Need to calibrate CPSEs

WHILE central government investment, by way of equity, in PSUs has risen to R2,65,499 crore in FY15 from R2,49,987 crore in FY14, as the latest CAG report shows, returns have fallen from R1,54,484 crore to R1,37,338 crore.

This profit still looks quite healthy, but over twothird comes from three areas (petroleum, coal and lignite, and power) where PSUs are a monopoly. For instance, 28.58% of profits come from the petroleum sector where there are no private players at the retail end. Another 20.61% comes from coal. More important, as the CAG points out, 135 companies have a loss of R30,341 crore.Sixty-four of these have completely wiped out their capital with the accumulated losses, leading to a net worth of negative R74,100 crore.

Though the gover nment plans to revive several of these PSUs, most are irremediable. In the case of MTNL, for instance, over 80% of its sales are eaten up by salaries as compared to around 5% in most private sector fir ms. Another 79 fir ms, the CAG says, have an interest cover ratio (EBIT to interest expenses) less than 1.

Apart from poor financials, a total of 49 PSUs did not even meet corporate governance standards set out by SEBI. Twenty-nine don’t have the required number of independent directors, 16 don’t have any. Eighteen don’t have the required number of non-executive directors. Other undertakings lacked in other provisions, such as audit committees, training facilities and whistle-blower mechanisms.

It is clear that the situation of these CPSEs is dire, and that it is essential for both, the boards of these undertakings and the supervisory ministry, to work together in a distinct direction; one with a greater emphasis on production efficiency and guideline compliance, to ensure that the production of such enervating results is discontinued. -Rayaan Singh