Indian PSUs facing a leadership deficit! - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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Indian PSUs facing a leadership deficit! 

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In this issue:
» How one man can destroy an economy...
» Tough times ahead for Indian auto industry
» Should companies acquire land directly from owners?
» Will this be India's leap in manufacturing?
» ...and more!

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00:00
 
Last year, the Indian Government had set an ambitious target of building 20 km of new highways per day. The facts are now before us and we know that it failed miserably on this front, achieving merely 53% of its target. In order to not part away completely from reality, the empowered group of ministers (EGoM) substantially lowered the target for road building in the current year by 33%. The major reason for the poor execution has been the slow rate of project award.

But there is another grave issue that has been responsible for such poor performance. You would be surprised to know that the National Highway Authority of India (NHAI) has failed to appoint a full-time chairman for over 6 months. In fact, there is something even more shocking. As per a leading business daily, this issue is not just restricted to NHAI. There is a serious leadership deficit at some of India's largest state-owned financial institutions. There are over half a dozen banks and financial institutions that have nearly empty positions at the top management level.

Why this should concern you is because some of these institutions are managing your hard-earned money. We really doubt the quality of decisions that are taken in institutions that do not have proper leaders. One wrong decision can have major undesirable and long lasting consequences.

Take Life Insurance Corporation of India (LIC) for instance. With over Rs 12 trillion in assets, it is the largest financial institution of our country. After Mr T S Vijayan was demoted last month, LIC has been without a regular chairman. Mr R K Singh, an additional secretary in the finance ministry was given the charge for a while. Then 25 days later, Mr Dinesh Kumar Mehrotra (one of LIC's managing directors) was appointed as acting chairman for three months. Is it fitting to have the country's biggest financial institution run like this?

We believe it is high time we reconsider our assumptions that sovereign entities cannot fail. If you look at several sovereign institutions in other parts of the world, the evidence is simply overwhelming.

Do you think Indian PSUs can afford such a leadership deficit? Share your comments with us or post your views on our Facebook page.

01:06  Chart of the day
 
Today's chart of the day shows that retail investors' share in the market capitalisation of actively traded stocks on the BSE has been on the decline and is currently the lowest in last few years. The proverb 'once bitten, twice shy' quite explains the story. If you look at the numbers, retail investors held 19% share of the market capitalization in 2006. Then the market crashed in 2008 and since then their share has been on the decline. It is a clear indication that the volatility in the stock markets has put off retail participants.

(As on 31st March, 2011)
Data source: Business Standard

01:29
 
Here is yet another example of how an incompetent leader can push a country to the edge of a cliff. The famous acronym PIGS has been used to club together the four most troubled nations of Europe. And the letter 'I' in the same stands for Ireland. However, as per the Economist, using Italy in place of Ireland may not be that bad a decision. At first glance, the assertion looks a little shocking. After all, Italy avoided a housing bubble. Its banks did not go bust. And to top it all, the unemployment held up quite well relative to other European nations. Thus, on the face of it, Italy did not give the impression of being in any trouble at all. However, scratch the surface a bit and the Mediterranean nation's troubles become all too apparent. It may not be acutely ill as its other European counterparts. But is instead suffering from a chronic disease that is slowly eating into its vitality. Its GDP growth in the last decade is hardly anything to talk about. In fact, on a per capita basis, it actually fell. This lack of growth has kept its public debt high, 120% of GDP and the third biggest in the rich world. Also, a combination of low productivity and high wages is making it increasingly less competitive, amply reflected in the fact that it ranks a dismal 80th in world bank's 'Doing Business' index and 48th in WEFs competitive rankings. The writing clearly seems on the wall. Unless it implements big structural reforms, Italy risks sliding into a much bigger mess. Sadly, with Silvio Berlusconi at the helm, there is very little hope floating in the air.

02:11
 
After a couple of very strong years in terms of volume growth, the Indian auto industry seems to be running a bit out of steam. While FY09 was a forgettable year for the industry, the subsequent 2 fiscals saw a major ramp up in demand for vehicles, thereby boosting the fortunes of the sector. However, certain headwinds had begun to be felt in FY11 itself. Although volumes were good, high input costs dented margins and profitability. This scenario is expected to persist in the medium term too. Higher interest rates have also complicated matters as this will have a dampening demand on volumes as auto loan rates rise. Rising fuel prices are another headache. All this has already begun to have a telling effect on demand. For instance, passenger car sales recorded a growth of just 7% in May, 2011, which is the slowest in nearly 2 years.

To make matters worse, production of the auto belt in Haryana is likely to get impacted fuelled by the strike at Maruti's plant at Manesar. Haryana's Gurgaon-Manesar-Bawal belt accounts for around 60% of the country's auto production. Thus, a prolonged strike could have an adverse impact on overall performance. Indeed, the scenario is not looking too great for the auto industry at present.

02:52
 
The government plans to focus on increasing the share of manufacturing in the country's Gross Domestic Product (GDP). For this it plans to draft out the National Manufacturing Policy. The aim of this policy is to increase the contribution of manufacturing to 25% of GDP by 2025. It currently stands at 16%. The policy would facilitate the setting up of National Investment & Manufacturing Zones (NIMZ). These would be huge areas that would enjoy special benefits that would range from relaxed labour and environment laws, tax concessions and relaxed compliance. All this sounds quite good in paper. And if it actually gets implemented, then it would probably give the stagnating manufacturing sector the much needed boost. But considering that land acquisition in India is a major problem, implementing this policy remains a concern.

03:16
 
Acquiring land for construction purposes has never been as difficult in India as it is today. Surprisingly the problem is not that of shortage. The metro cities may have some limited availability of land. But the smaller cities and hinterlands continue to have plenty of vacant places that could be put to productive use. Most of the ownership of these lands lies with the government. But lack of transparency in selling the parcels has dissuaded buyers from purchasing them. Mr Deepak Parekh, the best known veteran in India's housing and real estate sector, has an ideal solution to utilising the surplus land. He believes that e-auctions of surplus land could solve the problem of transparency. At the same time it could keep the identity of the buyers secure, thus safeguarding them from the hands of the local mafia. In fact, Coal India recently met with a lot of success in e-auctions of coal, fetching the government additional revenue of Rs 25 bn. This would have otherwise been pocketed by the mafia. We agree with Mr Parekh that the government should use technology to its advantage to make better use of resources at its disposal.

03:51
 
According to a World Bank estimate, rising global food costs have pushed 44 m more people into poverty since June 2010. And, now food prices in India may soon accelerate even further. The government recently raised the prices it pays farmers for food grains and oilseeds, making them more expensive. Minimum prices for monsoon-sown crops like paddy, soybeans and corn were increased to help boost planting. This in effect increases the base price for these agricultural commodities. By the time it reaches the ultimate consumers, it becomes even more expensive.

Overall inflation in India has been over 8% for the past 16 months. An index measuring wholesale prices of agri products went up over 9% YoY (year on year) at the end of May, 2011. Even the 9 rate hikes by the RBI since March 2010 have not helped in curbing the inflationary pressure. The government is yet to find a delicate balance.

04:30
 
In the meanwhile the Indian stock markets have been trading weak on account of selling pressure across most sectors. At the time of writing, the benchmark BSE Sensex was down by 84 points (0.5%). All sectoral indices were on the losing end except IT and consumer durables. Asian stock markets were trading mixed with Japan, China and Malaysia among the gainers. The other Asian markets were trading weak.

04:50  Today's investing mantra
"Paper money eventually returns to its intrinsic value- zero." - Voltaire
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15 Responses to "Indian PSUs facing a leadership deficit!"

krishna Murthy

Mar 12, 2015

The entire PSU,s off late run by the people who does not deserve to be there. The main reason is the manipulation of constitution to recruit the inefficient, rouge, ruffians, low mentality, unpatriotic and use less people in this sector to loot the nation.

Like 

Sreekala Warrier

Jun 13, 2011

Yes. Theres is indeed a deficit of leadership at the top in PSUs. But the deficit is not limited to merely filling up posts at the top. It is also suggestive of the quality of leadership. How many executives do we have at the top who, have a vision for the institution they serve, who can lead and motivate the men below to achieve that vision? Most of the time our bureaucrats are more interested in becoming Yes-men and getting promoted. Their vision ends at how many promotions can be got before retirment.

Like 

Saurav Bishal

Jun 12, 2011

What we expect else from this politicians
who are only busy with their own portfolio..

Like 

manmohan khetan

Jun 11, 2011

This is highly irresponsible in a Govt headed by Dr. manmohan singh. It appears he has given up everything and left the country in auto mode.I don't have words to express my frustation.

Like (1)

ar chaudhary

Jun 11, 2011

There are 3 reasons for the same - firstly - PSU top postings / echeleons at the top are highly politicised postings and equations with corrupt (that's a good word today in modern India) ministers/IAS officials matter. It's not performance ((for e.g. Bhat of SBI, when Raju of Satyam did it for 7 yrs he was jailed but hiding NPA's for 5 yrs and suddenly showing it on exit, he was exonerated)) but what matters is how u sponsor the wily old politicians non-exisitng projects and spin public money for giving contracts to them thru' VIP quota's to increase your NPA's or buggering up the organisational finances. Then the second reason - andhon mein kaanaa raja- the very fact that the top echeloens have matter of fact people with the right connections, it slowly degenerates the middle level, which leads to good quality staff leaving the organisation mid-way and helping the private sector. The third reason is obvious - with middle/top management getting salaries which are pea-nuts, it is obvious u have brain drain in the middle management and the others who stay back live on commission basis (corruption), so u have today's PSU's - full of potential at the bottom to let the show go on but national money being drained from the top to the few businessmen and politicians who call the shots......

Like (1)

krish

Jun 10, 2011

Yes, there is derth of quality and starightforward hands. Aa of now any decision taken not only partison media but also pandarams and pujaris are making noise. The people who were in services viz.Police, Law,Health and so on did nothing to contain corruption under their feet joined the flow of trend and trying to call themselfs as Mahathmas.
Blackmoney and corruption exists very long back. It should be erradicated. So the public particiption is absolutely necessary.The payments made to doctors,Lawers,
dontions and every transaction only through cheques.There should be fear of punishment.

Like (1)

VIJAY BAHAD

Jun 10, 2011

The notion taht the PSU are having leadership defict is incorrect . Actually governemnt kills the leadership in PSU by politicing the appointments att he TOP to suit them. Especially its true in case Congress and allied governmnts where unless teh TOp candidates is politically suitable and can fall in line as per the government and Top Babus requirements , he or she does not get the Top post . Thats the crux of the story . The same PSU have been supplying immence talent to Private sector . How come tehn there is deficit of leadership at PSUs ? The logic is the Govt make the SPU defunc and inefficient deliberately .

Like (1)

Gurudas

Jun 10, 2011

There is clearly deficit in governance by the UPA. Seems either it is answerable to none or feels that there is not enough capable leadership in PSUs as is with the ruling party! A really sorry state of affairs ruining the country.

Like (1)

ramaraom3

Jun 10, 2011

it is not the leadership deficit of just the indian PSUs that are facing the leadership deficit.and it is not just the UPA,either. look at the quality of political leadership across the spectrum (pun unintended
).there is neither ideology nor people`s welfare at the heart of politics.only self interest of political parties and their leadership. if there is an institutional mechanism to select candidates well in advance ,these glaring failures wont occur. the parliamentary committees should revamp this system.

Like (1)

Narasimha Rao

Jun 10, 2011

This piece is surprising.
Head less, how any orgn can take decisions??
Succeession Planning should be in place so that well before the term expires , some one is put in the shoes.
The way INFOSYS did this and earlier how ICICI did thuis should be an eye-opener to all.
We have great talent in the country but not channelised properly.
How a small Emirate like Dubai with a local population of Just 1.6 Lakhs has built an an Airline: EMIRATES which made huge profits this year , that too in a very challenging environment!
The problem is, this Govt. is too indecisive.
May good sense prevail!

Like (1)
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