Week 3 (20th Mar): Economics & Governance – “Consultancy and Public Sector Risks”

In May 2024, reports emerged that Boston Consulting Group (BCG) was entrusted with formulating a revitalization strategy for state-owned Bharat Sanchar Nigam Limited (BSNL) at a hefty consultancy fee of ₹132 crore. Among BCG’s contentious recommendations was workforce reduction, sparking a nationwide debate. However, this escalating reliance on external consultancies is not an anomaly; governments worldwide, including France and Australia, have exponentially increased spending on consultancy services.

This growing dependence raises concerns about transparency, fiscal prudence, and the ramifications of outsourcing strategic policymaking. A key critique revolves around the absence of “skin in the game”—consultants propose ambitious strategies but bear no liability if they flounder. If BSNL’s fiscal standing fails to improve despite BCG’s roadmap, the consultancy remains unscathed, while taxpayers bear the brunt of potential failure.

Vocabulary with Contextual Meanings & Examples

Entrusted – Given the responsibility to handle an important task or duty.

• Context: The government entrusted BCG with the responsibility of designing a strategy for BSNL’s revival, putting faith in an external consultancy to improve the struggling telecom company.
• Example: The principal entrusted the teacher with organizing the annual function.

Revitalization – The process of bringing back energy, strength, or success to something that has weakened.

• Context: BSNL sought revitalization through external consultancy to regain its lost market position and improve operational efficiency.
• Example: The mayor announced a new plan for the revitalization of the old shopping district.

Hefty – Large, substantial, or excessive in amount.

• Context: The ₹132 crore consultancy fee was considered a hefty amount, raising concerns about whether such a large sum was justified.
• Example: The company imposed a hefty penalty on employees for violating security policies.

Contentious – Likely to cause disagreement or controversy.

• Context from the Passage: The recommendation to reduce BSNL’s workforce was a contentious decision because it sparked public debate and concern over potential job losses. Many questioned whether outsourcing strategic decisions to consultancies was beneficial or harmful to the public sector.
• Example Sentence: The government’s decision to privatize certain industries remained contentious, as some believed it would boost efficiency, while others feared job losses.

Escalating – Rapidly increasing in intensity or extent.

• Context: The escalating reliance on consultancies in the public sector has become a matter of concern, as more government decisions are being outsourced.
• Example: The escalating fuel prices are affecting transportation costs globally.

Anomaly – Something that deviates from what is standard, normal, or expected.

• Context from the Passage: The increasing dependence of the public sector on private consultancy firms, such as BSNL hiring BCG, represents an anomaly because traditionally, state-owned enterprises relied on internal decision-making rather than external firms. This shift raises concerns about accountability and effectiveness.
• Example Sentence: The sudden rise in consultancy fees for government projects was an anomaly, as such expenditures were usually kept under strict budget control.

Fiscal Prudence – Careful and responsible management of financial resources.

• Context from the Passage: The government’s growing reliance on costly external consultancy firms, like BCG for BSNL, raises concerns about fiscal prudence. Instead of using internal expertise, large sums are being spent on external advice, questioning whether public funds are being used wisely and efficiently.
• Example Sentence: The finance minister emphasized the need for fiscal prudence to prevent unnecessary government spending and ensure economic stability.

Ramification – A consequence or result, often complex and unintended.

• Context from the Passage: The increasing dependence on consultancy firms like BCG for government decision-making raises significant concerns about its ramifications. If BSNL’s revival plan fails despite BCG’s recommendations, the negative ramifications will be borne by the company and taxpayers, while the consultancy firm remains unaffected.
• Example Sentence: The sudden policy change had serious ramifications, leading to widespread confusion and financial losses.

Skin in the Game – Having a personal stake or risk in the outcome of a decision or venture.

• Context from the Passage: Consultancy firms like BCG provide strategic advice to public sector companies such as BSNL, but they have no skin in the game—meaning they do not bear any consequences if their recommendations fail. Even if BSNL suffers losses, the consultancy firm still gets paid, creating a misalignment of incentives.
• Example Sentence: Investors prefer CEOs who have skin in the game, as it ensures they are personally invested in the company’s success.

Critique – A detailed analysis and assessment of something, often highlighting its strengths and weaknesses.

• Context from the Passage: The critique of consultancy firms’ involvement in public sector decisions revolves around their lack of accountability. Critics argue that firms like BCG offer strategic recommendations but bear no responsibility for their outcomes, raising concerns about their effectiveness in BSNL’s revival.
• Example Sentence: The economist’s critique of the government’s new tax policy highlighted its potential benefits but also warned of possible drawbacks for small businesses.

Flounder – To struggle or have difficulty in moving forward effectively.

• Context from the Passage: If BSNL’s revival plan does not succeed despite implementing BCG’s recommendations, the company could flounder, meaning it would struggle financially and operationally while the consultancy firm faces no consequences. This highlights the risk of outsourcing critical decisions without accountability.
• Example Sentence: Without proper leadership, the new startup began to flounder, unable to secure funding or attract customers.

Fiscal Standing – The financial health or stability of an organization, government, or individual.

• Context from the Passage: BSNL’s reliance on expensive consultancy services raises concerns about its fiscal standing, as excessive spending on external firms might further weaken its already struggling financial position instead of strengthening it.
• Example Sentence: The company’s fiscal standing improved significantly after cutting unnecessary expenses and increasing revenue streams.

Unscathed – Not harmed or affected by a difficult situation.

• Context from the Passage: If BSNL’s revival plan fails despite following BCG’s recommendations, BSNL and taxpayers will suffer financial losses, but BCG will remain unscathed—meaning the consultancy firm will not face any negative consequences or accountability for its advice.
• Example Sentence: Despite the economic downturn, the well-diversified company emerged unscathed, continuing to generate strong profits.

Brunt – The main force or impact of something, often negative.

• Context from the Passage: If BSNL’s revival plan fails despite implementing BCG’s recommendations, the brunt of the failure—meaning the worst consequences—will be borne by BSNL and taxpayers, while BCG, as the consultancy firm, faces no repercussions.
• Example Sentence: During the recession, small businesses bore the brunt of the economic slowdown, struggling to stay afloat.