New PPP: PSUs Pivoting to Productivity

In projects which are for social good, profitability becomes a necessary evil. Several of the public sector organisations may have been created with some social cause and that has
numbed their accountability to ROI. In earlier years it may have been useful since most of these were monopolies and profitability came due to lack of competition. Post 1991 once
we shed the license raj era and ushered in liberalisation, ROI became important.

The public sector contributes only 20 per cent to the national income, but accounts for nearly 40 per cent of the total wages. According to estimates by the state government, the market valuation of key listed state PSUs is around Rs.700 billion and the value of their assets is between Rs.1.5 trillion and Rs.3 trillion. Raising productivity and thereby improving returns on these assets can help stem the fiscal deficit.

PSEs are at the forefront of the nation’s multifaceted growth and have attained commanding heights in several important fields. PSEs had to fulfill several social obligations that were ill-defined and difficult to measure. This resulted in a high burden of borrowings, which in turn resulted in a severe burden of interest. This raised their losses even more. This was a dangerous position. The necessity to determine how much of the loss was caused by social commitments was therefore felt.

Disinvestment has more effects than simply selling government equity. It supports the expansion of the Indian economy and promotes private participation, which increases operational effectiveness, professional competence, control over unplanned expenses, cost savings, and the introduction of both domestic and foreign capital. Disinvesting PSE shares is a good economic necessity that will help finance future economic growth in addition to fulfilling social obligations. Hence, a key component of operational efficiency is the profitable management of existing resources.

With the opportunity which has come our way due to disruptions in supply chain, India is being considered as an alternate manufacturing base. While PLI scheme have been announced by the Government and electronics has made some headway, without research and development, no nation can achieve industrial prosperity. Our R&D budgets have been dismal. Although India’s spending on R&D is consistently increasing in last 10 years and has nearly tripled from Rs.394.38 billion in 2007-08 to Rs.1.14 trillion in 2017-18 which for a $3 trillion economy figures at just 0.5 per cent, it stands even lower than Brazil (1.16 per cent), South Africa (0.83 per cent) and others.
Public sector makes up for 55 per cent of the research but we are yet far off the mark in the quest for reducing production costs and raising product quality. The public sector is playing a significant role in this regard and can better the score on this.

PSEs have unquestionably made a significant contribution to building the industrial base necessary for the overall development of the Indian economy. It is essential for the PSEs to continue to exhibit global competitiveness and gain market leadership to make sure that the Indian economy keeps reaching new heights and develops into an economic superpower. The government’s empowering of these businesses has been a crucial enabler in assisting them in overcoming some of the operational challenges essential to their successful operation.
Indian Railways (IR) recently made headlines over its highest ever wagon order of 84,000 wagons. IR has typically purchased 12,000 to 15,000 wagons annually. The National Rail Plan projects that to handle the planned freight levels over the next ten years, 28,000-32,000 wagons will be needed annually. Railways are indeed likely to be seeing huge investments as cited in the Union Budget of 2023-24 which has provided for the highest ever budget of Rs.2.4 trillion.

Public spending is counting on private sector to share the load. Indications are that private sector has begun moving out of its shell. Let’s hope the whistle of the railways is no whistle in the dark.