Is the govt making enough money from its PSEs?

  • Top 5 most profitable companies made around 43.3% of the total profit made by the PSEs
  • 174 of the 184 profitable firms contributed around 38% of the profit in 2017-18

The Union government of India is by far the most diversified business owner in the country. But the bigger question is: is it making enough money through these businesses? The Public Enterprises Survey of 2017-18 provides us with the details.

How profitable are PSEs?

In 2017-18, the number of profitable public sector enterprises (PSEs) stood at 184. These companies made a total profit of about 1.59 trillion. As can be seen from the accompanying table, the top 10 most profitable firms made a bulk of these profits. Their profit in 2017-18 amounted to 98,707 crore, or 61.8% of the profit made by the profitable PSEs. In fact, the top 5 most profitable companies made around 43.3% of the total profit made by the state-owned profitable enterprises. The oil companies led by oil marketer Indian Oil Corp. made a bulk of the profit. The other big chunk came from the coal companies.

What is the trend with profitable PSEs?

Is this trend of top 10 profitable PSEs bringing in a bulk of the profit, limited to 2017-18? This is a trend which plays out every year. If we look at data between 2010-11 and 2017-18, the profit of the 10 most profitable firms varied anywhere between 58% and 64% of the profit of the profitable PSEs. What this tells us is that it’s not just the loss-making enterprises which are a problem. 174 of the 184 profitable firms contributed around 38% of the profit in 2017-18. This means that many PSEs are barely making money to justify the capital invested in them and are really being run just for the sake of being run.

What kind of PSEs actually make money?

One look at the above table tells us that state-owned companies operating in sectors where there is fairly limited competition are the ones actually raking in the moolah.

Does competition hurt PSEs?

Yes. It does. Let’s take the example of BSNL. In 2005-06, when the competition in the telecom sector wasn’t as cut throat as it is now, BSNL was the second most profitable PSE. It made a net profit of 8,940 crore. Following Jio’s disruptive entry into the telecom space and the subsequent fall in data tariffs, BSNL was the largest loss-making PSE in 2017-18, with losses of 7,993 crore. Mahanagar Telephone Nigam Ltd (MTNL), was the third largest loss-making firm during the year, with losses of 2,973 crore.

What does all this tell us?

Take the case of the services sector. The PSEs operating in this space had net profit margin of 3.6% in 2017-18. This is extremely low. It tells us that any kind of competition isn’t good for India’s public sector utilities. In comparison, PSEs operating in the mining and exploration space, where competition is limited, had net profit margin of 18.2% in 2017-18. This comparison tells us the real story of the performance of PSEs.

(Vivek Kaul is an economist and the author of the Easy Money trilogy).

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