psu – Pertinent Observations

Senior Assistants

A year or two before I was born, my parents both took and passed this exam called “SAS” (no clue what it stands for), following which they were both promoted to officer grade (they used to work for the erstwhile Karnataka Electricity Board (KEB) back then).

Many of their colleagues elected to not take up this exam (or perhaps took and flunked it) and didn’t get promoted for the rest of their careers, remaining “senior assistants”. While they didn’t “progress” in their careers, they didn’t do all that badly financially, with their pay scale growing more or less at the same rate as it would have had they become officers.

This examination-based division into officers and “staff” was not limited to KEB, of course. It was (and is) prevalent across all public sector units. If you passed the exam, you had a chance at career progression, though that also typically meant harder work and longer hours. It wasn’t necessary for everyone to be ambitious, though, since they could choose to remain at a non-officer grade where things were chiller.

While there might have been noble intentions for this bifurcation (making the pyramid thin at a low enough level, for example, and also addressing lumpy/bursty recruitment), the problem with the practice was that it created a rather large cadre of rather unambitious workers.

Given that it is not easy to sack someone from a PSU job (unless there has been gross misbehaviour), the only way to incentivise PSU employees to work is by showing them carrots. While tenure or seniority based promotions have put paid to such incentives, it is still reason enough to keep a section of the officers motivated. For Senior Assistants who have hit a wall on that front, it is simply not available.

Given the shape of the pyramid and the lack of carrots for Senior Assistants (and equivalent) what this policy has created is a large army of government/PSU officials who lack any motivation or incentive to do their job effectively.

With most government departments being monopolies, this is a problem only for the taxpayers and public (and not so much for the departments themselves). Where this hits PSUs hardest is where they compete with the private sectors, in banks, for example.

I’ve maintained that one of the advantages of PSU banks is that the staff there are much more experienced, so if you have a non-standard thing to do, you would rather go there than to a private bank that might throw the rule book at you.

The problem, though, is that while some staff might be motivated enough to use their experience and help you out, not all of them might be that way, for most of the clerical staff belong to the aforementioned “Senior Assistant” category, with no explicit incentive to keep them going. The same is the case with non-customer facing staff as well.

I understand that various other careers can also have “career-limiting moves” (after which you don’t get promoted) but the problem with the Indian PSU system is that such moves happen pretty early on in the career, which creates a lot of deadweight for the system to carry.

Reforming Air India (yet again!!)

Being a PSU, Air India faces a unique set of constraints. In order to maximize its performance, the airline should take the most optimal decisions that satisfy these constraints.

On Monday I had to go to Mumbai on some work and I flew Air India. Normally I prefer to fly either Jet or Indigo, but given the short notice at which I had to plan my trip, and the fare difference between Air India and the other two (leaving aside some airline I don’t trust), I decided to go for the national carrier. Overall it wasn’t an unpleasant experience – my onward flight was late by ten minutes or so, while my return flight was on time. There was plenty of leg space, the food was good and online check in was hassle free. Yet, it looked like there was plenty of scope for improvement.

Now for a digression. The difference between club football and international football is that in the latter you cannot buy players (not strictly true – Spain got Brazilian born Diego Costa to play for them on account of 1. his Spanish passport, 2. that he had never played for his native Brazil, but this is an extreme assumption). To use a cliched term, in international football you need to play the hand that you’re dealt. Thus, the job of a manager of an international football team is to organize his team’s strategy and tactics according to the personnel available to him, rather than the other way round. For example, Dutch manager Louis van Gaal is known to favour a possession based passing game. However, given the set of Dutch players available to him, he has set them out as a counterattacking side.

Given the lack of degrees of freedom in running PSUs, it can be argued that running a PSU is closer to managing a national football team than it is to managing a club team. Government ownership and consequent pay structures, combined with the lack of a good lateral entry system to the Indian public sector, mean that it is hard for a PSU to “buy” personnel like private companies can. On the other hand, sacking PSU employees is a politically charged activity, and not easy to administer, so it is hard to get rid of deadwood also.

The traditional argument is that given these restrictions that PSUs face, it is impossible for them to perform at the same level as comparable private sector units. While this argument is well taken, what we need to be careful is to not let this mask any degree of poor performance by a PSU. The question, instead, that we need to ask is if the PSU is actually making best use of the “hand it has been dealt”. What we need to check is if the PSU is optimizing correct given the resources and constraints at hand.

Coming back to Air India, one of the stated causes of its poor performance is that it is overstaffed – it far exceeds its global peers in terms of the number of employees per aircraft (normally assumed to be a good metric of staff size). This was fully visible at the boarding gate on Monday, for there were four personnel with the task of barcode scanning the boarding passes. Most other airlines have two staff doing this. A clear case of overstaffing. While it may not be under the management’s control to downsize (see constraints listed above), what irked me was that they were not being put to best use.

Just to take a simple example, if you have twice the number of required staff at the boarding counter, all you need to do is to put in an additional barcode scanner and run two boarding lines instead of one – which results in doubling the pace at which the plane is boarded. This doubling of boarding pace means planes can have a much faster turnaround time at each airport – which means the number of flights that Air India can run given its stock of aircraft can increase significantly!

To take another example, Air India probably has the best leg space in the economy class among all Indian carriers – this is probably driven by the fact that a large number of government officers and ministers travel mostly by Air India, and holy cows mean that they are forced to travel “cattle class”, the airline offers some comfort. Now, while this means each plane has one or two rows of seats less than that of other carriers, it constitutes a massive marketing opportunity for the airline! Given the leg space and comfort and meals (!!), Air India can very well position itself as a premium carrier and try to charge a premium on tickets!

On an absolute basis, the recommendations above may not be optimal – it might be well possible to make more money by sacking boarding gate employees than by cutting boarding time, or it may make more business sense to add an extra row of seats than try to enhance legspace. However, given the constraints the carrier faces, these are possibly the “second best decisions” that the carrier can take. And by not taking these decisions, the carrier is not making as much money as it can make!

Penny wise pound foolish at PSUs

A couple of months back, an uncle who works for a PSU in a reasonably senior engineering role, had to go to Calcutta on work. Thanks to his late arrival from Calcutta, we had to postpone a party that had been planned for a weekend. When I asked about his late arrival, I was told that his train had been delayed. It was then that it struck me – that a lot of PSU officers still do business trips by train!

The logic completely defies me. An airconditioned train ticket (at my uncle’s grade, I don’t think they would send him by cattle class) from Bangalore to Calcutta costs around Rs. 2000, and it takes about thirty six hours. A flight, on the other hand, costs not more than Rs. 7000 (assuming you’re not booking at the last minute), and takes about three hours. What amazes me is that the PSU that employs my uncle values his time at less than (7000-2000)/(36-3) ~= Rs. 150 per hour! Ok even if you assume that the train journey had two nights when he would have been unproductive (and assuming that he’s a superman and so doesn’t need to rest and recover from a long journey), his employer values his one full day of work at Rs. 5000!

While this valuation might be consistent with my uncle’s salary (I’m only guessing given his experience and position; I haven’t asked), I think it’s still a stupid choice to make on behalf of the PSU. I was reading an op-ed by Mihir S Sharma in this morning’s Business Standard, where he talks about our warped sense of “austerity”, and was wondering if this decision to send my uncle to Calcutta by train was a measure in a similar direction!

Austerity means cutting down or limiting wasteful expenditure. It does NOT mean cutting down tangible expenditure in favour of the intangible (my uncle’s lost working time is an intangible, since he gets paid monthly; so is his reduced efficiency on the day immediately after his journey). Unfortunately some of the PSUs have not recognized this and still stick to some age-old “policies” regarding travel and expenditures.

My wife, who works for Toyota, informs me that a certain number of cars produced every day are “specially made for the government”. When I ask her what is so special about a sarkari car (apart from that rhino-horn like thing on the bonnet) she tells me that they are not supposed to have air conditioning! Given that air conditioning is a default in most cars nowadays, this “no air conditioning” is a special request that the government has to make to the manufacturers, so I don’t think it makes any tangible difference in the cost of the car. From my experience with my Zen, driving with and without air conditioning (I live in Bangalore, so I don’t need it at all times), I know that air conditioning hardly makes much of a difference to the mileage of the car. So overall in terms of cost, there is little the government saves by not having air conditioning in the car.

Now think of the babu in Delhi, where summer temperatures go well into the forties, and which is so dusty at all times of the year. Think of the possible increase in his efficiency if he were to travel in an air conditioned car. That is an intangible and the government will have none of it. It is all about austerity, you know. Penny wise, pound foolish.

PS: The recent focus on corruption has done more harm than good. Afraid of “being pulled up” by the CAG or any similar authority, a number of PSUs have gone into policy paralysis, and are simply not taking decisions, lest they are accused of being corrupt. The economic loss (again intangible) is humongous compared to the amounts these people might have possible swindled had they made the decisions! We never learn.