Though there are no corresponding entries in the government’s books, in the three years that Narendra Modi has been in charge, he has effectively privatised a bit more than a fourth of the country’s PSU network, both for banks as well as non-banks. And while there have been no howls of protest from the Left and other pseudo-Left parties like the Congress, there has been none of the usual gushy praise from the country’s pink press either, the usual votary of privatisation. That’s because, while real privatisation involves putting unproductive or less-productive public sector assets in the hands of the private sector in the hope of a turnaround—witness what Anil Agarwal did for Hindustan Zinc—not resolving the problems of PSU banks and non-banks has simply eroded their market capitalisation further.

In the case of PSU banks, it fell from 54% of the market capitalisation of all banks in May 2009 when UPA-2 took charge, to 43% in May 2014 when Modi came in, to 31% today; in the case of non-banks, it fell from 31% to 22% to 16%, respectively. How soon the government will come up with a workable solution to resolving the NPA problem of PSU banks—critical to their valuation rising—is unclear, but the fact that an insolvency code has been legislated means it should be easier to remove defaulter-promoters. The real issue, of how bankers are to get the confidence that their decisions on haircuts are not open to review by CBI/CVC/CAG or the courts, is what the government needs to address.

The problem is not restricted to just banks. With PSUs not having as many incentives to perform as the private sector, and the fact that they have too many unreasonable constraints—that go beyond the 3Cs—means they are often competing with both their hands tied behind their back. So, while a private company can simply award a contract to the best supplier, a PSU must tender it out—in the case of BSNL, this column has reported, the PSU saw the courts ordering cancellation of its tender for new cellular lines several times; not surprisingly, private players like Bharti Airtel beat the capacity-starved PSU in even rural areas more than a decade ago.

The amazing lengths to which this PSUs-are-an-arm-of-the-state policy has gone is best highlighted by a story in The Indian Express last week which said the law ministry had, based on various high court and Supreme Court rulings, opined that campus recruitments by PSUs could be viewed as unconstitutional and discriminatory since this gives an advantage to those in the colleges the PSUs recruit from! The flip-side of this is, with lifetime employment more or less guaranteed, there is a tendency to be complacent among PSU staff—so, despite its market share becoming almost non-existent, MTNL still has a huge staff of around 32,000 people and a wage bill that is 75% of its turnover against an industry norm of 5%. If this ratio, in the case of BSNL which has a larger market-share, is 41%, it is not clear how merging the two PSUs will help, but that is what the government is hell bent on.

Despite this, many will argue, PSUs remain profitable—even after taking into account losses of Rs 28,756 crore, central PSUs made an overall profit of Rs 115,767 crore in FY16. Almost 18% of this profit, however, comes from the coal sector where there is no private competition; 23% came from petroleum where PSUs like ONGC either got the best acreages or like GAIL/IOC/HPCL/BPCL have quasi-monopolies on distribution. Indeed, a CAG report pointed out that, in FY15, 11 of 34 listed PSUs had an interest cover of less than one, as did 67of the 124 unlisted ones—this makes their revival almost impossible.

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Hindustan Photo Films, one of these PSUs, has 352 employees, and keeping it alive has meant its losses going up from Rs 1,561 crore in FY13 to Rs 2,528 crore in FY16. Not surprisingly, in terms of market capitalisation, that of PSUs rose a mere 8% in the last three years versus a whopping 58% for non-PSUs. Since most of the problems—like courts viewing PSUs as an arm of the state or chronic over-employment and under-performance—aren’t really addressable, prime minister Modi’s only option is to either sell them or shut them.

A big reason for the delay in both, the unofficial explanation is, that records were not available—in the case of the Ashoka Hotel in the capital, it is well-known, when the Vajpayee government tried to sell it, it found it didn’t have the title deeds to the land. But now that this spadework has been done, can we expect FY18 to be the year of the great PSU cleanup? Selling small stakes in listed PSUs or listing profitable PSUs, as is being contemplated, certainly brings in the cash, but disguises the real problem. Had PSUs performed like their private sector counterparts over the past three years, keep in mind, their market capitalisation would have been Rs 30.6 lakh crore instead of Rs 20.7 lakh crore.