Statsguru: Value erosion in PSUs can limit govt's disinvestment target

While announcing the economic package to deal with the impact of Covid-19, Finance Minister Nirmala Sitharaman had said that the government would formulate a new policy for public sector undertakings (PSUs). 

All sectors will be opened up for private firms and PSUs will be privatised in non-strategic sectors. This will not only help improve efficiency in the system but also raise resources for the government. The government has budgeted to raise over Rs 2 trillion through disinvestment in the current fiscal year (chart 1). Notably, PSUs have improved their dividend payment in the past few years. 

However, the data shows that recent developments in PSUs can limit the value that the government can expect to raise. In FY20, the biggest chunk of disinvestment inflow came by selling stakes in PSUs through exchange-traded funds (ETFs), as shown in chart 2. Also, the performance of PSUs has been weak in the market. 

The BSE PSU index has fallen more sharply as compared to the BSE Sensex in the last two years (chart 3). The fall in stock prices has eroded significant value in some of the largest PSUs, which will limit receipts for the government (chart 4). One clear reason for this could be the poor financial performance of PSUs: Their sales and profits have come down significantly in recent quarters (chart 5). 

There are some sectors in which sales performance of PSUs has been better than private companies, such as the power sector (chart 6). But the case is different in the refinery sector.


StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines                                 Source: Capitaline, BS Research Bureau