SAIL, BSNL, Air India together account for 41% of total public sector units' losses in FY16
Some common problems for losses in CPSEs include old and obsolete plant and machinery, outdated technology, low capacity utilization, excess manpower, weak marketing strategies, stiff competition, heavy interest burden, high input cost, resource crunch etc
New Delhi: Maharatna Steel Authority of India (SAIL) held the dubious distinction of displacing BSNL to become the number one loss making public sector unit in India last fiscal. SAIL has seen its net worth turn negative within one year, according to the latest Public Enterprises Survey, as its revenue declined by Rs 7,064.61 crore or an average Rs 19 crore every single day of last fiscal. It single handedly accounted for close to a fifth of the losses brought in by the top 10 loss making central public sector units last fiscal. One reason the survey has given for SAIL’s shocking slide into losses is adverse market conditions, make what you will of this.
But analysts at brokerage IIFL were clear in their prognosis: high employee base and operating costs are pushing the steel maker deeper into red. They said in a note to clients that “SAIL has struggled to execute its expansion and modernisation plan for capacity expansion over the past decade. At the same time, it peers viz. Tata Steel and JSW Steel increased capacity substantially. Despite having captive iron ore, given its high employee base and operating costs, SAIL has the lowest Ebitda/per tonne among large steel producers in India.”
Another Maharatna also found a place among loss makers – Bharat Heavy Electricals Ltd (BHEL). Its revenue loss on an average each day of FY16 was a little over Rs 12 crore or Rs 4,382.52 crore and as with SAIL, BHEL’s networth also turned negative during the 12 months under review. Three other well-known public sector companies - ONGC Videsh, Rashtriya Ispat Nigam and PEC – also slipped into the red last fiscal.
In fact, the three top loss making CPSEs – SAIL, BSNL and Air India – brought in a lion’s share of the total losses registered by India’s public sector units. These three accounted for almost 41 percent of the total losses and almost half the losses of the top 10 loss makers in 2015-16. The top ten loss making companies claimed 79.81 percent of the total losses made by all the (78) CPSEs during the year. In effect, the government’s intransigence to exit the business of making steel, offering telephony services and flying an airline continue to cost it dear.
Not all was bad news from the survey though. The Survey said overall net profit of 244 CPSEs was Rs 1,15,767 crore (Rs 1,02,866 crore), a growth of 12.54 percent. Also, contribution of CPSEs to the central exchequer by way of excise duty, customs duty, corporate tax, interest etc increased grew 38.63 percent to Rs 2,78,075 crore (Rs 2,00,593 crore).
India’s public sector undertakings have been described as crown jewels of our socialist legacy and many are sinking deeper into losses. Why the NDA government has no firm policy or intent to get out of the business of doing business is not really clear: why continue with all these socialist era relics?
Though the Survey says that losses of loss making CPSEs increased by just 4.57 percent, from Rs 27,498 crore in FY15 to Rs 28, 756 crore in 2015-16, a written reply by the junior minister in the Ministry of Heavy Industries and Public Enterprises had said in Lok Sabha earlier that the combined losses of 78 CPSEs rose by almost 55 percent in FY16 over the previous fiscal. That reply had stated that from Rs 18,485.36 crore in 2014-15, the combined losses of these entities climbed to Rs 28,756.19 crore within 12 months. That means, on an average, these companies posted a net loss of about Rs 79 crore each day of FY16 versus almost Rs 51 crore in 2014-15.
So why does government continue to make steel, why does it own an airline or a telephony network when the private sector has long overtaken typical bureaucratic inefficiency in each of these sectors – and is itself bleeding? If private airlines (barring two) and private telecom companies are finding it tough to make money, what hope do inefficiently run PSUs have of making any? The government has been stating quite categorically that it has no intention of privatisating Air India. Remember, while the Modi government continues to harp on a maiden operational profit posted by this airline in 2015 -16 – something the country’s top auditor has already contested - it seems in no hurry to exit telecom, steel making or aviation. Operational profits do not signal a turnaround for the airline, they were accrued largely on account of benign fuel prices last fiscal. Air India and BSNL continue to flounder as the government couches their financial figures.
While the other three in this list are habitual loss makers, SAIL is the newest entrant in the top loss makers’ club. SAIL reported net profit of Rs 2,092.68 crore in FY15 but slipped into the red the next year with a net loss of Rs 4,137.26 crore. Rashtriya Ispat Nigam is another steel PSU which slipped into losses, from a net profit of Rs 62.38 crore to a net loss of Rs 1,420.64 crore. Profit making BHEL also met the same fate, posting a net loss of Rs 913.42 crore last fiscal against a net profit of Rs 1,419.29 crore.
So why are the loss making CPSEs sinking deeper and in fact adding members to this loss makers’ club? Minister of State for Heavy Industries and Public Enterprises, Babul Supriyo, said in the Lok Sabha reply that “the reasons for losses in CPSEs vary from enterprise to enterprise. However, some common problems for losses in CPSEs include old and obsolete plant and machinery, outdated technology, low capacity utilization, excess manpower, weak marketing strategies, stiff competition, heavy interest burden, high input cost, resource crunch etc.”
He obviously neither spoke of specific reasons for loss making units in each business segment nor did he outline any short or long term plan of the government to exit loss making PSUs. But government’s own think tank, the National Institute of Public Finance and Policy (NIPFP), has reminded us in a paper earlier this year that PSUs in the service sector, such as Air India, MTNL and BSNL, and those providing a range of other types of services have done poorly relative to those in mining and manufacturing.
“This is not surprising, given the lack of service orientation in service-sector PSUs. Not only is the performance of PSUs in service sectors worse but their presence could have also adversely affected the performance of private sector firms in those sectors......in aviation, the Director General of Civil Aviation(DGCA) has not worked as effectively in creating a level playing field and has favoured Air India. It has deliberately or unconsciously affected the performance of private sector airlines.”
In fact, NIPFP has said what every other logical Indian has said before: A 10-year plan to divest at least 50 percent PSU assets is required. The business of the government is public infrastructure, not public companies. “One of the biggest disappointments of 2015 has been the inability to move forward on even the modest targets of disinvestment of Rs 69,000 crore out of the total assets of PSUs estimated at over Rs 30 lakh crore; not included here are the state banks, which have also locked in huge amounts of public capital.”
Though the Prime Minister's Office has already asked the NITI Aayog to examine the viability of ailing state-owned companies and the NITI Aayog had earlier submitted two separate lists of sick and loss-making PSUs for evaluation, no final decision on these white elephants has been forthcoming from the government till now. NITI Aayog had apparently identified those loss making PSUs that can be closed down and made another list of those that should be privatised through strategic sale. Reports of eventual sell off of some of these loss makers, like Air India, keep surfacing from time to time but as of today, there is no concrete movement on any of these proposals.
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