The Modi Government in its second term is set to follow a policy on public sector under which there will be no special efforts to rejuvenate the loss making units which have potential but due to extraneous factors, are ailing. At the same time, the Government is milching the blue chip PSEs to garner funds for bolstering the central finances.
The public sector in India has a chequered history and the leading companies are still the pioneers in the core sectors of the economy. But the policies being pursued are adversely affecting the interests of these PSEs rather than giving them additional strength to compete in the global market.
The public sector telecom companies are already the victims of the government's partisan policies in favour of the private sector. Even the leading companies like the ONGC, HAL, LIC and SBI are paying heavily for the lapses of the government policies.
Recently, the Petroleum Minister Dharmendra Pradhan said that the government has no business to be in business. He actually meant the oil sector. Just now, the BPCL is in a mess, the ONGC is in a financial crunch after taking over HPCL and the private oil companies including foreign oil companies are looking at acquisition of the country's prime oil interests.
At that time hinting that the government may not be in the oil sector gives ominous signal to the oil PSEs and demoralises the senior officials and the staff.
Despite popular belief and Modi government’s propaganda, CPSEs have, on a consolidated basis, contributed positively to the exchequer. Over the past five years, CPSEs have generated around Rs 593,000 crore. That said, the number of loss-making CPSEs have, in fact, increased from 55 in 2008-09 to a high of 85 CPSEs in 2015-16, declining to 71 in 2017-18.
On an average, the number of loss-making CPSEs, over the last five years (2013-14 to 2017-18) were 77, an increase from 64 CPSEs from the previous five-year period (2008-09 to 2012-13).
In relation to all CPSEs (loss and profit making), 26% of the CPSEs were loss-making during 2008-09; this figure rose to 34% in 2015-16 and, subsequently, dropped to 28% in 2017-18.
The loss per loss-making CPSE, too, increased over the 10-year period (2008-09 to 2017‑18) from Rs 266 crore to Rs 440 crore per loss-making CPSE. This trend is reflected in the increase of the average yearly loss over the last five years (2013-14 to 2017-18) as compared to the previous five-year period (2008-09 to 2012-13): Rs 27,541 crore per annum vs. Rs 21,677 crore per annum.
The cumulative losses of CPSEs over the last 10 years (2008-09 to 2017-18) were around Rs 247,000 crore, of which 56% were incurred during the last five years (2012-13 to 2017-18). Three CPSEs – Bharat Sanchar Nigam Limited, Air India Limited and Hindustan Photo Films Manufacturing Company Limited – were responsible for nearly 53% of the cumulative losses during the last five years.
The causes for the increase, or indeed, losses, in the first place, are varied. In certain sectors, aggressive competition from the private sector has accentuated internal inefficiencies in some CPSEs. Internal inefficiencies typically result from a lack of or outdated resources (technology and/or skills).
Limited managerial independence (in practice) coupled with bureaucratic and political interference have also stymied the competitiveness of CPSEs. Moreover, CPSEs exist to fulfil a societal need, such as servicing economically unviable customers, which leads to weak finances.
During the past five years, the government had identified about 33 loss-making state-run companies for disinvestment as well as closure. While only a handful of firms have been under the process of closure, the list of entities identified for sale has remained static.
The government has managed to sell some of the loss-making hotel properties and transferred some of the units to state governments. For example, decision for sale of Scooters India was taken in 2016 and expression of interest was unveiled in May 2018. No progress has been made after that.
The government has also been hunting for a buyer for the country’s biggest state-run helicopter firm Pawan Hans. Several extensions have been announced for the sale process but a buyer has not been found. Bharat Pumps and Compressors has been under the disinvestment process for a number of years and a suitor is yet to be found.
The view within the government is that precious government revenue should not be wasted. This is part of the government’s overall strategy to revamp and restructure public sector enterprises ecosystem in the country and get out of non-viable businesses and sectors.
This approach lacks vision and with this, the public sector in India is in for a tough time.