Lessons from RVNL's success story

Rail Vikas Nigam Ltd (RVNL) is a shining example of what a public sector company can do, when left alone by government, and without interference in day-to-day management by bureaucrats. In less than 20 years it grew its turnover almost 20 times, from approximately Rs1,000 crore to Rs20,000 crore. And that too profitably, even after the support from government in terms of allocated contracts was taken away.

RVNL, at the same time, moved away from only executing projects for the railways. It transformed into a first-class engineering and construction company, handling a variety of projects, from metro rail lines, to sophisticated tunnelling projects to building ports and jetties and constructing electricity transmission lines. It also ventured overseas to competitive markets. And it did all this while making a fair profit. It was no mean feat to be able to compete with the likes of L&T on a level playing field. Deservedly it was upgraded to Navratna status by the government.

There are several lessons to be drawn from the RVNL story. The first is that the public sector, left on its own, without interference by politicians or bureaucrats, can perform well and compete with the best in the private sector. This is in spite of the fact that public sector salaries are very poor, at the managerial and top levels, compared to the private sector. There are no stock options or a share or commission in the profits for the board of directors. All this while they are always under the threat of the CBI, and CVC. Also, ultimately there are ministerial whims and egos that have to be tactfully handled.

The stock markets have understood the value embedded in many PSUs whether it is RVNL, BHEL, HAL or the State bank of India or LIC. Each one has become a market leader in its own field. This is in spite of the Government of India continuing to hold the majority share.

Sadly, even after the sweeping 1991 reforms, both the Congress and the BJP have been obsessed with not letting control go. They have all been unwilling to drop the government share to below 51 per cent. Sadly, they have not learnt the lessons of privatisations elsewhere in the world, starting with Mrs Thatcher in the UK over 40 years ago – they have also failed to understand that the ‘political’ objective can easily be met by retaining a ‘golden share’ as was done in the UK.

What is worse and rarely talked about is the continuing destruction in value that this has led to. It would be safe to say that the value of the government’s holding would rise 4 to 5 times if only the government dropped its holding. A simple example would suffice. SBI is a 200-year-old bank, which was for many years much bigger than HSBC. With its largest network of Indian branches, it is almost a travesty to be valued less than the private sector HDFC and ICICI banks.

If government control of PSUs like RVNL and SBI was dropped they would become global sized companies. Our stock markets will also then be able to catch up and easily overtake markets like Hong Kong or Shanghai!