Weak Central PSEs hit govt revenues

India had 339 central public sector enterprises (CPSEs) till March last year, engaged in various activities including agriculture, mining and exploration, manufacturing and processing and even in the service sector. In 2017-18, the country actually added more CPSEs to its already bloated list – as per the latest Public Enterprises Survey, 17 new CPSEs got added in last fiscal while nine were deleted from the list or closed. So there was a net addition of eight such companies. And in 2017-18, the contribution of CPSEs to the central Exchequer by way of excise duty, customs duty, corporate tax, interest on central government loans, dividend and other duties and taxes was Rs 350,052 crore. Or these CPSEs deposited almost Rs 960 crore each day, on an average, to the Central kitty under various heads.

So, are the vast numbers of public sector units really a drag on the exchequer and do they merit calls for shutting down PSEs? Well, for one, the contribution of these CPSEs declined by almost Rs 10,800 crore in 2017-18 over the previous fiscal. In 2016-17, these CPSEs had contributed Rs 360,815 crore to the exchequer under various heads, which was a whopping 30% growth over 2015-16. So in one year, the contribution of CPSEs declined by Rs 10,763 crore or by almost Rs 30 crore each day of the year when it was growing at a healthy pace in the previous two years.

Two, the aggregate profit growth of CPSEs fell from almost 10% in 2016-17 to a mere 2.3% last fiscal. And three, the capital employed by these CPSEs continued its year-on-year rise in 2017-18, despite lower combined profitability growth and a massive decline in their contribution to the exchequer. The survey showed that the capital employed by the CPSEs increased by Rs 1,36,000 crore in a single year to Rs 22,73,969 crore (Rs 21,38,069 crore). Capital employed means the money pumped in majorly by the government (since CPSEs are at least 51% government owned), and this means more of the taxpayers' money was used for CPSEs last fiscal than the previous years.

So in effect, the number of CPSEs jumped but their profit growth declined and their contribution to the exchequer also fell even as the capital employed rose in 2017-18.

Madan Sabnavis, chief economist at Care Ratings, told DNA Money that there was "nothing wrong in having many PSUs. But they have to be revamped and aligned with changing times. This has happened to several industries where companies have had to reinvent their approach. If this is not done, they would cease to be relevant and would just be loss making".

If one were to examine the loss-making CPSEs, the two telecom companies and the sole airline which the government continues to own and operate turned in massive losses, yet again, in 2017-18. BSNL, MTNL and Air India (AI) together accounted for more than half the losses of all the CPSEs put together at over Rs 16,000 crore. In other words, these three CPSEs together brought in almost Rs 44 crore loss each day of the year. Attempts at offloading a majority stake in AI were thwarted last year as the offer was unattractive for prospective buyers, and the government also did not show any urgency in exiting the telecom sector.

D K Shrivastava, chief economist at EY, said "There is a need to devise a medium and long-term strategy to either continue with public sector enterprises or take out resources from loss makers in the long term. Air India is a good case for disinvestment and extraction of government resources".

Meanwhile, Sabnavis said different options exist. "First is privatisation which is being spoken of for some of them. Second is to change the way in which they operate and make them viable players. This holds for MTNL and BSNL where competing with the private players is not possible with their existing models. Otherwise, they would just be accumulating losses. This holds for several PSUs at the state and central levels which are just not viable and the major issue with privatisation is handling of staff which should be taken along for opting of this model. These organisations could move towards becoming redundant over the next few years if no action is taken."

Shrivastava said the public sector started to dominate the Indian economy in the 50s and the 60s because of the idea that most resources of the country should be owned by the government. But gradually, only those CPSEs which had monopolies remained profitable. "So public sector became synonymous with inefficiency in procurement, sale and distribution but continued to survive due to regulatory and price protection."

Unless the government begins to untangle the vast public assets locked up in the loss-making public sector units, they will probably remain a drag on the economy.