Public Sector Enterprises play an important role in both the economic & social development of the country. Data indicates that while the total number of CPSEs increased the number of operational CPSEs has remained stagnant. The CPSEs’ contribution to the Central Exchequer doubled in the last 10 years on account of an increase in excise & other duties.
A. H. Hanson once said, “Public enterprise without a plan can achieve something but a plan without public enterprise is likely to remain on paper.” This quote establishes the importance of public sector enterprises in the development of a nation. Public Sector Enterprises, shortly called as PSEs, provide an insight into the vision of the government of the day. They fulfill crucial economic as well as social goals, and they are essential for the equitable development of the nation. Many times, these PSEs perform poorly on the economic front but have high social relevance. Over the years since the 1990s, successive governments have divested government stake in multiple PSEs owing to multiple reasons.
In the first part of this two-part series, we look at the Central Public Sector enterprises (CPSEs) in India and evaluate their financial performance.
The number of CPSEs is on a rise, but operating CPSEs remain stagnant
The total number of CPSEs in 2011-12 was 225, which consistently increased to 389 in 2020-21. This number includes the operating CPSEs, those CPSEs under construction, and the CPSEs under closure or liquidation. However, the number of operating CPSEs increased from 225 in 2011-12 to 258 in 2017-18, after which it stagnated at around 255. Consequently, the number of CPSEs under construction rose from 74 in 2016-17 to 108 in 2020-21, while those under closure/liquidation grew from 2 in 2016-17 to 26 in 2020-21.
70% of the operating CPSEs are profit-making
It is a general misconception that CPSEs are not economically efficient, and they are unviable in the longer term. However, the data suggests that out of the total operating CPSEs, the profit-making CPSEs average about 70%. From 2016-17, the number of profit-making CPSEs is hovering around 177, and the loss-making CPSEs are averaging at 77.
Overall profit and net worth of CPSEs on a consistent rise
Data indicates that profit-making CPSEs dominate the total operating CPSEs. The net profit of the profit-making CPSEs grew from Rs. 1.26 Lakh Crore in 2011-12 to Rs. 1.89 Lakh Crore in 2020-21. Similarly, the net loss of loss-making CPSEs stood at an average of Rs. 0.29 Lakh Crores between 2011-12 and 2020-21. The overall net profit/loss of the operating CPSEs rose from Rs. 0.98 Lakh Crore in 2011-12 to Rs. 1.43 Lakh Crore in 2018-19, after which it fell to Rs. 0.93 Lakh Crore in 2019-20. In 2020-21, the overall net profit/loss stood at Rs. 1.58 Lakh Crores.
However, it will be naïve to assume that all CPSEs generate tremendous profits. In the year 2020-21, around 10 CPSEs accounted for more than 60% of the total profit of profit-making CPSEs. Similarly, around 10 CPSEs accounted for more than 85% of the total loss of the loss-making CPSEs.
Similarly, the net worth of all the CPSEs grew almost steadily from Rs. 7.76 Lakh Crore in 2011-12 to Rs. 10.67 Lakh Crore in 2016-17 to Rs.13.62 Lakh Crores in 2020-21.
Contribution to Central Exchequer doubled compared to 2011-12
The contribution of the CPSEs to the Central Exchequer has improved during the last decade. It rose from Rs. 1,62,402 Crore in 2011-12 to Rs. 4.96 Lakh Crore in 2020-21. The increase became more significant from 2014-15. It rose from Rs. 1,62, 402 Crore in 2011-12 to Rs. 2,00,593 Crore in 2014-15, thereafter it rose to Rs.2,75,439 Crore in 2015-16, followed by Rs. 3,60,815 Crore in 2016-17. From 2016-17, the contribution saturated in the range of Rs.3.5-3.7 Lakh Crore till 2019-20. It again rose to Rs. 4.96 lakh Crore in 2020-21, which is because of the increase in excise duty collection from Rs.1.65 lakh crore in 2019-20 to Rs. 3.03 lakh crore in 2020-21.
This contribution is by way of excise duty, custom duty, GST, corporate tax, interest on Central Government loans, dividends, and other duties and taxes. Hence, the performance of the CPSEs might not necessarily be the driving factor behind such a huge contribution. Among the cognate groups, the Petroleum (Refinery & Marketing) cognate group held the maximum share at 70% in the contribution of CPSEs to the central exchequer in 2020-21, followed by Coal, Trading & Marketing and Power Generation cognate groups. The steep increase in the excise duty on fuel is one of the prime reasons for the increase in the overall contribution of the petroleum cognate group.
Dipping Foreign Exchange earnings
CPSEs play an important role in earning foreign exchange through the export of goods and services. Exports of goods and merchandise and other income are the major sources of foreign exchange earnings of CPSEs. The foreign exchange earnings of CPSEs in 2011-12 stood at Rs. 1.27 lakh crore, which rose to Rs. 1.45 lakh crore in 2013-14. From 2014-15, the forex earnings declined till 2018-19, where it peaked at Rs. 1.43 Lakh Crore, followed by a decline to Rs. 1.34 Lakh crore in 2019-20, and to Rs. 0.91 lakh crore in 2020-21. Except for 2018-19 and 2019-20, the forex earnings declined from 2014-15 to date.
Financial investments in CPSEs on a rise
Governments invest in CPSEs either through direct paid-up capital or through loans and share application money and others. The total financial investments in CPSEs rose from Rs. 7.29 lakh crores in 2011-12 to Rs. 21.67 Lakh crores in 2020-21. A significant amount of these investments is raised through loans. In 2020-21, out of the total Rs. 21.67 Lakh crores, Rs. 18.45 lakh crores were raised through loans. Similarly in 2019-20, around Rs. 18.16 Lakh crores were raised through loans out of the total Rs. 21.28 lakh crore investments.
However, this investment is not equitably distributed across sectors. In 2020-21, the Services sector has the highest share in Financial Investments accounting for 67.25% followed by Manufacturing, Processing and Generation (25.09%), and Mining & Exploration (4.89%).
The gross revenue of the CPSEs also increased from Rs. 18.22 Lakh crore in 2011-12 to Rs. 24.26 lakh crore in 2020-21. The gross revenues peaked in 2018-19 at Rs. 25.46 Lakh crore, and thereafter witnessed a decline for two consecutive years.
In the next part of the series, we look at other key parameters relating to the functioning of CPSEs such as employee strength, and R&D expenditure among other indicators.
Featured Image: CPSEs’ contribution to the Central Exchequer