India has been constantly debating corruption in government institutions.The issue has become so much attached to popular perception, that it is believed that a constant check needs to be there on public servants to monitor their decisions. As a result, vigilance organisations are omnipresent in government system, right from ministries to public corporations. One of the basic tenets of vigilance is that a public entity should follow procedural as well substantive guidelines laid by constitution, statutes and rules.It means that a public servant should not only be procedurally correct but also ensure that the decision made by a public servant should give financial benefit to the organisation.
If we assume that the above has been followed in letter and spirit then the natural corollary of the aforementioned is that every public corporation involved in business activity would always be in profit because vigilance had always ensured that every decision was taken in the financial interest of the organisation.But is it so? Many public corporations whether they are owned by state or centre are deep in losses and continue to be a burden on tax payer’s money. So, essentially we have a bureaucracy to keep a check on bureaucracy but still we keep on losing money.What is going wrong? The current system of internal and external checks is anachronistic and is de-linked from financial performance of the organisations.The growth of public servant is not linked to financial performance of the organisation but strongly linked to risk aversion in order to keep vigilance at bay. In popular parlance, this phenomenon is known as policy paralysis where there is too much fear of CVC, CAG and CBI.
India needs to take call on setting its business organisations free from the existing mechanism of checks and link it to its bottom-line i.e. net profit or loss.India has yet not harnessed the full power of financial reporting and it is time that this may be given its due place in the modern governance system.There is no use of having thousand layers of checks if still the public corporation is making losses.The taste of the pudding lies in eating it and thus, tax payers’ benefit lies in growth of their money and not bearing constant losses.The first step in this direction is to link the compensation of the management and employees in such corporations to the bottom-line of the organisation.This will bring much needed reforms in human resource management by ensuring multi-skilling and cost optimization. Secondly, the management should be given free hand to take business decisions.However, it should be ensured that in case management goes wrong on risk management then its should bear its consequences and not go Scot-free.
Further, it is required that government should limit constitutional principles only to ministries and should not extend it to corporations.Thus,vigilance’s role should be limited to ministries which are primarily concerned with taking policy decisions and are not directly related to business operations.For public corporations, the vigilance role should be minimized to the level of guidance only.Instead, Independent directors should be made more accountable for reporting unethical practices prevailing in the organisation.The current trend of Independent Director just resigning from the post after detecting the wrongdoing should be stopped.The financial reporting done by organisations should have a remark by Independent Director on ethical and risk management practices of the organisation.Thus, Independent Director needs to act as conscience-keeper and should be accountable in case this is violated.
Public corporations have a crucial place in Indian economy and it is not possible to replace them overnight.And, it is also a fact that government has quite a lot of talent which comes through competitive exams but it is the flawed system of checks and balances that is ailing public entities.Empowering efficiency will automatically discourage dishonesty once it is linked to physical and financial benchmarks.This is a departure from current scenario where physical targets are prime while financial targets take back seat leading to constant erosion of public money.The emphasis on bottom-line has to be accompanied by strong regulatory system because still many public corporations are monopoly and justify their losses due to certain political decisions like keeping power tariff low or non-increase of railway fares. A strong regulator can always go into financial statements and evaluate the merit of the argument.Thus, it is high time that bottom-line should take primacy over vigilance as a healthy bottom-line definitely adds more value to public money.