Government companies have earned only 14 paise on the investment of Re 1 in the financial year 2018, almost half of the return received in 2009. The analysis of the rate of return on capital employed (ROCE) shows that government companies have lost almost fifty per cent of their efficiency in the last ten years.
DIU, a data unit of India Today, on the analysis of the data of the department of public enterprises, found that the rate of return of capital deployment has decreased from 25.43 per cent to 14.21 per cent over nine years. This data has been compiled from Economic Survey 2018.
ROCE is a ratio that measures a company's profitability and the efficiency with which its capital is employed. ROCE is calculated by dividing a company's earnings before interest and taxes (EBIT) by the capital employed. The ROCE indicates how efficiently the long-term funds of owners and lenders are being used. The higher the ratio, the more efficient is the use of capital employed.
The capital employed in CPSEs is 6.8 per cent higher in the financial year 2018 as compared to the previous year.
In the financial year 2009, the total capital employed in 213 government companies was Rs 7.92 lakh crore that jumped to Rs 22. 73 lakh crore in financial year 2018. However, the government added 44 new companies in this ten-year period.
"The gradual decline in the ROCE of the CPSEs from 25.43 per cent in 2008-09 to 14.21 per cent in 2017-18 is a clear indication that either the CPSEs are losing their monopoly status or their competitive edge. As such, even in the case of CPSEs who have lost their monopoly status, the competitive edge needs to be regained. This needs to be seen from another perspective. As the profit after tax of the profit-making CPSEs has shown a consistent track record of profitability, that makes a number of CPSEs as a fit case for either IPOs or further divestment. It is the stated policy of the Government that it has no business to be in business," said Sandeep Khurana, a financial analyst.
The company where more than 51 per cent of paid-up share capital is held by government is considered as government companies or Central Public Sector Enterprises (CPSEs).
According to the Public Enterprises Survey 2017-18, there are 257 operating CPSUs out of which 184 CPSUs are profit-making, and 71 CPSUs are loss-making. Two CPSUs neither earned profit nor made any loss. These companies were working across 22 sectors and dominate in public utilities, transportation, coal, oil and gas. The total money invested in all CPSEs stood at Rs 13.73 lakh crore as on March 31, 2018, around 10.24 per cent higher than the previous year. The financial investment amounted to Rs 5.28 lakh crore in financial year 2009.
Profitable and loss-making PSUs
The number of profitable companies decreased from 74 per cent (2009) to 72 per cent (2018). But just ten companies accounted for nearly two-thirds of the total profits, mostly from oil, gas and power corporations. Indian Oil Corporation, ONGC and NTPC were the top three profit-making companies during the financial year 2018. Indian Oil is contributing maximum 13.37 per cent profit share followed by ONGC (12.49 per cent) and NTPC Ltd (6.48 per cent) to the total profit earned by profit-making CPSEs.
The size of loss-making companies also increased in the last ten years. In 2009, 25 per cent of companies booked losses as compared to 28 per cent in 2018. According to the economic survey, as on 31 March 2018, there were 71 CPSEs with accumulated losses of 31,261 crore. Ten loss-makers accounted for over 85 per cent of the total loss-making companies. Some of these companies have booked a loss for several years. Bharat Sanchar Nigam Ltd, Air India and Mahanagar Telephone Nigam Ltd incurred a loss equal to 52.15 per cent of total loss-making government companies in financial year 2018.
BSNL and MTNL are struggling to survive in the competitive telecom space and they are likely to merge in next 18 months. BSNL is running in losses since financial year 2009-10. Most of the cost incurred is due to expences on huge number of employees and pension.
When a committee on public undertakings (2018-19) asked about the reasons for the losses, the Department of Heavy Industries (DHI) said that "the loss-making enterprises suffer from a number of factors including poor order book, shortage of working capital, surplus manpower and obsolete plant and machinery." It also blamed competition, increase in the input cost, large workforce and huge overheads.
The government is planning to cut the stake in non-financial public sector units (PSUs) from 51 per cent. It has enhanced the target for disinvestment to Rs 1.05 lakh crore for FY20, from Rs 90,000 crore in the interim Budget presented in February.
The finance ministry is also planning a strategic sale in several state-owned companies as well as asset monetisation from land and property of various PSUs. The Department of Investment and Public Asset Management is in the process of appointing a panel of six transaction advisors who will help with the sale of non-core assets of PSUs.
"Strategic disinvestment of select central public sector enterprises (CPSEs) would continue to remain a priority of this Government. Because of current macroeconomic parameters, the Government would not only reinitiate the process of strategic disinvestment of Air India but would offer more CPSEs for strategic participation by the private sector," Sitharaman said during her Budget speech.