Public sector reliance on consultancy firms raises accountability concerns

Source: The post Public sector reliance on consultancy firms raises accountability concerns has been created, based on the article “BSNL has been dialling the wrong consultant” published in “The Hindu” on 19th March 2025. Public sector reliance on consultancy firms raises accountability concerns.

UPSC Syllabus Topic: GS Paper2- Governance-Important aspects of governance, transparency and accountability.

Context: In May 2024, reports surfaced that Boston Consulting Group (BCG) was hired to assist in Bharat Sanchar Nigam Limited’s (BSNL) revival strategy for ₹132 crore. BCG’s recommendations, including workforce reduction, triggered widespread debate. This case highlights the growing reliance of public sector enterprises on external consultancy firms, raising concerns about accountability, governance, and effectiveness.

Reasons for Growing Dependence on Consultancy Firms

1. Lack of Internal Expertise: Public sector enterprises often lack in-house capabilities for complex challenges. BSNL hired BCG for ₹132 crore to develop a revival plan, highlighting its dependence on external expertise for strategic restructuring.
2. Objectivity and Impartiality: Consultants provide unbiased advice, free from internal influences. Their fresh perspective helps in strategic decision-making, as seen in BSNL’s case, where BCG offers neutral planning insights.
3. Resource Allocation: Outsourcing to consultants allows businesses to focus on core functions. BSNL relies on BCG’s strategy while government agencies handle regulatory matters, preventing internal teams from being overburdened.
4. Access to Best Practices: Consultancy firms work across industries and share proven strategies. BCG, with its global experience, brings tested solutions, helping BSNL implement innovative and effective restructuring approaches.

Impacts of Growing Dependence on Consultancy Firms

1. High Costs with No Accountability: Governments pay massive fees (e.g., France: €1 billion in 2021, Australia: A$21 billion in 2021-22) while consultancies bear no responsibility for failures. In BSNL’s case, BCG was paid ₹132 crore but is not accountable for results.
2. Erosion of State Capacity: Dependence on consultants weakens internal expertise. Public officials do not gain the skills needed for future projects, creating long-term reliance.
3. Conflicts of Interest: Consultancies serve multiple clients, including competitors and regulators, which can lead to biased recommendations.
4. Mismatch with Public Sector Goals: Cost-cutting measures may harm essential services. For instance, aggressive restructuring in BSNL could reduce telecom access in rural India, undermining its public service role.
5. Parallel Bureaucracy: Consultants influence policymaking without democratic oversight, weakening institutional legitimacy.

Way Forward

1. Invest in Internal Capabilities: Strengthening in-house expertise by recruiting and training talent.
2. Reduce Dependency on Consultants: Develop long-term strategic autonomy to minimize reliance on external expertise.
3. Ensure Knowledge Transfer: Policies should mandate that consultancies transfer skills to public sector employees.
4. Enhance Accountability: Introduce mechanisms to hold consultancy firms responsible for the impact of their recommendations.
5. Align Strategies with Public Interest: Ensure that public sector enterprises retain their social responsibility while pursuing efficiency.

Question for practice

Examine the reasons behind the growing dependence of public sector enterprises on consultancy firms and its impact on governance and accountability.