BS Number Wise: A strategy for non-strategic state firms as losses mount

The govt needs to act quickly to capitalise on the assets of such enterprises

The pandemic has resurrected a debate on state capitalism, with the public sector’s performance during the pandemic making critics reconsider its role in certain areas.
 

In India, the government decided to reduce its size and have a dozen state-owned companies in a clutch of strategic sectors. 
 

In February 2021, it announced a new Public Sector Enterprise policy that seeks privatisation of state-owned companies barring a few in strategic sectors. It is yet to act on the policy.
 

In May, it announced picking 60 central public sector enterprises (CPSEs) in the non-strategic sector for either closure or privatisation. The idea is to monetise assets or raise money from profitable PSEs.
 

A Business Standard analysis of 277 CPSEs (excluding banks and insurance companies) shows that the window for the government to turn a profit is closing (see chart 1).


 

Non-strategic CPSEs did the worst. 
 

The profits of CPSEs increased 7.5 per cent from Rs 1.46 trillion in 2018-19 to Rs 1.58 trillion in 2020-21. The losses of loss-making non-strategic CPSEs increased 74 per cent in 2020-21, compared to a 4.8 per cent fall in the profits of profit-making non-strategic CPSEs (see chart 2).


 

An analysis of land holdings shows that of the total land held by all enterprises, just a quarter was with CPSEs in the non-strategic sector (see chart 3).


 

The government needs to act quickly to privatise its companies or close them. A delay wo­uld mean more losses and fewer realisations.