REFERENCE NOTE

No.05/RN/Ref./January/2017

For the use of Members of Parliament NOT FOR PUBLICATION1

CURRENT STATE OF PUBLIC SECTOR ENTERPRISES IN INDIA

Prepared by Smt. Rachna Sharma, Additional Director (23034591) and Smt. Rashmi Kapoor, Joint Director of Lok Sabha Secretariat under the supervision of Smt. Kalpana Sharma, Joint Secretary and Smt. Anita Khanna,

Director.-

The reference material is for personal use of the Members in the discharge of their Parliamentary duties, and is not for publication. This Service is not to be quoted as the source of information as it is based on the sources indicated at the end/in the text.

MEMBERS' REFERENCE SERVICE

LARRDIS

LOK SABHA SECRETARIAT, NEW DELHI

--------------------------------------------------------------

CURRENT STATE OF PUBLIC SECTOR ENTERPRISES IN INDIA

Introduction

Public Sector Undertakings (PSU) were envisioned and developed as pillars of

infrastructure building in Independent India. Most of these Undertakings operated in basic

industries to serve the broad macro-economic objectives of higher economic growth, self-

sufficiency in production of goods and services, long term equilibrium in balance of

payments, and low and stable prices besides meeting certain socio-economic obligations.

In the First Five-Year Plan, five Central PSUs were set up initially with a cumulative

investment of Rs. 29 crore. Slowly and gradually, PSUs came to occupy the commanding

heights of the economy, growing in size and spread. Currently these are 298 central PSUs

with total investment of Rs. 10.98 lakh crore.

Though PSUs remain a very vital cog in our economy's wheel, their performance

has been mixed one. Though the Champions among them are setting benchmarks even for

the private sector, the laggards are a matter of extra concern. There are only six PSUs in

the top 15 list with their revenue share plunging to 45 per cent in 2015-16.

Present Status of PSUs

The Comptroller & Auditor General (CAG) of India has conducted a financial audit

of 157 Central PSUs, which had accumulated losses of Rs. 1,10,285 crore for 2015-16.

It found that the net worth of 64 government companies (out of 157) had been completely

eroded by accumulated loss and their net worth was negative. Report shows that returns

had fallen from Rs. 1,54,484 crore to Rs. 1,37,338 crore. This profit may still look healthy,

but over two-third of this profit comes from three areas, namely, petroleum, coal and

lignite, and power where PSUs are a monopoly. For instance, 28.58 per cent of profits

come from the petroleum sector, where there are no significant private players at the retail

end yet.

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Positive Negative

India started with five Central PSUs, after

independence, with a cumulative investment of

Rs. 29 crore. Currently, there are 298 Central PSUs,

with total investment of Rs. 10.96 lakh crore (2014-

15)

More than 70 PSUs are loss making ones.

PSUs contribute 16 per cent to the GDP, provide

employment to 1.3 million people and have market

capitalization of 15 per cent

A study conducted by the Stakeholders

Empowerment Services (SES) among the top 27

listed PSUs in 2015 found that 25 of them do not

meet the criteria for independence of the board 163 PSUs logged a combined net profit of Rs. 1.49

lakh crore at the end of 2014. More than 80 per cent do not have a compliant

audit committee and a nomination and

remuneration committee.

Reasons for Losses and sickness in Public Enterprises

As the Central Public Sector Enterprises (CPSEs) operate under dynamic market

conditions, it is quite natural to see ups-and-downs in their performance. Some CPSEs

have, however, been incurring losses continuously for the last several years. The

accumulated loss in many of these cases has exceeded their net worth. Some of the

common factors for this scenario are as follows:

obsolete plants and machinery, outdated technology, heavy interest burden, resource

crunch, surplus manpower, high cost of production, weak marketing, shortage of

working capital, etc.;

Stiff competition from private companies, lack of business plans, dependence on

Govt. orders, high input cost, etc. With liberalization and opening up of the

economy, many CPSEs did not evolve fast and lost ground to private companies;

considered no better than white elephants, run by bureaucrats rather than

professionals. They employ a large workforce, recruited mostly on political

considerations. The challenge is to reforms the PSU managements, so that they

become competitive and capable of turning around the companies; and

As many as 40 Central PSUs functioning without a fulltime head. Some PSUs were

not able to keep pace with the rapidly changing technological environment. Political

interference and a missing corporate governance structure hurt their autonomy and

transparency.

(List of Loss-making companies is shown in Annexure-I)

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NITI Aayog has been made the nodal agency to identify the PSUs for sale/closure. It

has identified 44 companies for strategic disinvestment and 26 loss-making PSUs for

closure. Other companies that could be sold off include Tyre Corporation of India, Cement

Corporation of India, HMT Bearings and Richardson & Cruddas.

Measures taken by the Government to revive and restructure the Public Sector

Undertakings

Government has been taking several steps to make the mechanism and process for

revival or restructuring of CPSE time bound, comprehensive, performance driven and

efficient. It has been decided to remove the multiple layers in decision making process to

ensure timely revival/restructuring of sick CPSEs. Revival/restructuring of sick/incipient

sick CPSE is now to be merit based, taking into account of its strategic, national and

business concerns. Over the years, several measures have been taken by the Government of

India in this connection which include the following:

The CPSEs were brought under the purview of Sick Industrial Companies (Special

Provision) Act, 1985 in 1991. The Government subsequently set up the Board for

Reconstruction of Public Sector Enterprises (BRPSE) in December, 2004 to advise

the Government, inter alia, on the measures to restructure/revive, both industrial and

non-industrial CPSEs.

Department of Public Enterprises has issued guidelines on 29.10.2015 for

“Streamlining the mechanism for revival and restructuring of sick / incipient sick

and weak Central Public Sector Enterprises. General principles and mechanism of

restructuring” to be followed by the administrative Ministries/Departments in

preparation of proposals for revival/restructuring or closure of CPSEs under their

administrative control in a time bound manner.

The Centre has set the stage for the closure of 17 sick public sector units (PSUs), of

which four are already under liquidation. Closing down these sick PSUs is part of a

strategy to deal with beleaguered government-owned companies. Revival of rest of

the sick PSUs and strategic sales in six of them could also be considered.

BRPSE had recommended that the administrative Ministries/Departments take

measures for revival/restructuring under their administrative control on case to case

basis. Accordingly, the Government has approved revival of 46 CPSEs envisaging a

total assistance of Rs. 40885 crores (cash assistance of Rs. 10932 crores and non-

cash assistance of Rs.29953 crores) from Government of India (Annexure-II).

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Disinvestment in Public Sector Undertakings1

Disinvestment of government equity in CPSEs began in 1991-92. The industrial

policy statement of 1991 stated that the Government would divest part of its holdings in

select CPSEs. Broadly, the objectives of divestment have been to raise resources,

encourage wider public participation and bring in greater market accountability.

The current policy on disinvestment envisages development of people‟s ownership

of CPSEs to share in their wealth and prosperity while ensuring that the Government

equity does not fall below 51% and Government retains management control. Keeping in

view the objective of disinvestment policy, the following approach to disinvestment has

been adopted:

(i) Already listed profitable CPSEs (not meeting mandatory shareholding of 10% which

now stands revised to 25%) are to be made compliant by „Offer for Sale‟ by Government

or by the CPSEs through issue of fresh shares or a combination of both;

(ii) Unlisted CPSEs with no accumulated losses and having earned net profit in three

preceding consecutive years are to be listed.

(iii) Follow-on public offers would be considered in respect of profitable CPSEs having

10 per cent or higher public ownership, taking into consideration the needs for capital

investment of CPSE, on a case-by-case basis and Government could simultaneously or

independently offer a portion of its equity shareholding.

(iv) Each CPSE has different equity structure, financial strength, fund requirement,

sector of operation etc. These factors do not permit a uniform pattern of disinvestment.

Therefore, disinvestment is considered on merits and on a case-by-case basis.

(v) CPSEs are permitted to use their surplus cash to buy back their shares; one CPSE

may buy the shares of other CPSEs from the Government.

During the financial year 2014-15, against the target of Rs.36,925 crore,

Government realized an amount of Rs.24,277.17 crore through minority stake sale. In 1 The last strategic sale took place in Jessop and Co in 2003-04 under the NDA government headed by

Prime Minister Atal Bihari Vajpyaee, when 72% of government stake was sold to Indo Wagon

Engineering for Rs.18.18 crore. Incidentally, the first strategic sale in a PSU also happened under NDA

rule in 1999-2000 when the government sold 74% equity in Modern Food Industries to Hindustan Lever

for Rs. 105.45 crore. During 1999-2000 and 2003-04, the government had strategically divested stake in

16 PSUs to garner a total ofRs.6,344.35 crore. These included sale of fuel retailer IBP Ltd to state-owned

Indian Oil Corp (IOC) for Rs.1,153.68 crore. Indian Petrochemicals Corp Ltd (IPCL) was sold to Reliance

Industries for Rs.1,490.84 crore, Videsh Sanchar Nigam Ltd to Tata Group firm for Rs.1,439.25 crore and

Hindustan Zinc Ltd to Vedanta Group for a total consideration of Rs. 768.88 crore. (livemint.com dated

26.10.2016)

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addition an amount of Rs. 71.54 crore was also realized through employees OFS. The

details of the transaction in 2014-15 are stated below:

PSU Amount (in Rs. Crore)

Coal India Limited 22,557.63

SAIL 1,719.54

National Fertilizers Limited (NFL) 3.60

MMTC Limited 4.16

NTPC Limited 48.16

HCL Limited 3.17

National Aluminium Company Limited 12.45

NMDC Limited 0.0040

The Cabinet has also approved the closure of Kolkata-based Hindustan Cables, a

perennially sick company, at a cost of Rs. 1310 crore to the exchequer.

The details of the PSUs disinvestment2 for the year 2012-13, 2013-14 and 2014-15

are shown in Annexure-III.

Recent initiatives

The Union budget for 2016-17 has set the stage for strategic sales of PSUs

(Rs. 20,500 crore under the head, out of the total disinvestment proceeds of

Rs. 56,500 crore). The government is trying to lower the government equity in a PSU to

below 51 per cent and later doing a strategic sale. Right now, the emphasis is on reviving

PSUs and making them fitter.

The Government of India recently asked cash-rich ONGC, NTPC and Coal India to

adopt one closed urea plant each for revival, which would cost them about 2 The government received Rs 34,800 crore from the sale of minority stake in an array of state- owned

firms this year even as it prepared ground for the first strategic sale of PSUs in over 12 years. This year

will be also remembered as watershed for the government's disinvestment programme as Prime Minister

Narendra Modi sought to transform the Disinvestment Department from a mere seller of government stake

in central PSUs to DIPAM - the manager of its assets. (Business Today.in dated 25.12.2016)

7

Rs. 18000 crore over the next four years. More specifically, the proposal involves

creating a single special purpose vehicle, which will be majority funded by the three

profitable public sector undertakings to revive the units i.e. the example of the three

closed-down urea plants – Hindustan Fertilizer Corporations Sindri and Gorakhpur

units and Fertilizer Corporation of India's Barauni unit. So, while one part of the

strategy is to turn to cash-rich PSUs to use their surplus to bail out sick PSUs and

fund growth, the other is to pump in money to fund growth by utilising skills of

PSUs. This is evident in the announcement about setting up four steel plants in

Chhattisgarh, Jharkhand, Odisha and Karnataka. The Centre will pump in Rs. 1.5

lakh crore into the four plants, which will be built by Steel Authority of India and

Rastriya Ispat Nigam. This implies a reinforced role for PSUs in nation building.

Government is also attempting to merge sick PSUs with profitable ones – which is

borne out by the Cabinet approval of National Buildings Construction Co. takeover

of Hindustan Steel Works Construction. The changes taking place in the global

economy demand that the PSUs should be run under corporate governance structure,

so that they complete successfully and avoid excessive dependence on government

recapitalization.

Having set an ambitious target to raise Rs. 20,500 crore from strategic

disinvestment in PSUs this fiscal, the Government of India has now kick-started the

process by putting on the block Allahabad-based PSU Bharat Pumps and

Compressors (BPS). This is in line with the NITI Aayog's proposal that loss-making

PSUs like BPC be helped to liquidate some of their liabilities before being offered to

strategic investors.

Conclusion

The PSUs have to be shaped in such a manner that they inspire confidence. There

should be proper synergy between the government and the PSUs, and their roles and

responsibilities should be well defined. The need of the hour is to change their work

culture to make them more efficient. Some of the vital areas that require attention are

ownership policy, autonomy of board with accountability, succession planning, capacity

building, minimizing/relinquishing control of the administrative ministries, and community

relations and infrastructure projects.

8

Bibliography:

1. Public Enterprise Survey, 2014-15, Ministry of Heavy Industries

(Chapter 1, 12 & 13)

2. Rajya Sabha Unstarred Question No. 388 dated 23.07.2015.

3. Rajya Sabha Unstarred Question No. 1200 dated 08.03.2016

4. Business India dated 15-28 August, 2016.

5. Governance Now dated 24.12.2015

6. Livemint dated 26.10.2016

7. Business Today.in dated 25.12.2016

8. Financial Express dated 29.09.2016

9. Business Standard dated 28.09.2016

10. www.infracircle.in dated 30.05.2016

Annexure-I

Top 10 loss making PSES

Rs. in Crores

Sl.No. Name of the Enterprises Net

Loss

1. Fertilizer Corpn. of India Ltd 1294.00

2. Hindustan Fertilizer Corpn. Ltd. 964.61

3.. Hindustan Photo Films Manufacturing Co.Ltd. 560.90

4. Burn StandardCompany Ltd 442.74

5. I T I Ltd 423.16

6. Hindustan Cables Ltd 295.32

7. Konkan Railway Corporation Ltd. 235.61

8. MadrasFertilizer Ltd. 131.74

9. N T C (A.Pradesh, Karnataka, Kerala & Mahe)Ltd. 103.99

10. Brahmaputra Valley Fertilizer Corpn. Ltd. 99.78

Total 4551.85

Source: Department of Public Enterprises, Ministry of

Heavy Industries

Annexure-II

CASH AND NON-CASH ASSISTANCE APPROVED BY THE GOVERNMENT IN RESPECT OF

BRPSE RECOMMENDED PROPOSALS

S.

No.

Name of the CPSE Assistance (Rs. in Crore)

Cash a Non-Cash

b Total

Department of Heavy Industry

1 Hindustan Salts Ltd. 4.28 73.30 77.58

2 Bridge & Roof Co. (India) Ltd. 60.00 42.92 102.92

3 BBJ Construction Co. Ltd. -- 54.61 54.61

4 Praga Tools Ltd. 5.00 209.71 214.71

5 Heavy Engineering Corporation Ltd. 102.00 1116.30 1218.30

6 Cement Corporation of India Ltd. 184.29 1267.95 1452.24

7 Richardson & Cruddas(1972) Ltd. - - -

8 Bharat Pumps and Compressors Ltd. 3.37 153.15 156.52

9 HMT Machine Tools Ltd. 859.04 196.38 1055.42

10 Bharat Heavy Plate Vessels Ltd. 34.00 665.61 699.61

11 Andrew Yule & Co. Ltd. 87.06 458.14 545.20

12 Instrumentation Ltd. 48.36 549.36 597.72

13 Tyre Corporation of India Ltd. -- 815.59 815.59

14 NEPA Ltd. 234.18 634.94 869.12

15 Scooters India Ltd. 90.38 111.58 201.96

16 HMT Ltd. 447.92 635.56 1083.48

Ministry of Mines

17 Hindustan Copper Ltd. -- 612.94 612.94

18 Mineral Exploration Corporation Ltd. - 104.64 104.64

Ministry of Shipping

19 Central Inland Water Transport Corporation Ltd. 73.60 280.00 353.60

20 Hooghly Dock &Port Engineers Ltd. 286.81 631.30 918.11

Department of Defence Production

21 Hindustan Shipyard Ltd. 452.68 372.22 824.90

Ministry of Steel

22 MECON Ltd. 93.00 23.08 116.08

23 Bharat Refractories Ltd. -- 479.16 479.16

Ministry of Textiles

24 National Textile Corporation Ltd. 39.23 - 39.23

25 British India Corporation Ltd. 338.04 108.93 446.97

26 National Jute Manufactures Corporation Ltd. 517.33 6815.06 7332.39

Department of Pharmaceuticals

27 Hindustan Antibiotics Ltd. 137.59 267.57 405.16

28 Bengal Chemicals & Pharmaceuticals Ltd. 207.19 233.41 440.60

Department of Chemicals & Petrochemicals

29 Hindustan Organic Chemicals Ltd. 250.00 110.46 360.46

30 Hindustan Insecticides Ltd. - 267.29 267.29

Department of Fertilizers

31 Fertilizers & Chemicals (Travancore) Ltd. - 670.37 670.37

D/o Scientific & Industrial Research

32 Central Electronics Ltd. - 16.28 16.28

Department of Agriculture & Co-operation

33 State Forms Corporation of India Ltd. 21.21 124.42 145.63

Ministry of Railways

34 Konkan Railway Corporation Ltd. 857.05 3222.46 4079.51

35 Bharat Wagon &Engineering Company Ltd. 59.45 136.08 195.53

36 Braithwaite & Company Ltd. 4.00 280.21 284.21

37 Burn Standard Company Ltd. 75.43 1139.16 1214.59

Ministry of Water Resources

38 National Projects Construction Corporation Ltd. -- 646.89 646.89

Ministry of Housing & urban Poverty Alleviation

39 Hindustan Prefab Ltd. -- 128.00 128.00

Ministry of Information & Broadcasting

40 National Film Development Corporation Ltd. 3.00 28.40 31.40

Ministry of Petroleum & Natural Gas

41 Biecco Lawrie Ltd. -- 59.60 59.60

Ministry of Development of North Eastern Region

42 North Eastern Handicrafts and Handlooms

Development Corporation Ltd.

8.50 83.06

91.56

Department of Telecommunications

43 ITI Ltd. 3986.00 170.79 4156.79

Revival plan Implemented by Holding Companies

Department of Chemicals &Petrochemicals

44 Hindustan Fluorocarbons Ltd. 12.53 56.52 69.05

Ministry of Coal

45 Eastern Coal Fields Ltd. -- 2470.77 2470.77

46 Bharat Coking Coal Ltd. 1350.00 3428.55 4778.55

Total for revival 10932.52 29952.72 40885.24

a Cash Assistance involve budgetary support through equity/loan/grants

b Non-cash Assistance involve waiver of interest, penal interest, GOI loan, Guarantee fee, conversion of loan into equity/debentures etc.

Source: Rajya Sabha Unstarred Question No. 388 dated 23.07.2015.

Annexure-III Financial Year 2012-13

S.No. Name of CPSE Receipts (in Rs. crore)

1. National Building Construction Corporation 124.97

2. Hindustan Copper Ltd. 807.03

3. NMDC Ltd. 5,973.27

4. Oil India Ltd. 3,141.51

5. NTPC Ltd. 11,457.54

6. Rashtriya Chemicals and Fertilizers Ltd. (RCF) 310.15

7. National Aluminium Company Ltd. (NALCO) 627.84

8. Steel Authority of India Ltd. (SAIL) 1,514.50

Total 23,956.81

Financial Year 2013-14

Sl. No. Name of CPSEs Receipts (in Rs. Crore)

1 Hindustan Copper Ltd.(HCL) 259.56

2 ITDC Ltd. 30.17

3 MMTC Ltd. 571.71

4 National Fertilizers Ltd. (NFL) 101.08

5 State Trading Corporation Ltd.(STC) 4.54

6 Neyveli Lignite Corporation Ltd. (NLC) 358.21

7 Engineers India Ltd. (EIL) 497.32

8 Indian Oil Corporation Ltd. (IOCL) 5,341.49

9 CPSE-Exchange Traded Fund 3,000.00

10 National Hydroelectric Power Corporation (NHPC) 2,131.28

11 Power Grid Corporation of India Ltd. (PGCIL) 1,637.32

12 Bharat Heavy Electricals Ltd. (BHEL) 1,886.78

Total 15,819.46

Financial Year 2014-15

Sl.

No.

Name of CPSEs Receipts (in Rs. Crore)

1 SAIL 1,719.54

2 Coal India Ltd.(CIL) 22,557.63

Total 24,277.17*

* Rs.71.54 crore realized through employees OFS during 2014-15.

Source: Rajya Sabha Unstarred Question No. 1200 dated 08.03.2016