In India's commodities space, the public sector has a major presence. Together, Steel Authority of India Ltd (SAIL) and Vizag Steel produced 16.47 million tonnes (mt) of crude steel in 2012-13. This accounted for 21.08 per cent of the country's steel output of 78.12 mt. Both the companies are in the final laps of major capacity expansion. SAIL's crude steel capacity is to rise from 12.8 mt to 21.4 mt, while that of Vizag Steel is set to rise from three mt to 6.3 mt.
Freed from licensing and price and distribution controls in the first wave of economic reforms, the steel capacity build-up in the private sector is a commentary on what entrepreneurial freedom could deliver. The private sector, though off the starting block a few decades after the government sector, has majority share in India's crude steel capacity of about 90 mt. The rapid emergence of the private sector, major cuts in import duty and growth in steel demand slowing in the face of a stuttering economy have created a fiercely competitive market for the metal. As is the case with other countries, our steelmakers, too, are steadily moving closer to global benchmarks in terms of efficiency, use of raw materials and production costs.
In the non-ferrous segment, government-owned National Aluminium Company (Nalco) is the most ideally integrated producer of the white metal. But Hindalco and Vedanta Aluminium have raced past Nalco in smelting capacity. But if its plan to build a second smelter in Odisha, with 500,000 tonnes of capacity, materialises, Nalco will very largely catch up with its private sector peers.
The Centre has minority stakes in Hindustan Zinc (29.5 per cent) and Balco (49 per cent), following disinvestment in 2001 and 2002, respectively. The realisation of the true potential of the two companies had to await their disinvestment in favour of Vedanta. Haven't we noticed much improved levels of corporate governance and transparency in those government enterprises with their shares listed on stock exchanges?
Except for some groups extracting coal from leased areas for their own use, the mineral remains a close preserve of Coal India Ltd, which produced 452.21 mt last year. NMDC, the country's largest producer of iron ore, is increasing its mining capacity from 32 mt to 48 mt. Electricity, which doesn't lend itself to storage and, therefore, must be consumed as soon as it is produced, is a commodity. Power is widely traded on many exchanges abroad. This will be the case here, too, once we become power-surplus. According to a KPMG report, central undertakings have a 41.2 per cent share in thermal power, 40.3 per cent in hydel power and 100 per cent in nuclear power. Electricity, like alumina and copper concentrate, is an intermediate product.
India's first prime minister, Jawaharlal Nehru, saw in public sector undertakings (PSUs) temples of modern India. Much water flowed down the Ganga and the Yamuna since then, and PSUs arrived at the crossroads in 1991 when from the licence raj encouraging cronyism was rapidly brought to an end. At the same time, proving doomsayers wrong, most central PSUs adjusted themselves well to the new business paradigm that required them to compete with private groups on a level playing field. The KPMG report says, "Many have performed admirably well in the post economic reforms and liberalisation phase, which is reflected in their robust growth." An overwhelming majority of 220 central undertakings are making profits. However, the economic slowdown in the past two years has pared their growth and reduced their earnings. The metals sector in particular has seen profits shrink substantially. Whatever it is, the strategic significance of all PSUs, of central and state governments, including the railways and banks, is underpinned by their 12 per cent share in the country's gross domestic product.
Sushil Roongta, who transited from the public to the private sector with much ease, says, "I shall be happy if PSUs would leverage their huge surplus land to build new industrial capacity. This is important, as acquiring large parcels of land has now become a major challenge. PSUs will be doing themselves a service if they give more attention to governance and brand building." Quite a few central government undertakings are sitting on piles of reserves and New Delhi is nudging these undertakings to use these funds to invest in a mixture of capacity expansion, infrastructure projects and overseas energy purchases. It rightly believes if the investment lead comes from government sector, it would be an encouragement for the private sector to act as well. But the prevailing political environment is such that PSU chiefs would rather be happy to earn interest on their surplus funds than take investment decisions leading to possible controversies or failures.
Don't expect much to happen with investment till PSU honchos are given the right kind of autonomy. SAIL Chairman Chandra Shekhar Verma says, "PSUs' working is impacted by uncertainties in raw materials supply, business environment and rules and regulations. Competition from within and outside is becoming fiercer by the day, but that is something we have to learn to live with."
A LOT AT STAKE
- The private sector, though off the starting block a few decades after the government sector, has majority share in India's crude steel capacity of about 90 mt
- In the non-ferrous segment, Hindalco and Vedanta Aluminium have raced past Nalco in smelting capacity
- Except for some groups extracting coal from leased areas for their own use, the mineral remains a close preserve of Coal India Ltd
- Central undertakings have a 41.2 per cent share in thermal power, 40.3 per cent in hydel power and 100 per cent in nuclear power
- The strategic significance of all PSUs, of central and state governments, including the railways and banks, is underpinned by their 12 per cent share in India's GDP
