The government is low on cash to finance its fiscal deficit, and is also facing an investment slowdown. It is looking to public-sector units (PSUs) to help with both problems. After all, as Table 1 shows, several of them – especially those in resource extraction – were making high and increasing profits even during the recent industrial slump.
However, not all of these are easy targets for revenue extraction by the government, as Table 2 shows. Indian Oil Corporation (IOC), for example, has debt in excess of Rs 80,000 crore, and indeed interest payments are cutting into its net profits.
But many of them, as Table 3 lists, are practically floating in cash – particularly Coal India and Oil India — when seen as a proportion of their total liabilities. As Table 4 explores further, in many cases the cash pile has actually increased between 2010-11 and 2011-12, particularly for Oil India and the Oil and Natural Gas Corporation or ONGC. (Click here for table & graphs)
However, these numbers may not be as firm as they appear at first. As Table 5 shows, the turnover of PSUs in the manufacturing and mining sector took a severe hit in 2009-10, and it is far from clear that fragility is gone forever. Further, growth in fixed assets by the public sector as a proportion of gross fixed capital formation has sharply declined over the past few years, even during the investment slowdown, as Table 6 shows.
Yet, as Table 7 explores, the government has pushed for increasing dividend payouts as a proportion of net profits – even as the interest burden for PSUs remains high, and return on investment decreases. It is far from clear that the government is using its PSUs wisely, and the stock market’s relative pessimism, as shown in Table 8, seems to bear that out.