How does the Union government evaluate the performance of the 247 public sector undertakings (PSU) that operate under the administrative control of various central ministries? The question is relevant because in recent months the performance of PSUs has virtually gone off the agenda of public policy debates within or outside the government.
There was a time when the annual release of the Public Enterprises Survey, published in three thick volumes, used to make public policy experts sit up and discuss what the numbers imply for the manner in which the government used or misused its scarce resources. Since the reforms, PSUs have been drawing attention largely in one respect only — disinvestment of the government’s equity in them. The release of the Public Enterprises Survey documents goes by without even the media properly noticing it.
One of the reasons for the lack of interest in these documents is certainly the timing of their release. The latest year for which the annual profit-loss figures for the PSUs are available is 2008-09 and the documents came out in March this year. Worse, the performance numbers for only 212 PSUs are available in these documents. There is no explanation of how the remaining 35 PSUs have done.
Of these 212 PSUs, as many as 158 companies made profit while 54 made losses. The profit-making companies earned a net profit of Rs 98,652 crore, while the loss-making ones incurred a loss of Rs 14,424 crore. Thus, on a total turnover of Rs 12.63 lakh crore for 2008-09, these 212 PSUs earned a total net profit of Rs 84,228 crore. This is less than 7 per cent of total turnover. This looks worse if you consider that the government has made a total investment of Rs 5.29 lakh crore in these PSUs (including equity and long-term loan).
Yet, the ministry of heavy industries and public enterprises has a slightly different story to tell in its latest assessment of how the central PSUs are doing. For instance, it claims that it has already concluded memoranda of understanding (which essentially set performance targets that PSUs must follow) with as many as 200 central PSUs for the current financial year. Considering that 41 central PSUs were either shell companies or not operating, the coverage of MoUs has been quite commendable.
This was not so till 2008-09, when the government could sign MoUs with only 124 PSUs. No data for 2009-10 are available, but an interesting picture emerges after a quick study of how the PSUs performed with regard to meeting the targets set in the MoUs in the six years between 2003-04 and 2008-09. The number of PSUs getting a “poor” score in meeting the MoU targets has remained insignificant at only one company. The number of PSUs getting scores of “very good”, “good” and “fair” has increased consistently. The number of PSUs has declined only for those that got a score of “excellent”. From 54 PSUs scoring excellent in meeting their MoU targets in 2003-04, the number has fallen to 47 in 2008-09.
The ministry’s assessment provides no clue to understanding the broad trends of the MoU rating. These figures, however, would suggest that the central PSUs are more or less on track, with their performance steadily improving over the years. There will still be questions on whether relaxed targets in MoUs have resulted in the general improvement in the ratings or if more PSUs are converging towards a mediocre level of performance. The government and the PSU managers will certainly benefit from a deeper understanding of the MoU rating methodology for a system that was one of the earliest reforms introduced for central PSUs to give them greater autonomy.
The ministry has tried to draw comfort for itself in another area. It has noted that the 42 central PSUs, which are also listed on the stock exchanges, have seen a 76 per cent rise in their market capitalisation during a one-year period between March 2009 and March 2010. The total market capitalisation of these companies went up from Rs 8.14 lakh crore to Rs 14.28 lakh crore.
The government could look at these numbers from three possible perspectives. One, its disinvestment policy has made sense. The valuation of its shares in the 42 listed PSUs (assuming that it has at least more than 51 per cent shares in all these companies) should be more than the total investment of over Rs 5.29 lakh crore it made in 247 central PSUs over the years.
Two, it should take a closer look at the individual market capitalisation of some of these 42 PSUs. There are lessons the government must draw from each PSU’s performance. There are good reasons why MTNL’s market capitalisation has gone up only 6 per cent and NTPC’s 15 per cent in this period, while other companies have clocked higher growth.
Three, the Sensex rose over 82 per cent in this period and the market capitalisation of the listed PSUs grew at a slower pace of 76 per cent.
Instead of celebrating, the government should consider whether its policies on PSUs need a fresh review and a reforms momentum.
