Recent reports emerged about Boston Consulting Group (BCG) being engaged in the revival strategy of Bharat Sanchar Nigam Limited (BSNL).

Issues with BSNL

• Heavy Losses: BSNL reported a massive loss of ₹28,161 crore in 2023, highlighting its ongoing financial struggles.
• Outdated Technology: The company has faced significant delays in rolling out 4G, putting it at a disadvantage compared to private telecom players who have already moved to 5G.
• Bureaucratic Delays: As a government-owned entity, BSNL suffers from slow decision-making processes, affecting its ability to compete and innovate.
• High Workforce Costs: BSNL has a larger workforce compared to private telecom firms, leading to higher operational expenses and inefficiencies.

Reasons for Hiring BCG

• Revival Strategy: BSNL hired Boston Consulting Group (BCG) to analyze its challenges and suggest a revival strategy for improving efficiency and competitiveness.
• Cost of Consultancy: The consultancy cost BSNL ₹132 crore, raising questions about the return on investment.
• External Expertise: BCG was brought in to identify inefficiencies and recommend solutions that internal management may have struggled with.
• Recommendations: BSNL was to pay ₹132 crore for BCG’s consultancy services. BCG reportedly recommended workforce reduction among other strategic steps.
  • The public sector’s reliance on consultancy firms has increased globally, not just in India.

Role of Consultancy Firms in the Public Sector

• Strategic Advice: Consultancy firms provide expert guidance to help public sector companies formulate long-term strategies and address key challenges.
• Market Analysis: They analyze market trends, competition, and industry dynamics, enabling public enterprises to stay relevant and adapt to changes.
• Efficiency Measures: Consultants recommend organizational restructuring, cost-cutting strategies, and efficiency improvements to enhance performance and reduce financial losses.

Global Trends in Consultancy Spending

• France: France spent over €1 billion on consultancy services in 2021.
• Australia: Australia spent A$21 billion on external labor in 2021-22.
• India: No comprehensive data is available for India, but reliance on consultancy firms has significantly grown.

Implications of Reliance on Consultancy Firms in the Public Sector

• Lack of Accountability: Consultancy firms provide strategic advice but bear no responsibility for the outcomes of their recommendations. In BSNL’s case, if the revival strategy fails, BCG faces no consequences, while BSNL (and taxpayers) bear the losses.
  • This lack of accountability creates a misalignment of incentives—consultants get paid irrespective of results.
• Decline in Expertise: Over-reliance on consultancy firms leads to a decline in internal expertise and innovation.
• Dependency: Government agencies and public enterprises become dependent on external consultants instead of developing in-house expertise.
  • This creates a vicious cycle where consultancies are continuously needed, leading to high costs without sustainable solutions.
• Erosion of State Capacity: Consultancy-driven projects fail to transfer knowledge and skills to public officials. This creates a negative feedback loop—government employees lose institutional expertise, increasing future reliance on external consultants.
• Less sufficient: Over time, the public sector becomes less self-sufficient in handling complex policy and governance challenges.
• Loss of confidence: The widespread outsourcing of expertise reflects a loss of confidence in the state’s ability to govern itself.
  • This weakens the legitimacy of public institutions, as they delegate key responsibilities to private entities.
• Lack of Oversight: Consultancy firms operate as an unaccountable parallel bureaucracy, influencing public policy and resource allocation without democratic oversight.
• Conflict of Interest: Consultancy firms serve multiple clients, including competitors and regulators, raising serious conflicts of interest. Their recommendations may be influenced by overlapping relationships, leading to biased or self-serving advice.
  • Globally, major consultancy firms are now considering splitting their functions due to growing concerns over conflicts of interest.
• Mismatch of Objectives: Public sector enterprises (PSEs) operate differently from private companies, but consultancies often adopt a profit-maximization approach.
  • It prioritizes cost-cutting, efficiency-driven restructuring, and market competitiveness, which may yield short-term financial gains but can undermine the long-term public service mission of PSEs.
• Impact on BSNL: BSNL’s role extends beyond profitability—it is crucial for bridging the digital divide, providing telecom access in rural and underserved areas, but aggressive cost-cutting measures could weaken service quality, disproportionately affecting rural users.
  • A market-driven approach may divert BSNL’s focus from its public service obligations, undermining its role as a provider of essential telecom infrastructure.

Way Forward

• Investing in Public Sector Expertise: Mariana Mazzucato and Rosie Collington, in The Big Con, argue for reducing consultancy dependency by enhancing internal capacity. Governments should recruit and train top talent, fostering:
  • Innovation-driven solutions
  • Strategic autonomy
  • Accountability in decision-making
• Strategic Autonomy: Excessive outsourcing diminishes institutional control over policy and governance decisions. By investing in internal knowledge-building, governments can exercise greater oversight and reduce reliance on external actors.

Conclusion

Governments worldwide must rethink their approach to consultancy dependence. A balanced strategy—leveraging internal expertise while using external consultants selectively—can ensure effective, accountable, and self-sustaining governance.

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