Why Jaitley is threatening to shut down non-performing PSUs

Union Finance Minister Arun Jaitley might have startled his party colleagues by threatening to shut down some of the sick central public sector enterprises (CPSEs).

The state of these public sector units is appalling and disinvestment or even closing some of them appears to be the only option to prevent exchequer from further bleeding.

Jaitley is hopeful that through disinvestment he will be able to fund some of the rising expenditure. He is expecting Rs 58,425 crore in the current financial year through sale of stakes in some of the companies. But going by the previous year records, it appears to be a distant dream.

For instance, according to the disinvestment department, the government could raise only Rs 15,819 crore, against the original plan of Rs 40,000 crore in 2013-14. In 2012-13, the actual mop-up was Rs 23,956 crore, compared with the Budget estimate of Rs 30,000 crore.

At the same time, the government has made an incremental increase in investment in public sector companies. The total Plan outlay for investment in state-owned companies in 2012-13 was Rs 251,025.97 crore. The revised Plan outlay in 2013-14 was Rs 327,131.06 crore and the Budget for the current financial year has allocated Rs 319,001.39 crore.

Experts and senior government officials blame policy paralysis in the previous Congress-led United Progressive Alliance government, delay in appointing heads of PSUs and faltering of those sick companies, that had turned around after receiving financial packages in the last five years for the situation. A few others, which received financial packages, have failed to revive too.

The immediate challenge before the Bharatiya Janata Party (BJP)-led National Democratic Alliance government is to fill the top positions in the headless Schedule A and B public sector enterprises. A list from the department of personnel and training (DoPT) suggests 11 of 60 Schedule-A public sector units are without a boss. Moreover, the chairman and managing director's post is vacant for more than six months in NHPC, PFC, MMTC and Damodar Valley Corporation.

The story is similar for Schedule-B CPSEs. Scheduling is done on the basis of size of the CPSEs, scale of investment and profitability. The list from DoPT further suggests atleast 11 of 71 such public sector companies are awaiting a CMD's appointment. The notable ones include Southern Coalfields, Northern Coalfields, Western Coalfields and Southeastern Coalfields (see chart).

Officials in these companies say people have been given additional charge in the absence of a CMD and these people are empowered to take any financial decision.

"CMD or head of the PSUs is like the father to a son in a family. The working of a company suffers dramatically in his absence. Those who hold additional charge may not take major decisions or provide vision to the organisation," says a former head of one of the PSUs.

The appointment of head of the PSUs is a cumbersome process. The Public Enterprises Selection Board (PESB), a wing under the DoPT, has been trusted with the task of finding the appropriate candidates and making a recommendation to the appointments committee of the Cabinet. It starts the process 16 months in advance.

"There is no slippage on our part," claims PESB secretary Rajiv Rai. The officials in the department say delay could be either because of administrative ministry or court cases. Earlier this month, the cabinet secretary had called up a meeting to review the working and vacancy positions in the public sector units.

Officials say Jaitley might be threatening to shut down the sick PSUs, but there is no clear indication about what the new government expects them to do. "We have no idea about their thought process. Nothing has been communicated to us. I think the new government will take some more time before they could announce some polices for this sector," says a senior official in the department of public sector enterprises.

The immediate task before them is to fill the vacancies on the Board for Reconstruction of Public Sector Enterprises, a body established in December 2004 as an advisory body to the government on the strategies, measures and schemes for strengthening, modernising, reviving and restructuring of public sector enterprises.

The position of chairman of the board is lying vacant following the demise of its last chairman, Nitish Sengupta, a former IAS officer, in November last year. Two out of three non-official members quit following the change of government and secretary to board too left following the completion of her tenure earlier this month.

"In the last 10 months, there was not much file movement because of policy paralysis in the UPA government," says one of the board functionaries. Since its inception, the board has recommended packages for 49 sick companies of which 19 saw a turnaround. Another 12 PSUs are awaiting cabinet's decision for a financial package. Some are even waiting clearance since 2006.

Now, many of the 19 companies are showing a downward trend in terms of net profit. The seven companies whose profit has continuously declined are Bharat Pumps & Compressors, Cement Corporation of India, Andrew Yule & Co, Konkan Railway Corporation, Central Electronics, Hindustan Prefab, and Sail Refractory Unit.

Konkan Railway is one of the biggest losers. It has posted a net loss of Rs 235.41 core in 2012-13.

If a decision to close down such PSUs is taken, no tears should be shed.
HEADLESS PUBLIC SECTOR UNITS
Schedule-A PSUs
11 vacancies out of 60 PSUs
Vacancies for less than six months

• Airport Authority of India
• Coal India
• ONGC Videsh
• BSNL
• Dedicated Freight Corridor Corporation of India
• MTNL

Vacancies for more than six months

• NHDC
• Power Finance Corporation
• MMTC
• National Textile Corporation
• Damodar Valley Corporation

Schedule-B PSUs
11 vacancies out of 71 PSUs

• IRCTC
• Pawan Hans
• Southern Coalfields
• Northern Coalfields
• Western Coalfields
• Southeastern Coalfields
• Scooter India Ltd
• Orissa Mining Development Corporation
• Chennai Petrochemical Corporation
• Bridge and Roof
• PDIL

Source: DoPT   Situation as on July 10.