PSUs need to raise reliance on internal resources for projects

Even as the share of government support to public sector enterprises will continue to be at the high levels of 2009-10 in the next financial year, 2010-11, public sector enterprises are expected to gather their internal resources to fund future projects.

According to the latest Budget documents, internal and extra budgetary resources (IEBR) were expected to see a sharp rise of 24.2 per cent in 2010-11, a rise of 17 percentage points from the revised estimates of 2009-10. Government support is projected to show an increase of 22 per cent in 2010-11, a rise of six percentage points from the revised estimates.

The government’s plan expenditure consists of direct budgetary support and IEBR. IEBR constitutes resources raised by PSUs through profits, loans and equity.

In 2009-10, government support had significantly increased by 15.6 per cent, while IEBR had registered a marginal increase of 6.8 per cent.

The sharp increase in government support was necessitated by the global economic downturn which hit the profits of PSUs. This hampered their ability to fund future projects through internal resource generation. Moreover, an illiquid credit market, characterised by high-cost borrowing last year, was cited by experts as another reason for PSUs seeking increased state support.

However, with the economy recovering and government finances under stress, with a roadmap laid out for fiscal consolidation in the coming financial year, PSUs will have to depend more on internal resources.

Nevertheless, the share of government support in the overall central plan outlay continued to be high at 53.8 per cent, while IEBR was projected to constitute only 46.5 per cent in 2010-11. The corresponding figures in 2009-10 were 53.8 per cent and 46.1 per cent, respectively. The share of government support has been rising since 2008-09, when it was 52.6 per cent.

Some companies that registered a significant decline in government support on 2010-11 as against the revised estimates of 2009-10 were National Aviation Company of India Ltd (decline of 31 per cent) and Air India Charters Ltd (decline of 96 per cent) under the Ministry of Civil Aviation and Delhi Metro Rail Corporation (decline of 29 per cent) under the Ministry of Urban Development.