G. Srinivasan

New Delhi, March 27

THE United Progressive Alliance (UPA) Government might view public sector undertakings (PSUs) as sacrosanct by suspending sale of PSU equities for the time being and not specifying any target for their disinvestment in the Union Budget 2005-06.

But all is not well as revealed by a recent report of the Comptroller and Auditor General of India (CAG), tabled in Parliament.

Out of 282 government companies/corporations (excluding deemed government companies) the accounts of which were reviewed by the audit, the equity investment in as many as 93 companies has been completely eroded by their accumulated losses.

As a result, the aggregate networth of these companies has become negative to the extent of Rs 60,080.58 crore as on March 31, 2004.

Following their negative networth, recovery of the loans extended by the Government to these companies has also become doubtful. A disquieting feature is that the cumulative losses in these 93 PSUs have escalated by Rs 13,567 crore, from Rs 59,144 crore in 2002-03 to Rs 72,711 crore in 2003-04, i.e., by 23 per cent.

Out of these 93 companies, 54 have already been adverted to the Board for Industrial and Financial Reconstruction. Among the networth eroded companies, 37 were under the Ministry of Heavy Industry and Public Enterprises, 15 under the Ministry of Textiles, six each under the Ministry of Chemicals and Fertilisers and Ministry of Steel.

Pointing out that low or zero rates of return on the capital invested in these PSUs stunted or hindered economic growth in the country as a whole, the CAG said the challenges confronting these PSUs were to cut costs, increase productivity, market their products and services aggressively, increase profitability and generate surplus.

However, it hastens to emphatically state, "All these parameters ultimately hinged upon the degree of asset utilisation, technological innovations and human resource management."

Recalling the guidelines issued by the Finance Ministry in 1995 and 1996 which envisaged that all profit-making PSUs that were essentially commercial enterprises would declare a minimum dividend of 20 per cent either on equity or on post-tax profit, the CAG said the return on the total investment of Rs 1,06,584.54 crore made by the Government in all the PSUs was Rs 10,847.95 crore, i.e.10.18 per cent.

The PSUs under the Ministry of Petroleum and Natural Gas contributed a lion's share of 56.60 per cent (Rs 8703.06 crore) of the total dividend of Rs 15,376.56 crore declared by various PSUs in 2003-04.

The ratio of dividend to equity, which is indicative of shareholders' return on the investment in the equity of the company, ranged from 0.01 to 4.74.

It is also interesting to note that only 80 PSUs exported goods or rendered services abroad worth Rs 18,236.73 crore against net sales of Rs 2,62,179.88 crore, which worked out to 6.96 per cent only.

On inventory management in PSUs, CAG said in 142 companies, the ratio of inventory (stores and spares ) was more than 33 per cent of their annual consumption; in 128 PSUs, it exceeded 50 per cent of annual consumption, while in another 62 PSUs finished goods held in stock were more than one month's sales.

In 119 PSUs, value of surplus, obsolete and non-moving stores was Rs 2,398.65 crore, CAG said.

A high degree of dependence on orders from the Government departments/other Government companies persisted in most of the PSUs, as almost 23 per cent of their net sales were made to them.

As most of the PSUs continued to rely for their survival substantially on government support including supply orders, the CAG laconically said thus: "In the absence of shift in customer base from government to non-government and export sectors, the desired improvement in the competitiveness of the PSUs remained to be achieved."

Stating that the apparent financial soundness of insurance sector lacked substance, the report said the profit after tax in 2003-04 of Rs 2,454 crore reported by five insurance companies must be viewed against their overall profit of only Rs 530 crore on underwriting risks which was their core business.

"The rest of the profit was earned form their non-insurance activities such as investment and rent."

Finally, the CAG said the market value of shares of 23 listed government companies as per prices prevailing in bourses on March 31, 2004 stood at Rs 3,25,822 crore. This compared favourably with the total book value of their shares at Rs 1,21,365.56 crore.

The market value of shares held by the Government of India in these companies stood at Rs 2,58,006.03 crore as on March 31, 2004 as compared with the book value of Rs 93,647.48 crore.

(This article was published in the Business Line print edition dated March 28, 2005)
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