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Govt. gets tough on defaulting PSUs - Views on News from Equitymaster
 
 
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  • Sep 23, 1999

    Govt. gets tough on defaulting PSUs

    According to newspaper reports, the guidelines for rendering assistance to restructuring public sector units (PSUs), by the finance ministry, have been recast. Under the new guidelines, the management would be held responsible for any failure to achieve the promised results.

    Among the highlights of the new guidelines are:

  • A memorandum of understanding will have to be entered into by the PSU seeking assistance. Under this, specific targets, relating to profitability et cetera, will be set.
  • There will be a quarterly review of the PSU's performance, and depending on the appraisal it will be decided whether or not to continue the financial assistance.
  • Most importantly, the PSU management will be held responsible for failure to achieve the targets.

    Under the new guidelines, it will become virtually impossible PSUs, which keep failing to meet targets, to receive assistance from the government. Although, this step may lead to the shutting down of a large number of sick PSUs, the savings in terms of reduced losses would be substantial. Among the first cases is likely to be Sail, the PSU steel giant, which has posted losses of more than Rs 1.6 bn for FY99.

    However, it is as yet uncertain whether or not the government will actually be able to take the harsh decision of suspending financial assistance to defaulting PSUs. Once again, the success of this measure would depend on the political will.

     

     

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