Insulating PSUs PDF Print E-mail
Monday, 15 April 2013 01:51
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Commercial activities of PSUs need protection


Given how PSUs are increasingly losing out in the competition with the private sector and have less protection in the form of, say, purchase preferences, several committees have been set up over the years to find ways to make PSUs more efficient. Apart from the usual suggestions to find ways to insulate PSUs from political interference, a common recommendation has been to find ways to remove PSUs from what the Constitution defines as “instrumentality of state”—that is, by virtue of being an extension of the state, a PSU has to behave in exactly the same way the government would. How that has worked out in practice is that, while a losing bidder will not take a Bharti Airtel to court on not being able to qualify, the state-owned BSNL has had its tenders held up for years as one vendor or the other has approached the courts citing bias from an instrument of the state. This is also the clause that has, for instance, been the one applied by the courts while ordering PSUs to absorb temporary workers.

Not surprising then that the department of public enterprises decided to approach the Cabinet with a proposal to amend Article 12 of the Constitution to say PSUs would not be considered part of the “state” for purposes of the Article. That proposal, however, has been turned down by solicitor general Mohan Parasaran on grounds that while this will violate the basic structure of the Constitution, it won’t really take away the courts’ power of judicial review on a variety of grounds—he has opined this will only take away the courts power as far as fundamental rights are concerned. Writs, he has told the government, can be entertained under Article 226 and 32. Since insulating PSUs from the fundamental rights clause is also a big step forward, perhaps the government would do well to press ahead.

The solicitor general’s opinion, however, makes other interesting points that need wider dissemination and application. In Pradeep Biswas vs Indian Institute of Chemical Biology (2002), the solicitor general points out, the SC has said that for an entity to be an instrumentality of state “it should have been entrusted with such functions as are governmental…by being of public importance or being fundamental to the life of people and hence governmental.” In other words, when PSUs are carrying out their regular commercial activities, they are not instrumentality of the state—they fall under this category only when they have some delegated law-making powers. As far as employment practices are concerned, however, in a 2013 case the SC has ruled PSUs are an instrumentality of state. Given how it has become difficult for PSUs to function, caught as they are between their political-bureaucratic bosses and the instrumentality of state, the government does need to go to Parliament to look for a resolution.


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