The Financial Express
The government’s inability to free up PSUs has already resulted in a valuation loss of `12.8 lakh crore (goo.gl/VxbFQB) since the Narendra Modi government assumed office, but for reasons best known to it, the government hasn’t been too keen to push an aggressive privatisation strategy. Even the Air India privatisation was half-hearted since the government refused to take over all the debt and put in several other riders that potential buyers found onerous. Apart from the fear of a backlash from workers, one possible reason was that the government felt it could turn around the PSUs by giving them greater autonomy in the same way Modi did with state PSUs when he was the Gujarat chief minister. But since no move was made to get Parliament to change the law that treats PSUs as “instrumentality of state”, the restrictions remain and PSUs have lost value because of that; even banks where the government set up an elaborate structure to insulate them have lost around `3.7 lakh crore in value.
Despite the reluctance to privatise PSUs, the government’s plan to shut perennially loss-making PSUs appeared a good one since this would also mean a large saving—in FY18, 71 loss-making PSUs posted a loss of `31,261 crore, up 14% over that in the previous year. Except, as FE reported last week, just two of the 19 units identified have been wound up so far in the last five years; these two are relatively small units while the big loss-makers like Hindustan Photo Films, HMT, IDPL and Tungabhadra Steel Products are still awaiting closure due to a variety of court cases. Hindustan Photo Films has not produced anything for several years but continues to make losses—it has 217 employees and made losses of `2,917 crore in FY18. Amazingly, the government has not taken a decision to close down even MTNL that lost `2,941 crore in FY17 despite the fact that it has a market share of under one percent and its closure will make no difference to the market—indeed, with its spectrum lease ending next year, even assuming no change in spectrum costs will mean the government will have to infuse another `4,000 crore or so to renew the spectrum licence.
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What is worrying is the fact that, over time, PSU losses will keep increasing. While the `158,373 crore of FY17 profits of 212 PSUs look healthy, over three-fourths of this comes from sectors like oil, coal and power where PSUs have a near monopoly or get favoured treatment. Interestingly, India’s highest imports take place in sectors where PSUs dominate like coal and oil; their poor performance means imports are required to meet the country’s demand. According to the latest CAG report on PSUs, 11 of 34 listed PSUs have an interest cover of less than one—that is, these PSUs are not earning enough to even repay their expenses on interest—and, in the case of unlisted firms, 66 out of 124 PSUs are in this situation; 71 PSUs have completely eroded their net worth and, by March 2017, had a negative net worth of `71,935 crore. If a government with a majority of the sort Modi has got has been unable to either privatise or shut down PSUs, it is not clear whether the next government will be able to make much headway; more so if, as the ongoing HAL-Rafale controversy shows, keeping PSUs alive has become the benchmark by which to judge a government’s intent.
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