Most PSU profits come from controlled markets

The number of profit-making public sector undertakings (PSUs) increased to 139 in 2002-03 from 132 in 2001-02, and that of PSUs declaring dividend has risen to 91 from 85.

Of the total profit of Rs 13,773.81 crore earned by these PSUs during 2002-03, 86 per cent has been contributed by only 45 PSUs operating under administered or regulated prices, according the Comptroller and Auditor General's report for the fiscal ending March 2003.

These 45 PSUs belong to five sectors -- petroleum, power, coal and lignite, telecom, and financial services.

The PSUs under the petroleum ministry have contributed 64.22 per cent -- Rs 8,849.46 crore -- of the total dividend declared by state-owned firms during the year.

The dividend declared as a percentage of net profit earned by these PSUs has increased to 32.52 in 2002-03 from 26.19 in 2001-02.

In absolute terms, the dividend declared by PSUs in 2002-03 has increased by Rs 5,625.85 crore to Rs 13,773.81 crore in 2002-03 from Rs 8,147.96 crore in 2001-02, which excludes Rs 6 crore declared by a PSU out of its reserves.

The ratio of dividend to equity, an indicator of the shareholders' return on investment in the equity of the company, ranges from 0.01 per cent to 5.25 per cent.

The top ten PSUs, which have declared a dividend of more than Rs 100 crore in terms of dividend-equity ratio, are ONGC (3), IOC (2.9), HPCL (1.8), BPCL (1.5), OIL (1.42), Kochi Refineries Limited (0.99), GAIL (0.70), NFL (0.61), NALCO (0.6) and Northern Coal Fields Limited (0.56).

However, according to the CAG report, 48 PSUs, which have earned an aggregate profit of Rs 1,937.82 crore during 2002-03, have not declared any dividend.

Losses have been reported by 125 PSUs, out of which 98 have eroded their equity bases -- jointly amounting to Rs 11,925 crore -- many times over because of the total accumulated losses of Rs 68,155 crore resulting in their negative worth.

Sixty-two of the PSUs are sick units and have been referred to the Board of Industrial and Financial Reconstruction (BIFR).

CAG says a large number of PSUs, which had grown exponentially over years in a virtually non-competitive environment, are facing severe competition because of the liberalisation of the economy.

"While many of the PSUs are learning to survive and grow by adopting themselves to the new situation, a large group of PSUs, significantly both in number and investment, are today beset with serious problems like slow growth, low productivity, inefficient management, inadequate emphasis on R&D, unfocussed marketing and shortage of capital," says CAG.

The CAG says low or zero rates of return on the capital invested in these PSUs has stunted or hindered the economic growth in the country as a whole.

The report says inventory control and collection of debts by PSUs continue to be areas of serious concern.

Most of the PSUs have continued to rely for their survival substantially on government support, including supply orders.

In the absence of discernible shift in the customer base from government to non-government and export sectors, the desired improvement in the competitiveness of the PSUs remains to be achieved.

It says the apparent financial well-being of the insurance sector lacks substance. The profit after tax of Rs 887 crore reported by five insurance companies in 2002-03 should be viewed along with the fact that during the year these companies have incurred a loss of Rs 225.29 crore on underwriting risks, which is their core business.

It is the income from investment activities and rent, which have helped these companies hold on to their bottomlines.

The market value of the shares of the 21 listed government companies as per prices prevailing in stock markets on March 31, 2003, stand at Rs 1,19,747.52 crore.

This compares favourably with the total book value of their shares, at Rs 93,135.41 crore. The market value of the shares held by the government in these companies is at Rs 95,174.87 crore as on March 31, 2003, compared with the book value of Rs 73,136.38 crore.