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Strong CPSEs a milch cow, others drain on the public purse

The Modi government has made Central PSEs a major source of non-tax revenue and also used them as vehicles of public investments in an unprecedented manner. It also prodded some CPSEs to borrow to fund budget programmes.

The CPSEs are investing about Rs4 lakh crore in various projects (including government programmes) in the current fiscal, while the Centre’s budgetary capex is Rs3 lakh crore.

The Modi government has made Central PSEs a major source of non-tax revenue and also used them as vehicles of public investments in an unprecedented manner. It also prodded some CPSEs to borrow to fund budget programmes.

The CPSEs are investing about Rs4 lakh crore in various projects (including government programmes) in the current fiscal, while the Centre’s budgetary capex is Rs3 lakh crore.

The CPSEs and departmental undertakings’ borrowings are seen at Rs11.76 lakh crore in the five-years through FY19, as against a little over Rs5 lakh crore raised by these entities in the five years through FY14. The surge in investment by the CPSEs helped the Centre ramp up public investments to revive economic growth in the absence of strong private investments in the last five years. However, the stepped up borrowings by CPSEs have increased the overall public borrowings, causing bond yields to rise.

The Modi regime is on course to garner disinvestment revenue of Rs2.75 lakh crore in five year through 2018-19, 2.75 times the amount ( Rs99,367 crore) mobilised in the five years of UPA2. With the government mandating liberal dividends by profit making CPSEs, these enterprises paid Rs2,79,817 crore to shareholders in four years (FY15-FY18) as against Rs2,26,368 crore in five years under UPA-2.

While the Insolvency and Bankruptcy Code is beginning to impart momentum to the way industrial sickness is resolved, the government managed to complete the winding up of only two of the 19 sick CPSEs that have been approved for closure since it came to power in 2014. In the case of another about 10 such CPSEs recommended for closure by the NITI Aayog, it yet to take a call, while its ‘revival plan’ for the mammoth Air India, which is deep in the red, carries little conviction. The under-achievement in winding up non-viable CPSEs is despite the accumulated losses of 188 CPSEs standing at a whopping Rs1.23 lakh crore as on March 31 2017 (the net worth of 77 of these firms were negative). The combined losses of loss-making PSUs in FY18 was Rs31,261 crore.

While the disinvestment revenue reached a record level of Rs1 lakh crore in FY18, the process has little reform content, as LIC and other cash-rich public-sector entities lap up the stakes on offer when non-government players and the public look the other way. On the lines of the ONGCHPCL deal last year that fetched Rs 37,000 crore to the Centre for its stake in HPCL, PFC is to acquire the Centre’s 53% stake in REC for about Rs14,000 crore this fiscal. Like ONGC-HPCL deal, PFC-REC deal would also be funded via borrowings.

CPSE profitability (net profit to revenue ratio) fell from 7.4% in FY10 to 6.2% in FY14. The profitability further fell to 5.2% in the first year of NDA and has stabilised at around 6% since. Even though the BSE market capitalisation has increased 77.6% undee UPA-2 and 67.4% under NDA, the CPSEs’ share in BSE M-Cap has declined under both the regimes. Under UPA-2, the CPSE M-cap grew 11.18% while it declined 12.9% under the NDA.

The CAG said off-budget capex and revenue expenditures understate fiscal indicators. In terms of revenue spending, off-budget financing was used for footing fertiliser subsidy arrears, food subsidy bills of FCI and for implementation of irrigation scheme. To ease the pressure on its finances, the Centre is tapping the National Small Savings Fund. The FCI had taken fresh loans of Rs65,000 crore in FY18 from NSSF not only to meet its expenses but also to repay Rs25,000 crore as principal amount due to NSSF.

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