India: Need for Capability Building in State Owned Enterprises

2006

Deepak K Srivastava

Market forces in the form of globalization and liberalization have had profound implications for State Owned Enterprises (SOEs) in developing countries like India. There is no doubt that the sovereignty and autonomy of the state have been challenged to some extent by market forces; and that pressures have come to bear on SOEs. Indian SOEs have become embroiled in competition with private and foreign players. Critics have railed against the shifting of the state's role away from being a welfare state towards that of a competition state.

The Indian government has increased the freedom for goods, services, investment capital and persons to move around the world. As a result, the autonomy of the state has to some extent been constrained, pushing the government to restructure the state internally and to develop the new mechanism of SOEs. However, this process of opening up to market forces has produced some constructive pressures. They include better-informed and connected citizens; and, a modernization and upgrading of these enterprises.

But being able to tap the opportunities arising from these constructive pressures depends on the 'capability' of SOEs. 'Capability' here refers to the ability of the SOEs to undertake collective action at least cost to society. It also includes the administrative or technical capacity of SOE officials as well as the institutional capacity to provide flexibility, and rules and incentives to enable them to act in a given societal interest.

The Nobel Prize winner economist Amartya Sen pioneered the capability approach. It is often also associated with the philosopher Martha Nussbaum and has been taken up by an increasing number of other scholars.

The capability approach is a broad normative framework for the evaluation and assessment of policies about social change in society. However, it can be used as an alternative evaluation tool, which evaluates the policies of the state or SOEs. The most significant characteristic of this approach is that it provides a theoretical foundation for a people-centred human development paradigm.

The capability approach focuses on what people or the organization is effectively able to do and to be - that is, on their capabilities. However, capability is different from effectiveness. Capability is the ability to provide public goods at lowest cost to society. It can be understood as having the organizational means and resources, enabling the permanent administrative machinery of government to implement policies, deliver services and provide policy to decision-makers. But effectiveness would be that which uses this very ability to meet a society's demand for those goods. Therefore a state may not be very effective if its capability is not used in the interests of society. Efficiency in the delivery of public goods and services has no meaning if those goods and services are not responsive to the needs of the public.

WATCHPOINT: Capability building in Indian State Owned Enterprises is essential if they are to operate within competitive market forces.

 

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