Public sector undertakings were established in India as a part of mixed economy with the objective of providing necessary infrastructure for the fast growth of economy & to safeguard against monopoly of industrialist community. However, the entire mechanism did not turn out as efficient as it ought to be, all thanks to the prevailing hierarchy and bureaucracy.

To illustrate the trailing scenario, the average return on capital employed (ROCE) by PSUs have been way too low as compared to the cost of borrowing. For instance, between 1940 and 2002, the average ROCE was 3.4% as against 8.6% average cost of borrowing. PSE survey by NCAER shows that PAT has never exceeded 5% of sales for or 6% of capital employed. The government pays a higher interest though, by at least 3 percentage points.

As per an NCAER study report the cost structure of PSES is much more than the private sector (the following table shows a comparative scale) :

Lack of autonomy, political interference, nepotism & corruption has further deteriorated the situation. For instance, the head of a PSU is appointed by the Government, who in turn appoints all employees who play major roles in the organization. So directly or indirectly the Government itself controls the appointment of all manpower in these organizations. It is not the business of the Government to do business, i.e. it is best controlled by experts and professional managers.

To quote some figures, on 31.3.1997, there were 242 central public sector enterprises with a total investment of Rs.1,93,121 crores. At the end of the fiscal year 2000-01, PSEs had a total investment of Rs.274,114 crores. Of these, 104 were loss-making enterprises and about 53 chronically sick enterprises. If we exclude the profit making enterprises, mostly restricted to a few sectors like petroleum and allied sectors, which basically enjoy a position of State monopoly, the total loss of the 104 loss making units was a mind boggling Rs. 58,620 crores as on 31.3.1997. As the losses continue, there is an increasing dependence on direct budgetary support, and such losses are continuing to be a recurring draft on the budget.Â

Due to the current revenue expenditure on items such as interest payments, wages and salaries of Government employees and subsidies, the Government is left with hardly any surplus for capital expenditure on social and physical infrastructure. Additionally, the continued existence of the PSEs is forcing the Government to commit further resources for the sustenance of many non-viable PSEs.  The Government continues to expose the taxpayers’ money to risk, which it can readily avoid.  To top it all, there is a huge amount of debt overhang, which needs to be serviced and reduced before money is available to invest in infrastructure.  All this makes Disinvestment of the Government stake in the PSEs absolutely imperative. Disinvestment of the Maruti Udyog Ltd.will work as a beacon for future.