In the years since independence, State-Owned Enterprises (SOEs), also called Government-Owned Enterprises, have played an important role in our country, specifically in two areas: they have provided balanced regional development and have played a huge role in equitable redistribution of wealth and income. To achieve the target of making India a US$ 5 trillion economy, the government would like the SOEs to play a bigger role by increasing their contribution to 10% of GDP from the current level of 5%. To put this into perspective, in the last 10 years, the contribution of the SOEs has never been higher than 8%. Further, it has declined from 8% in FY08 to less than 5% in FY18.
While taking a closer look at the state-owned enterprises we have seen that 4 out of more than 300 SOEs contribute to 58% of the total GDP generated by all the SOEs. These four organizations are ONGC, HPCL, BPCL and IOC. Followed by this, we have another 16 contribute to 34%. These 16 organizations again include well-known names like SAIL, NTPC, Power Grid Corporation of India, etc. Further, the next 12 contribute to 11% of the total GDP generated by all the SOEs. These 32 enterprises contribute to more than 100% of GDP. This is possible, as there are many enterprises that do not contribute or contribute negatively to GDP. These enterprises run into huge losses, although admittedly, a few of them were set up for reasons other than commercial success. For example, the Food Corporation of India or National Fertilizers Limited are not meant to make a profit.
When the D&B team of economist studied Indian SOEs, we found three interesting aspects: two positive and one negative. The first positive is that we found that large SOEs are more resilient than large private companies. For two decades, D&B has been tracking the Top 500 companies in India. For the cohort of the year 2000, we have seen that 71% of the SOEs retained their position while 52% of private firms remained in the list after 10 years. The similar trend was followed by the cohort of 2005 and 2010.
The second positive is on a metric known as the Resource Governance Index, wherein countries have been ranked by the transparency in natural resource management. India ranks amongst the top 10 countries. Globally and in India, most of the natural resources are managed by the SOEs. Indian SOEs have been doing better than the way resources are managed in other countries.
There is one negative as well and that is Corporate Governance. Research has been conducted by International Finance Corporation and BSE where they have given a corporate governance score to the BSE-100 companies in India. As expected, the multinationals and the institutionally owned and widely held organisations have high scores when it comes to corporate governance. There is a perception that family-owned businesses are relatively less transparent and therefore possibly less governed. The scores support that perception. When we look at government-owned organisations, they are a long way behind even family-owned organisations. Clearly, this is a space where the government-owned organisations can improve. There has been an improvement from 2015 to 2018, but they are still a long way behind others.