’ unions as stakeholders in enhancing workplace productivity, if necessary by indexing future wage growth to such gains. In extreme cases, where units have to be shut down and employee severance is inevitable, it must put in place mechanisms to ensure that laid-off workers secure fair recompense and the entirety of their terminal benefits – unlike on earlier occasions when they were left in the lurch.

The state of our sick public sector needs surgical intervention, for sure. But the situation calls for expert administration of a scalpel, not a hacksaw.

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Published on October 17, 2019