India's Top PSUs 2009
  
 

Overview of Central Public Sector Enterprises

The PSUs, both at the Central and state levels, play a prominent role in the industrialisation and economic development of India. The macroeconomic objectives of Central PSUs have been derived from the Industrial Policy Resolutions and the Five Year Plans. The state level public sectors enterprises or state PSUs were established because of the rising need for public utilities in the states. These PSUs have also contributed substantially towards infrastructure development in India because PSUs prominently operate in the areas of public utilities such as railways, post and telegraph, ports, airports and power. The infrastructure sectors in India are dominated by PSUs and department-owned enterprises.

Different types of public enterprises

Growth pattern of Central PSUs parallel to growth in economy

The growth and performance of the Central PSUs has been in line with the growth in the Indian economy. In FY09, GDP at current prices is estimated at Rs 52,286.5 bn, showing an increase of 15.1% as compared to the previous year.

Contribution of PSUs to the Central exchequer

The Central PSUs make a contribution to the Central exchequer through payment of dividend, interest on government loans and taxes and duties. In FY08, the contribution of PSUs to the Central exchequer mainly included excise duty (41.53%) and corporate taxes (24.50%). The remaining revenue (33.97%) was drawn by the exchequer in the form of dividend, interest on investments made by the central government and through customs duty, dividend tax, sales tax and other duties and taxes.

The Central exchequer obtains revenue from PSUs through two modes namely investments in the companies and through taxes and duties paid. The government earns investment revenue from PSUs in the form of dividends and interests, and also levies taxes on income, custom duties, corporate tax, excise duties and many more.

The total contribution of PSUs to the Central exchequer grew at a four year CAGR of 16.85% (FY04-FY09). In FY08, however, the rate of growth in revenue decreased as compared to the previous year due to the fall in revenue earned through interest rates and sales tax. Even though the total contribution of PSUs to the central exchequer has increased in FY08, the contribution of Central government investments in CPSEs decreased by 4% due to a sharp decline of 62% in interest rate receipts.

Employment pattern in CPSEs

During FY08, 242 Central PSUs employed 1.57 mn people, excluding those on contract labour and casual workers. Among these employees, 25% belonged to the managerial and supervisory cadre, which showed that the Central PSUs had a reasonably high percentage of skilled workforces.

While the number of people employed in the central PSUs has come down from 1.99 mn in FY02 to 1.57 mn in FY08 at a CAGR of (-)3.87%, the average per capita emoluments have increased from Rs 0.194 mn in FY02 to Rs 0.335 in FY08 at a CAGR of 9.53%. In FY02, however, there was a marginal increase in the number of employees and a decrease in the average annual emoluments by around 12%, due to corporatisation of the Department of Telecom (DoT).

Disinvestment in PSUs

The disinvestment of government equity in PSUs began in 1991-92 when the minority shareholding of the Central government in 30 individual CPSEs sold to financial institutions. The Indian government adopted the disinvestment route mainly because of the ineptness of the state-owned enterprises as compared to the privately-owned firms. The disinvestments were carried on through five types of transactions: sale of minority shareholding in PSUs, sale of majority shareholding of one PSU to another PSU, strategic sale, other related transactions and sale of residual shareholding in disinvested PSUs.

According to the Statement of Industrial Policy 1991, under the disinvestment route, a part of the government’s shareholding in the public sector was to be offered to mutual funds, financial institutions, general public and workers to raise resources and to encourage wider public participation. The Statement of Industrial Policy 1991 also suggested that the following industries be reserved for the public sector:

  1. Arms and ammunition and allied items of defence equipment, defence aircraft and warships
  2. Atomic energy
  3. Coal and lignite
  4. Mineral oils
  5. Mining of iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and diamond
  6. Mining of copper, lead, zinc, tin, molybdenum and wolfram
  7. Railway transport

    During FY01-FY04, PSUs were disinvested mainly through strategic sale and other related transactions, however post FY04, no strategic sales were carried out by the PSUs. During FY04, the actual receipts of disinvestments rose by 364.38% as compared with the previous year. The total receipts in FY04 stood at Rs 155.47 bn, ahead of the budgeted mark of Rs 145 bn. This increase in receipt was majorly due to disinvestments made through sale of minority shareholding in the PSUs.

    The total receipts of all actual disinvestments from FY01 to FY10 were Rs 392 bn, 55% of which came from sale of minority shareholding in central PSUs and 16% of from sale of residual shareholding in disinvested central PSUs. During FY09, there has been no disinvestment transaction.

    Memorandum of Understanding in CPSEs

    Memorandum of Understanding (MoU) is a mutually negotiated agreement between the management of PSUs and the government for setting annual performance targets for PSUs. Signing of MoUs is a win-win situation for all the parties involved. In case of PSUs, a MoU offers greater autonomy as compared to governmental control and provides a level playing field for the PSUs. Moreover, for the government, a MoU ensures accountability of the management to the government through monitoring during and at the end of the year.

    The Department of Public Enterprises conducts a performance evaluation at the end of the year of the companies that sign the MoU, under which the targets are compared against the objectives achieved by the company. This evaluation is conducted on the basis of sales, profit and other financial and non-financial parameters. During FY08, the evaluation report of the department showed the following results: 55 PSUs who signed MoU were rated ‘Excellent’, 34 were rated ‘very good’, 15 were rated as ‘good’ and eight received ‘fair’ rating. There were no companies under the ‘Poor’ rating category. In FY09, 207 PSUs signed a MoU with the government.

    The public sector investments vis-a-vis the total investments have been declining over the last few years. During the ongoing Eleventh Five Year Plan, the investment by the private sector is expected to provide major portion of investments almost 78% of the total investments, similar to the Tenth Plan.

    Even though the Planning Commission encourages private investments, it also aims to increase public investments, mainly in the areas of agriculture, irrigation, water management and infrastructure. Moreover, the government plans to draw equal amount of investments from both the public and private sectors to divert the money towards social and infrastructure sectors to aid the speedy growth of the economy.

    Rehabilitation of sick CPSEs

    The Board for Reconstruction of Public Sector Enterprises (BRPSE) was established in December 2004 as an advisory body to advise the government on strengthening, modernising, reviving and restructuring of sick public sector enterprises. As per the Sick Industrial Companies (Special Provisions) Act 1985 (SICA), a company is considered ‘sick’, if it has accumulated losses in any financial year equal to 50% or more of its average net worth during four years immediately preceding such financial year and/or is a sick company.

    Highlights of the CPSEs