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Niti Aayog: Dispose Loss Making PSUs
Fri, 17 Jun Pre-Open

Recently, NITI Aayog, the apex planning body in the country, has given a reform roadmap for state-owned units. Reportedly, NITI Aayog has recommended winding up of 26 loss making public sector units (PSUs) as soon as possible. Further, it has also suggested searching for strategic buyers for some companies like Cement Corporation of India (CCI) and Air India.

Positive news indeed, as these companies are surviving on the hard earned money of the taxpayers. For instance, the Union Budget 2016-17 allocated Rs 250 billion to recapitalize the public sector banks. Further, the government has already poured up to Rs 222.8 billion to keep Air India running. Now, where does this money come from? From us who are burdened with indirect as well as direct taxes.

In certain cases the government is planning to revive some of the public sector units and then go for stake sale in order to fetch a better value. However, in this process they are throwing good money after bad. Vivek Kaul recently wrote an article stating how it is impossible to turnaround companies like Mahanagar Telecom Nigam Ltd (MTNL). Here is his take on the same:

  • Now let's talk about the fundamental problem that the company faces and why the telecom minister Ravi Shanker Prasad, cannot turnaround the company, despite his best intentions. Allow me to explain.

    For the year 2015-2016, the company's income from operations (which does not include its other income) stood at Rs 3,197.40 crore. Of this, Rs 2,310.76 crore went towards employee benefits. A further, Rs 343.68 crore went towards employee benefits for retirement. Hence, of the Rs 3,197.40 crore operational income of the company, a total of Rs 2,654.44 crore went towards employee benefits.

    This basically means that 83% of the company's income from operations went towards meeting employee cost. Airtel's employee cost in 2015-2016 was 3.1% of its income from operations. MTNL's was at 83%.This is what MTNL is competing against.

    Further, given the brand image that the company has among consumers that (the turnaround) seems to be difficult. As they used to say in the good old days when MTNL was a monopoly, MTNL equals Mera Telephone Nahi Lagta. The company had a branding problem back then as well, but the consumer did not have choice. Now he does and he has executed it.

The other example is Air India which has suffered losses to the tune of Rs 346.8 billion between 2010-11 and 2015-16. There has been many times wherein the government has re-capitalized Air India. However, all the money has gone down the drain and the strategy has not worked. Hence, in most of the cases the restructuring has not worked and it's high time the government sells off the un-profitable ventures.

The sale of PSUs will surely attract agitation from the employee unions. However, India is at a stage wherein it cannot afford the unproductivity at public sector enterprises being subsidised by the government. Further, every rupee that goes towards sustaining these companies is taken away from something else. Hence, the decision to sell the PSUs needs to be taken sooner rather than later as the decision is inevitable.

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