Why MTNL, Hindustan Photofilms, others are virtually on MGNREGA albeit via PSU route

By: |
New Delhi | Published: March 27, 2017 5:45:42 AM

The fall in global oil prices meant the subsidy borne by oil PSUs fell from R42,822 crore in FY15 to R1,251 crore—factor this in, and there is a fall in PSU profits.

MTNL and BSNL that the telecom ministry proposes to merge to make them more viable in the manner Idea and Vodafone are merging. Given their huge losses, and falling market-share, it is not clear how this is to happen. (PTI)

While a 12.5% increase in profit growth of central PSUs in FY16, based on the latest report of the Department of Public Enterprises (DPE), is welcome, especially as it comes after a 20% contraction in FY15, the bare numbers mask the real picture. The fall in global oil prices meant the subsidy borne by oil PSUs fell from R42,822 crore in FY15 to R1,251 crore—factor this in, and there is a fall in PSU profits. Further, the bulk of profits came from sectors in which PSUs are either monopolists or, like ONGC, got the best acreages/plants—of the R115,767 crore of FY16 profits, the coal sector profits were R20,527 crore, the oil sector’s R33,833 crore and the power sector’s R28,009 crore.

Apart from the need to increase competition to lower consumer prices—by looking to merge ONGC and HPCL, the oil ministry, is doing the opposite—the government has to move fast to stop haemorrhaging; in FY16, the top 10 loss-making PSUs lost R22,951 crore. While the government seems determined to save Air India despite the money spent so far making no discernible difference, this is not the egregious example. Despite BIFR recommending its closure in 2003, Hindustan Photo Films continues to function and has a net worth of minus R17,413 crore—it made losses of R2,528 crore in FY16 and is being kept alive for a mere 217 employees, making it one of the most expensive unemployment dole programmes anywhere in the world. In the case of Hindustan Cables which made losses of R994 crore in FY16, it has been out of production since 2003 but kept alive for 1,333 employees—it has long-term loans of close to R6,000 crore. Though NITI Aayog has recommended 26 loss-making PSUs be shut and another 44 be sold to strategic investors, the progress has been very poor.

You May Also Want To Watch:

Or take MTNL and BSNL that the telecom ministry proposes to merge to make them more viable in the manner Idea and Vodafone are merging. Given their huge losses, and falling market-share, it is not clear how this is to happen. Despite the ministry tom-tomming the reduction in BSNL’s losses from R8,234 crore in FY15 to R3,880 crore in FY16, much of this is cosmetic, due to a Rs 3,066 crore increase in other income in FY16 and a R1,682 crore reduction in depreciation—without this, operational revenues grew 4.4% versus pre-depreciation expenditure rising 3.2% which means there was some minor improvement. While MTNL has a minuscule 0.3% market share and BSNL 8.6%—DPE has a figure of 5.4% for MTNL—the issue which government has to confront is how they can possibly survive; MTNL’s wage bill is 75% of turnover and BSNL 41% versus the industry norm of 5%. Also, in the case of MTNL whose spectrum licence expires in two years, buying even the bare minimum spectrum will cost over R3,900 crore (the opportunity cost of spectrum with both PSUs is much higher since they have large spectrum holdings with a minuscule subscriber base). While 3.7 million landline customers gave up their BSNL phones between FY14 and FY16, the number on broadband fell by a little over a lakh. Any decision to keep PSUs alive has to take these factors into account.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Switch to Hindi Edition
FinancialExpress_1x1_Imp_Desktop