The NDA approach to PSUs

The Modi govt's equity contribution to public sector units has risen even as their capacity to generate resources has taken a hit

Every year, through the Union Budget, the Centre releases data on investments made by public sector undertakings (PSU) and the resources generated or mobilised by them. For instance, this month’s Interim Budget shows that capital investments to be made by as many as 169 PSUs (including the Indian Railways) in the current year are estimated at Rs 8.4 trillion, up 15 per cent over such expenditure in 2022-23. Ten years ago, there were 147 such entities, whose capital outlays in 2013-14 were estimated at Rs 3.32 trillion.

If you look at these numbers from a broader perspective, you will get a better sense of the PSUs’ performance regarding their capital investments, the extent of the financial support they received from the Centre and the state of their capacity to generate resources on their own. And that exercise should impart a fresh understanding of those trends if you compare such PSU investments made in the 10-year period of the Manmohan Singh government with those made during the subsequent 10 years when Prime Minister Narendra Modi was at the helm in New Delhi.

So, what does such a decadal comparison show? On capital outlays by PSUs, the Modi government has done well. Such investments during the 10 years between 2014-15 and 2023-24 (at Rs 65.71 trillion) rose more than three times over those made in the 10-year period between 2004-05 and 2013-14 (at Rs 19.92 trillion).

But this will appear to be a relatively small increase when you compare them as a per cent of the total size of the Centre’s Budget or even of India’s gross domestic product (GDP). PSUs’ capital outlays during the Manmohan Singh era were 20.58 per cent of the total Budget expenditure and they rose to 23 per cent during 2014-24. Similarly, PSUs’ capital outlays as a percentage of GDP moved up marginally from 3.05 per cent to 3.32 per cent in the same period.

The big change was with respect to the government’s contribution to the equity of these PSUs, which during the Modi era rose over six times to Rs 19.93 trillion, compared to Rs 3.15 trillion in the Manmohan Singh years. Their share in both GDP and government Budget expenditure more than doubled to 1 per cent and 7 per cent, respectively.

Equally significant was the change with respect to PSUs’ internal resources generation and their ability to rustle up other resources. During the Manmohan Singh years, internal resources raised by PSUs were estimated at Rs 9.67 trillion (or 10 per cent of the Union Budget expenditure and 1.5 per cent of GDP). During the 10-year period that followed, PSUs’ internal resources rose by only 84 per cent to Rs 17.8 trillion. And their share in Budget expenditure and GDP fell to 6.25 per cent and 0.9 per cent, respectively. 

A broadly similar trend continued even for PSUs’ total resources generated for their investments, even though the reliance on bonds and external commercial borrowing increased during the Modi years. Total resources earmarked for investments by PSUs rose from Rs 17.45 trillion in 2004-14 to Rs 41.38 trillion in 2014-24. However, their share in Budget expenditure and GDP fell from 18 per cent and 2.67 per cent, respectively, to 14.5 per cent and 2.09 per cent.

What are the key takeaways? The Modi government has contributed significantly higher amounts for equity infusion into PSUs compared to the Manmohan Singh government in a similar period of 10 years. This is contrary to the general perception of how the two governments dealt with the public sector. The United Progressive Alliance (UPA) was seen as more friendly towards PSUs, providing them more financial support and, at the same time, remaining ambivalent towards sale of government stakes in many state-owned enterprises. In contrast, the National Democratic Alliance (NDA) was seen to be focused more on disinvestment and privatisation, while refraining from providing any special financial support to PSUs.

The reality is quite different. The share of government equity for PSUs in the total public sector capital outlay was 15.8 per cent during the Manmohan Singh years, but it almost doubled to 30.33 per cent during the 10 years of Narendra Modi. In the last two decades, just about four key sectors — Indian Railways, public-sector bank recapitalisation, National Highway Authority of India (NHAI) and Air India — accounted for almost 80-90 per cent of total equity provided by the government. 

Interestingly, public sector bank recapitalisation accounted for a significant chunk of total equity infused by the governments in this period. Such capital infusion accounted for almost 14 per cent of the total PSUs’ equity in the 2004-14 period and about 17 per cent in the subsequent 10 years.  The difference in the Modi government years was that this period saw a sharper increase in equity infusion into infrastructure-sector entities like the Indian Railways, NHAI and Bharat Sanchar Nigam Limited. In other words, the sharp rise in the government’s capital expenditure in the post-Covid years resulted in higher equity infusion into state-owned entities operating in the infrastructure sector.

A worrying trend has been the steady decline in the pace of internal resources generation by PSUs in the last 10 years. Even as their recourse to bonds and external commercial borrowing has increased, the rise in the amount of internal resources mobilised by PSUs to fund their investment plans has begun to slow from 2014 onwards.

The dichotomy is too stark to be ignored. The Modi government so far has contributed more to PSU equity than in the previous 10 years, but the resources generated by PSUs for their own investment plans have ceased to grow at the same pace. And this at a time when the Modi government has seen a trebling of disinvestment receipts during the 2014-24 period, compared to the Rs 1.6 trillion mobilised through equity sale by the Manmohan Singh government between 2004 and 2014. Of course, as a percentage of GDP, both the government’s disinvestment receipts during these two decades remained the same at around 0.25 per cent each. But it is time to recognise the Modi government’s approach to PSUs. It has spent more to infuse equity in PSUs even as the internal resources generation capacity of these entities has failed to show any significant improvement.

It is time reforming the PSU managements and revamping their ownership pattern through appropriate methods received the government’s utmost priority.