Why should government continue to be in the business of flying, offering telephone connections or mobile telephony services?
Several other untenable businesses also come to mind, but aviation and telecom take precedence in this argument purely because the central public sector enterprises (CPSEs) through which the government operates in these two sectors have been bleeding the most. Modi government's rise to power in 2014 with a strong people’s mandate was seen as an enabling factor in pushing forward with difficult decisions, such as disinvestment of the perennially loss making Air India or the telecom CPSEs.
Five years have passed and the Modi government’s term is about to end. Apart from a failed attempt at selling Air India (AI), it has precious little to show in terms of exiting loss making public sector enterprises. In fact, this government has been pumping more equity into the loss makers to prop them up instead of getting out of these companies. There have been frequent statements from the government about its serious intent in selling Air India at least – it has already restarted the process with AI’s ground handling arm – but whether any of these intentions will translate into an actual government exit remains to be seen. No such moves have been made for the telecom CPSEs, though.
Why would the government do well to exit aviation and telecom services? As per the Public Enterprises Survey for 2017-18, BSNL was the top loss making CPSE among 339 such companies with government control, accounting for 25 paise for every rupee of total loss across these companies in 2017-18. In fact, BSNL and MTNL (the second telecom CPSE) together accounted for 35 percent of the total losses posted by all CPSEs together in FY18. As for aviation, Air India accounted for another 17 percent of losses. And together, these three CPSEs (BSNL, MTNL and Air India) brought in 52 paise of each rupee of loss for all CPSEs taken together in 2017-18.
Given these startling loss figures (not to mention the mountain of debt these three CPSEs are drowning under), it stands to reason that the government would want to exit the business of flying as well as offering telecom services. Private players have, over the years, achieved near complete monopoly in the two businesses due to better efficiencies, leaving little room for portly CPSEs to prosper. Private airlines account for more than 80% of the domestic aviation market and private telecom companies also have a lion’s share of the mobile telephony pie in India.
Besides being rendered marginal players, the CPSEs are also struggling in their respective markets because both the sectors have not been doing well. So despite their market dominance, even private telecom services providers and private airlines are struggling. This scenario compels one to ask why the Modi government has made no serious attempt to exit these two businesses?Instead of making any move to exit, the Modi government has in fact been pouring money into these loss makers.
In the latest such move, it may spend a whopping Rs 8500 crore to offer a Voluntary Retirement Scheme (VRS) to the employees of BSNL and MTNL.
This comes on the back of continued financial assistance to Air India – in four years till 2017-18, the Modi government provided upwards of Rs 13,000 crore as equity support to the airline. These two replies in Lok Sabha show the equity support provided between
2014-15 and 2017-18.
And in all, the ailing Air India has been provided upwards of Rs 27,000 crore in equity support since 2012 under a UPA II mandated turnaround plan. Neither Air India nor the telecom CPSEs have posted a net profit in these five years and all the three companies have continuously sought government aid to even pay salaries to staff!
As for MTNL and BSNL, besides mulling over a mega VRS plan with significant cost implications, the government is also planning to allocate 4G spectrum to the two firms. Had this spectrum been auctioned to private players, the government could have earned upwards of Rs 12,000 crore. So the two telecom CPSEs are being offered free spectrum, money to get rid of excess staff and other carrots by a government determined to keep funding the inefficiencies of
public sector enterprises.
Instead of getting out of loss making CPSEs, the country is actually adding to their number. The total number of CPSEs increased in 2017-18 over the previous year, by adding eight such companies to the list. India had 339 CPSEs till March last year, engaged in various activities including agriculture, mining and exploration, manufacturing and processing and even in the service sector.
The contribution of CPSEs to the central Exchequer by way of excise duty, customs duty, corporate tax, interest on central government loans, dividend and other duties and taxes was Rs 3,50,052 crore, which was a Rs 10,800 crore decline over 2016-17. Also, the aggregate profit growth of CPSEs fell from almost 10 percent in 2016-17 to a mere 2.3 percent last fiscal. And three, the capital employed by these CPSEs continued its year on year rise in 2017-18 despite lower combined profitability growth and a massive decline in their contribution to the exchequer. The PSE Survey quoted earlier showed that the capital employed by the CPSEs increased by Rs 1,36,000 crore in a single year to Rs 22,73,969 crore (Rs 21,38,069 crore). Capital employed means the money pumped in majorly from the government (since CPSEs are at least 51% percent government owned) and this means more of the taxpayers’ money was used up for CPSEs last fiscal than the previous years.
So in effect, the number of CPSEs jumped, their profitability growth declined and their contribution to the exchequer also fell but the capital employed rose in 2017-18. This can only be bad news going forward.
Sindhu Bhattacharya is a journalist based in Delhi who writes on a range of topics in business and economy.