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That Giant Sucking Sound: State-Owned Firms Lose Rs 1.80 lakh crore ($33 Bn)

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Public sector undertakings (PSUs) have accumulated losses of over Rs 1.80 lakh crore over the last decade.  IndiaSpend’s Sourjya Bhowmick analyses 10-year data to conclude that not only do most bailout packages not work but in many cases it only seems to accelerate the haemorrhaging.

 

Even at this point, there are over Rs 20,000 crore worth of bailout packages in implementation, for companies like HMT, NTC, FACT and CCI, most of which look like they will not achieve their objective or are struggling to do so.

 

India’s Heavy Industries Minister Praful Patel said in Parliament recently that the Government is planning to spend Rs 26,000 crore to revive 43 central public sector undertakings and close two PSUs. The government auditor, the Comptroller and Auditor General (CAG), had issued a report last year on the condition of PSUs: the key finding was that taxpayers’ money being spent on sick and loss-making PSUs may not be giving the desired results.

 

As on March 31, 2011, there were 406 PSUs (including 131 deemed government companies) in the country.  Out of these, 378 PSUs were in operation with a government equity investment of Rs 1,88,661 crore.  So, 28 PSUs were not in operation. Out of 406 PSUs, 251 earned a net profit of Rs 1,27,141 crore and 127 PSUs reported a loss of Rs 23,264 crore.

 

The following table gives an idea of the performance of PSUs over the last decade:

 

Table 1: PSUs: Increasing Profits, Increasing Losses

 

Year Number of operating PSUs analysed Number of Profit-making PSUs Profit of Profit-making PSUs* Number of Loss-Making PSUs Loss of loss-making PSUs*
2010-11 220 158 1,13,770 62 21,693
2009-10 217 157 1,08,434 60 16,231
2008-09 213 158 98,488 55 14,621
2007-08 214 160 91,577 54 10,303
2006-07 217 154 89,581 61 8,526
2005-06 226 160 76,382 63 6,845
2004-05 227 143 74,432 73 9,003
2003-04 230 139 61,606 89 8,522
2002-03 226 119 43,316 105 10,972
2001-02 231 120 36,432 109 10,454

 

Source: Department of Public Enterprises

 

(* Rs crore)

 

From the table, we can see that the losses of loss-making PSUs have increased steadily, barring two years (2003-04 and 2005-06).  The total loss for the decade has been Rs 1,17,170 crore.

 

Loss/profit-making PSUs

 

So, which are the profit-making PSUs and the loss-making ones? The following table gives the answer:

 

Table 2:  Top 5 Rankings

 

Profit-making PSUs Net Profit Investment in Budget 2012 Loss-making PSUs Net Loss (-) Investment in Budget 2012
ONGC 18,924 33,065 Air India 6,865 4,928
NTPC 9,103 20,995 BSNL 6,384 9,504
IOC 7,445 650 MTNL 2,802 887
NMDC 6,499 4,655 Hindustan Photo Films Manufacturing Limited 1,157 0
BHEL 6,011 1,696 Indian Drugs and Pharmaceuticals 622 0.01

 

Source:  Department of Public Enterprises

 

(Rs crore)

 

Air India and BSNL are the top two loss-making PSUs but the government continues to invest heavily in both companies.

 

Sick PSUs

 

Another aspect of loss-making public enterprises is sick units. A company is declared sick if it registers a loss for not less than five years, and has, at the end of any financial year, accumulated losses equal to or exceeding its entire net worth. Now let us take a look at the numbers of sick PSUs.

 

Table 3: Stacking Up

 

Year No. of Sick PSUs as per BRPSE* definition Accumulated losses of sick PSUs (in Rs crore)
2009-10 N.A 63,828
2008-09 73 68,577
2007-08 78 72,820
2006-07 83 89,064
2005-06 75 83,554
2004-05 81 82,352
2003-04 N.A 73,487
2002-03 N.A 76,721

 

* Board For Reconstruction of Public Enterprises

 

Source:  Department of Public Enterprises

As can be seen from the table, sick PSUs have reported a total loss of Rs 63,828 crore (as on 2009-2010).  If you add this figure with the losses of loss-incurring PSUs, the total is around Rs 180,998 crore.

 

The main reasons identified by the Department of Public Enterprises for the losses include competition from the private sector, technologically obsolete machines, slow decision-making, poor marketing strategy and lopsided debt-equity structure.

 

The CAG report highlights the impact of industrial sickness on the economy and also points out the loss of revenue for the government which increases public expenditure.

 

The government had earlier spent around Rs 20,168 crore on revival packages for PSUs. Incidentally, around 72% of the funds were used for waivers of loans and interest and settlement of dues. Only a small proportion of Rs 4,174 crore was used for modernisation of the PSUs. And as per the CAG report, such policies did not necessarily improve the condition of the PSUs..

 

Targets vs Achievements

 

So, how have the revival packages announced by the central government worked so far? The CAG report reviews the performances of a few PSUs after the bailout packages:

 

Table 4:  Some Work, Some Don’t

PSU Year Sales Net Profit/Loss
Target Actual Target Actual
National Textile Corporation 2010-2011 1,455 637 209 1,429
2009-2010 1,454 486 176 103
2008-2009 1,126 417 42 4,179
2007-2008 617 484 (-182) (-510)
Hindustan Organic Chemical Limited 2010-11 738 667 (-16) 26
2009-10 719 479 31 (-84)
2008-2009 719 546 20 (-26)
2007-2008 700 571 28 15
Eastern Coalfields Limited 2010-11 3,694 5,883 366 107
2009-10 3,551 5,228 435 333
2008-2009 3,286 3,837 329 (2,109)
2007-2008 3,117 3,188 239 (1,030)
Heavy Engineering Corporation Limited 2010-11 700 681 37 38
2009-10 550 529 22 44
2008-2009 465 454 6 18
2007-2008 360 413 1 4
Fertilizers and Chemicals Travancore Limited 2010-11 1,617 2,521 16 (-49)
2009-10 1,617 2,160 14 (-104)
2008-2009 1,618 2,174 14 (-43)
2007-2008 1618 899 14 9
Hindustan Machine Tools 2010-11 475 191 33 (-93)
2009-10 450 194 34 (-46)
2008-2009 375 181 10 (-37)
2007-2008 320 233 (-10) (-40)
Cement Corporation of India 2010-11 352 302 71 27
2009-2010 352 362 71 53
2008-2009 312 364 61 53
2007-2008 224 343 314 41
National Projects Construction Company 2010-2011 No Targets 1,078 29
2009-2010 1,542 1,006 86 31
2008-2009 1,186 841 53 (-29)
2007-2008 913 729 32 (-37)

Source: CAG

 

Rs crore

 

Mostly, all PSUs seem to be achieving their targets in the last two years barring Eastern Coalfields. CAG, which followed the balance sheets of these PSUs from 2007-08, comes out with a different conclusion.

 

The following table gives an idea of the funds these PSUs have got till date as revival packages:

 

Table 5: Govt Funding Continues

 

PSU Amount of Financial Package (In Rs crore)
National Textile Corporation  9,103
Hindustan Organic Chemical 250
Cement Corporation of India 2,044
Hindustan Machine and Tools 972
Eastern Coalfields Limited 3,211
Fertilizers and Chemicals (Travancore) 670
Heavy Engineering Corporation 2,019
Nation Projects Construction Corporation 647

 

Source: CAG

 

Out of eight PSUs that received financial packages, five (HMT, NPCC, NTC, FACT and HOCL) could not meet their targets, which indicate minimal effect of bailouts.

 

The Road Ahead

 

World Bank’s Doing Business Report 2012 says that India ranks 128 among 183 economies in the area of solving insolvency and recovery rate is 20.1 cents of the dollar.

 

The CAG report also highlights the limitations of financial revival packages. The answer revolves around the need for a strong legislation for PSUs: identifying loss-making PSUs and disinvestment of sick PSUs. Regular bailouts do not necessarily help the PSUs.

  1. KUBER BAJPAI Reply

    September 17, 2012 at 11:47 am

    Why doesn’t the GOI close down sick CPSU to begin with

  2. Peter A Matthai Reply

    March 3, 2014 at 5:22 am

    Even now people _ FACT employees- are agitating against Govt to provide further financial assistance for revival and for write off of the aumulated interest etc. Let me suggest a simple way-out as a permanent solution – First sell this PSU with all its assets and liabilities after revaluing immovable properties to private parties- let them run it efficiently and make profits – they will be able to pay taxes to the Govt and salary to the employees -why do they want to be parasites on the people at large – why do they not understand that the accumulated losses are shared and borne by the Idian Taxpayers – and further that those who are not tax payers are not getting their due share of employment oppertunities.

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