BSNL has been dialling the wrong consultant Premium

The case of BSNL and Boston Consulting Group serves as a microcosm of the broader debate about the role of consultancy firms in public sector governance, state capacity and accountability

In May 2024, a report that the American consultancy group, Boston Consulting Group (BCG), was to be involved in the revival strategy of state-owned Bharat Sanchar Nigam Limited (BSNL) and that BSNL was to pay BCG ₹132 crore for the consultancy drew much attention. BCG has reportedly recommended reducing the workforce among other major steps. While this became a much-talked about news item, this is not a one-off event. In recent years, the public sector’s reliance on the services of external consultancy firms has increased exponentially — and not just in India but also worldwide. While the overall spending of the government is not available for India, there is some data available for other countries. For instance, France spent over €1 billion on intellectual services provided by consultancies in 2021, while the Australian government spent A$21 billion on external labour hire in 2021-22.

The case of BSNL has once again drawn attention to the contentious issue of the growing influence of consultancy firms within the public sector. It raises important questions about the efficacy and the implications of outsourcing strategic decision-making in the public sector. Given the increased involvement of external consultancies, there is a need that this is scrutinised.

The central critique by most people is rooted in their lack of “skin in the game”. Consultancy firms are given projects and contracts to provide strategic advice but bear no responsibility for the outcomes of their recommendations. Like in this case, for example, if BSNL’s fortunes fail to improve despite the implementation of BCG’s strategies, the consultancy faces no consequences. This lack of accountability creates a troubling misalignment of incentives. The consultants are rewarded handsomely regardless of the results, while BSNL — and by extension, the Indian taxpayer — will bear the full brunt of any failure.

Moreover, such an arrangement undermines the very purpose of hiring external expertise: to deliver tangible improvements and long-term viability. Also, if you are paying someone to solve your problems without any major accountability, there will always be some problems left to be solved.

In addition, the over-reliance on consultancies erodes the capacity of the state to innovate and manage its enterprises effectively. Over time, this dependence on external expertise creates a vicious cycle. Instead of building internal capabilities, they become perpetually reliant on external advice — and this does not come cheap.

This kind of dependency has much broader implications for the state capacity. The skills and the knowledge learned by the consultancies on these projects are not transferred to the public officials. In effect, this sets up a negative feedback loop, where public sector employees lose skills and institutional knowledge, meaning, the next project or piece of work will still need external inputs.

The proliferation of consultancy contracts reflects a deeper crisis of confidence in the public sector’s ability to govern itself as well, by implicitly undermining their own legitimacy. This outsourcing of expertise not only weakens public institutions but also creates an unaccountable parallel bureaucracy of consultants who wield significant influence over public policy and resource allocation without subject to the same democratic oversight or accountability as public officials or political leaders.