As the government prepares to divest PSUs and raise Rs 54,000 crore, it will simultaneously urge PSUs to invest in infrastructure projects. While this is a smart move to reinvigorate the stranded sector, the irony of public sector investment in private side of equity is not lost. While they stare at a disappointing year for PSUs on the stock exchanges, what has galvanised many of these mammoth organisations that have transformed these custodians of public money into vibrant, corporate and profitable units while remaining carefully transparent and accountable? What can our private sector learn from them? Our section analyses inherent and acquired advantages that our Central PSUs enjoy, and interviews heads of these organisations to find out.
If, for every Tata there is a Satyam, for every ONGC there is an Air India. When public sector units (PSUs) were first established in the 1950s, they became synonymous with lethargy, inefficiency, high employee numbers, and low productivity. Established with an investment of Rs 29 crore, PSUs´ goal was state-driven socio-economic development. This first phase lasted up to 1991. When the second phase began after the economic liberalisation in that year, the public sector was mandated to compete at a global level under open competition. It played its part so well that the turnover increased almost 10 times and profitability increased more than 35 times in one decade. The third phase, continuing to this day, began with the new century.
Critics have rightly pointed out that inefficiency is public enterprises´ Albatross. This is not just in India worldwide, public enterprises have the cross to bear for carrying out the politically correct methods of running an organisation. In other words, if an organisation were to go by the book, public sector units (PSUs) would be role models. How, then, did our Central PSUs become the leading companies in profitability, competitiveness and transparency. As Sudhir Vasudeva, CMD of ONGC, said, these Temples of Independent India have transfor¡med themselves into competitive business entities. Per a Dun & Bradstreet analysis, the total turnover of central public sector enterprises (CPSEs) in FY2012 accounted for nearly 22 per cent of the country´s GDP. They also contributed Rs 160,800 crore to the central exchequer through various taxes and duties. Additionally, 46 listed CPSEs (as on April 30, 2013) accounted for nearly 18 per cent of BSE´s total market capitalisation.
Invest¡ments in CPSEs have grown at 12 per cent CAGR from Rs 455,550 crore in FY08 to Rs 729,230 crore in FY12. Having grown in investment fourfold from Rs 1.35 lakh crore in 1992 to Rs 5.8 lakh crore by 2010, and a 23 per cent or more y-o-y growth, the PSU story in India needs celebra¡tion. This year, PSUs have so much excess money that the government, eyeing the profits of ONGC, BHEL, SAIL, Coal India and other highly cash rich organisa¡tions, has mandated them to invest in this time of equity crunch. Surplus funds in the range of Rs 2.8 lakh crore are likely to be invested as the Department of Public Enter¡prises (DPE) draws up the methodology this month.
ONGC continues its astonishing growth and profit story, with a net profit of Rs 25,122 crore last year. Vasudeva says the figures this year, too, may reflect good growth. Coal India, too, has gained. The fact that the top PSUs are exploration or downstream fuel companies should tell a story or two.
The more obvious of the stories is the demand and pricing story on oil, gas and coal. The less obvious is one of leadership. Whether it is PFC, SAIL, ONGC, GAIL, or Airports Authority of India, the organisations were galvanised their leaders. Organisational success is normally attributed to a leader in the private sector, so a parallel for PSUs is ironic. Having grown into systems that are reputed to run on autopilot because of the strong bureaucratic linkages in place, PSUs have gradually discovered that the challenge of their dual purpose socio-economic development with profitability. On the surface, nothing could be a bigger challenge, and PSUs are routinely charged with refusal to change.
This conventional accusation is true of many of the PSUs. And yet this challenge divided PSUs into the haves and the have-nots. The ones who redefined the leader´s new role as less administrative and more of a business-building strategist went on to achieve supreme profitability (see table in this section).
Despite muted growth this year as against last year, and lagging behind their private counterparts on the Exchange, PSUs and private sector have much to imbibe from each other. If the way PSUs earn profits is mandated to the private sector, profits would come down, perhaps to levels lower than what the PSUs are earning.
psu CAPTAINS say...
Growth with service
We contribute 69 per cent of the country´s oil production and 62 per cent of country´s gas production, but only meet 22 per cent of our country´s requirement. While maintaining our position of leadership and relevance, we would like to escalate our contribution to 30 per cent of the country´s demand.
Sudhir Vasudeva, CMD, Oil and Natural Gas Corporation (ONGC)
We are adopting new technologies in construction, transformers, sleeper design, and the latest technology mobile train radio communication. The DFCs will also include solid-state interlocking type automatic signalling systems, and complete automatic signalling territory.
DFCC will work as the basic platform where we can try a new technology, which can later be adopted by Indian Railways (IR). IR approves these for us, and can implement them on its own network after successful activation on the DFCs.
RK Gupta, Managing Director, Dedicated Freight Corridor Corporation of India Ltd (DFCCIL)
Our major ports are definitely modern like private ports, as whatever their terminals operations runs its through renowned global private players who come with very good infrastructure. All major ports having their container terminals operated by private parties, are famous for their productivity, safety standards and security standards. JNPT is in the top 100 ports of the world that maintain all international standards.
Subhash Kumar, Former Chairman,
Chennai Port Trust
Service sector that EIL is in cannot remain unaffected and the delayed or deferred investments in our area of operations do affect the financial performance. Never¡theless, we are seizing this as an opportunity to realign EIL´s business portfolio and diversify into sectors like Power, Waste and Water Management, Infrastructure and Fertiliser which have long term potential for future growth.
AK Purwaha, Chairman and Managing Director, Engineers India Ltd
India will need 200 more airports to meet the rise in the demand. The only way to meet the rise in the demand would be developing infrastructure on 457 existing airports or air strips in the country by states joining hands with AAI. There is a huge opportunity but it will require huge capital investments also. Smaller aircraft need to be acquired and should be operated on routes to smaller airports. It is wise to start this way than to suffer losses.
VP Agrawal, Chairman, Airports Authority of India