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

YearNumber of operating PSUs analysedNumber of Profit-making PSUs Profit of Profit-making PSUs*Number of Loss-Making PSUs Loss of loss-making PSUs*

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 PSUsNet ProfitInvestment in Budget 2012Loss-making PSUsNet Loss (-)Investment in Budget 2012
ONGC18,92433,065Air India6,8654,928
NMDC6,4994,655Hindustan Photo Films Manufacturing Limited1,1570
BHEL6,0111,696Indian Drugs and Pharmaceuticals6220.01

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

YearNo. of Sick PSUs as per BRPSE* definitionAccumulated losses of sick PSUs (in Rs crore)

* 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

PSUYearSalesNet Profit/Loss
National Textile Corporation2010-20111,4556372091,429
Hindustan Organic Chemical Limited2010-11738667(-16)26
Eastern Coalfields Limited2010-113,6945,883366107
Heavy Engineering Corporation Limited2010-117006813738
Fertilizers and Chemicals Travancore Limited2010-111,6172,52116(-49)
Hindustan Machine Tools2010-1147519133(-93)
Cement Corporation of India2010-113523027127
National Projects Construction Company2010-2011No Targets1,07829

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

PSUAmount of Financial Package (In Rs crore)
National Textile Corporation 9,103
Hindustan Organic Chemical250
Cement Corporation of India2,044
Hindustan Machine and Tools972
Eastern Coalfields Limited3,211
Fertilizers and Chemicals (Travancore)670
Heavy Engineering Corporation2,019
Nation Projects Construction Corporation647

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.