The 'big jewels' of India shine bright under Narendra Modi government

India's most powerful public companies have performed well, partly because of favourable global conditions

According to the Government of India, Prime Minister (PM) Narendra Modi became the first person to address a conclave of public-sector enterprises in India after either Linlithgow or Wavell, two former governor-generals of colonial India in 1943. And 75 years later, Modi seems to have showered verbal goodies on India’s top Public Sector Enterprises (PSEs), with a hint of admonition.

Among many things Modi said at the conclave in New Delhi on April 9, he asked India’s most powerful and cash-rich public companies to transform themselves from “Maharatna (big jewels)” into the “Nav Bharat Ratna (jewels of New India)” and gave them a 100-day deadline to come up with a plan of action.  

The overall PSE ecosystem in India at the moment is a study in contrast. The losses of loss-making public companies are lower than they were in the past. The profit-making companies haven’t let down their pace of increasing profits. There are far greater operational PSEs than in the past. The number of profit-making PSEs is also at its peak in over a decade. The Modi government has tuned old horses to gallop in the new economy by incorporating entities like India Post Payments Bank.

On the flip side, a third of the profits of all 174 profit-making PSEs is being made by just three companies – Coal India, Indian Oil Corporation and Oil & Natural Gas Corporation. The number of loss-making PSEs is at an all-time high. A quarter of all PSEs that made a profit in 2016-17 have seen a dip in their profits since 2014. Eighteen PSUs that were profit-making when Modi became prime minister are now saddled with losses. Among them is India’s largest steel producer Steel Authority of India Limited, Rashtriya Ispat Nigam and Western Coalfields Limited. More than half of all loss-making PSEs have seen their losses widening since 2014-15.

Amid all this, what catches the eye is the performance of the most powerful government companies, dubbed the Maharatnas. Four of the seven Maharatnas have increased profits from 2014-15 levels (See graphic).

A slump in demand for iron ore and finished steel has meant that one of the Maharatnas, Steel Authority of India Ltd, also listed on the London Stock Exchange, ran losses to the tune of Rs 28 billion in 2016-17 – a significant reduction when compared with its losses the previous year. In the third quarter of 2017-18, SAIL had shown a modicum of recovery, posting a profit of Rs 430 million.

Bharat Heavy Electricals Limited, India’s largest heavy manufacturing government company, made a profit of Rs 5 billion in 2016-17 – down 65 per cent since the Modi government came to power. The other so-called big jewels, including GAIL India Ltd, NTPC Ltd, Bharat Petroleum and Coal India have all seen an impressive rise in profits. But these profits haven’t come because of better business.

Global tailwinds have played a major role in helping these companies achieve profitability. Especially, the oil majors have seen their revenues declining due to low global crude oil prices, even as their profits have soared.  

The profits of the profit-making Maharatnas have increased even as their revenues have declined. This wasn’t the case during the Manmohan Singh-led United Progressive Alliance (UPA) government’s second term in office. These same ‘big jewels’ had shown a similar trend in their profitability but had achieved higher profits by earning more revenues.

Two of the Maharatnas epitomise this trend. On the one end of the spectrum is Indian Oil Corporation, whose profits increased 2.5 times in 2016-17 as compared to its 2014-15 level. But its revenues during this period declined by 5 per cent. During the last three years of the Manmohan Singh administration, when global oil prices were much higher than the initial years of the Modi government, Indian Oil Corporation had increased its profits by 77 per cent while its revenues had grown by 18 per cent.

Another case in point is GAIL, whose revenues from 2014-15 to 2016-17 fell 3 per cent while its net profit soared 15 per cent. During the last years of the Manmohan Singh administration, GAIL’s revenues and profits had increased in sync. GAIL attributes declining revenue to “increase in volume of gas marketing and transmission, LPG transmission and petrochemical sales”.

A closer look at GAIL’s balance sheets shows that while its revenues have declined, it has managed to reduce its expenses at a much faster rate. Its finance costs are down and so are the expenses on raw materials. Both GAIL and Indian Oil Corporation are the only Maharatnas that have not reduced their employee numbers since 2014-15.

Business Standard mailed Anand Geete with specific queries, but a response has not been received yet.

While the Maharatnas have streamlined their operations to achieve better profits, the Navratnas haven’t been able to match the performance. An analysis of the financials of 14 Navratnas shows that their profits since 2014-15 have declined more than 2.5 times, while their revenues have increased by 13 per cent. The biggest losers have been Rashtriya Ispat Limited and National Aluminum Corporation. The Power Finance Corporation, which had shown an impressive rise in profits during the last three years of the Manmohan Singh government, saw a steep fall in its profits under the Modi administration.  

The government also seems to be going slow in resuscitating ‘sick PSEs’. There are 40 operational sick PSEs in India. Of those which were sanctioned for revival, only one – Bengal Chemicals & Pharmaceuticals – has been able to show any semblance of a turnaround. Against a Rs 280-million loss in 2014-15, it made a Rs 45-million profit in 2016-17. The government has put the onus of turning around these sick PSEs on the respective ministries by dismantling the Board for Reconstruction of Public Sector Enterprises (BRPSE) through a notification in November 2015.

With PM Modi giving all PSUs a 100-day deadline to come up with a ‘road map for a New India’ which would help India’s government companies earn more revenue and generate more employment, the most powerful people in India’s most powerful government companies might have to spend some sleepless nights figuring out a better way to show profits than they do at the moment.