Business Today

Public Sector Millstones

By Prosenjit Datta | Print Edition: September 11, 2016
Prosenjit Datta, Editor, Business Today
Prosenjit Datta, Editor, Business Today

India's first Prime Minister Jawaharlal Nehru called them temples of modern India and envisaged Central public sector enterprises (CPSEs) as vehicles to bring about socio-economic transformation in India. Almost every subsequent prime minister and government - no matter what political dispensation they belonged to - fell in love with the idea of government-owned companies and strove to increase their number. The sole exception, perhaps, would be Atal Bihari Vajpayee, who tried his best to get the government out of being involved in too many businesses and actually created a ministry of disinvestment to sell off CPSEs. Indira Gandhi was the other extreme because she went about 'nationalising' flourishing private sector companies and banks, and drastically increased the number of companies that the government ran.

In 1951, India had all of five CPSEs and the government invested all of Rs 29 crore, according to the Public Sector Enterprises Survey of 2009/10. By 1961, they had grown to 47, and by 2001, 242. The latest survey (2014/15) says we have 298 CPSEs, (excluding seven insurance companies and the public sector banks), and out of these, 77 make losses. Only 235 are operational, which means the rest have more or less stopped doing anything, though they continue to exist. (There were 290 in the 2013/14 survey, and while nine were closed down, 17 were added in the next year to reach the current figure.)

The budgetary and extra-budgetary support to CPSEs reached Rs 92,159 crore in 2014/15. The 77 CPSEs that are unprofitable together totted up losses of Rs 27,360 crore the same year.

It is not just the Central government that loves PSEs. The states love them, too. They have been setting up PSEs as prolifically as the Union government. There are an estimated 900 PSEs in different states, though the Union government does not have the exact statistics. In the last round of the survey, they did not get information from many state enterprises despite trying very hard, so the exact statistics could not be compiled with accuracy. In fact, the 2014/15 report points out that even one Central PSE - IDPL (Tamil Nadu) Ltd - did not furnish its data, and 54 CPSEs could not give audited figures and only gave provisional data.

Since 1991, when the Indian economy embarked on a path of liberalisation, and successive industries and sectors were opened up to both domestic entrepreneurs and foreign investors, prime ministers and finance ministers periodically state they want to get the government out of running too many businesses. In practice, though, for every PSU that gets closed down, another one pops up - and sometimes two pop up.

If the government were able to run all the companies it owns profitably and efficiently, no one would have complained. But the fact is that it is the Indian taxpayer who subsidises many loss-making CPSEs and state PSEs. And that is why the government should get out of as many businesses as it can, if it cannot figure out a way to run them profitably. Of course, closing or selling a loss-making PSE is not always easy, with vested interests lobbying against closure and employee unions setting up roadblocks, but a determined government can always close down CPSEs if it is willing to take hard steps.

What is the Modi government's attitude towards CPSEs? Our cover story (page 62) by Senior Associate Editor Joe C. Mathew looks at it in detail. Also, don't miss the Cleantech special report on page 104. It has been put together by Associate Editor Anilesh S. Mahajan.

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