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Loss Making PSUs: Who Is Bearing the Ultimate Cost?
Feb 13, 2017

When it comes to corporate governance, one entity that seriously deserves a rap on the knuckles is the big government. While the financials dailies are awash with speculations on whether corporate governance norms were flouted at Infosys, here is an established case of unethical standards in managing a company that is not getting enough attention.

The company in question is Air India. And the management at the helm of its affairs is, well... the Big Government.

As reported in an article in Firstpost, the government has not yet been able to decide who to nominate as independent directors on the board. Years of financial losses and a crucial role in burdening public banks with NPAs, nothing seems enough for the government to consider its privatization.

In fact, if the reports are to be believed, the government plans to get 19 PSU banks to convert their loan of about Rs 200 billion to the ailing Air India into equity. This could cut interest expense of Rs 40 billion per annum for Air India by a quarter. So basically, the mismanagement will not just be limited to Air India but will spill over to PSU banks and ultimately, to tax payers' money.

The chart below shows the history of losses Air India has been mounting. The reason why 2015-16 losses look low is fall in crude price that lowered the jet fuel advantage that does not exist anymore.

In fact, it's not just Air India. Vivek has written an eye-opening piece on another such entity - MTNL. According to him, both these examples in part highlight India's debt bubble, which keeps getting bigger and bigger.

It's time the government admits its lack of knowledge to run businesses.

A lot of PSUs have had history of bad management by the government and have reached a point of no return when it comes to profitability. The accumulated losses of sick public sector enterprises as of March 31, 2014, stood at Rs 1.04 lakh crore.

But this is just part of the story.

In his latest book, India's Big Government-The Intrusive State and How It is Hurting Us, Vivek has exposed the big government's lies. And I'm sure you would want to know the full story as this affects your money and wealth.

The readers of Equitymaster can get an autographed hardback copy of the book, which will not be available anywhere else. We will post the details of this offer and how you can go about getting an exclusive hardback copy of India's Big Government, in the days to come.

Watch this space!

Data Source: Public Sector Enterprises Survey

This Chart Of The Day was published in The 5 Minute WrapUp - How this Unknown Company Scores Over the Tatas and Infosys

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