State PSUs… Zombieland Of Taxpayer Monies

Tax payers of India own the largest number of failed and flailing enterprises. The saga of Air India, BSNL et al is known. What is less known is the state of State PSEs which lose over Rs 215 crore every day.

Shankkar Aiyar |

July 30 2019, 12:51 PM| BloombergQuintOpinion|

No of PSEs: 1309. No of Working PSEs: 989. No of Accounts Filed: 570. Annual Profits: $ 2.5 bn. Losses: $14.06 bn. Accumulated Losses: $55.2 bn. Outstanding Loans: $108.5 bn.

It could well be a factoid fit for Ripley’s Believe It or Not. India’s taxpayers own the largest number of failed and flailing enterprises anywhere in the world. The saga of MTNL, BSNL, Air India et al is known. What is less known is the state of state enterprises. Public sector enterprises owned by states across the country represent tombstones of failure, a Zombieland of taxpayer monies.

Earlier this month the Comptroller and Auditor General of India presented an audit report on the state of state enterprises in West Bengal. The state owns 92 public sector enterprises of which 73 are working. Of these only 33 had finalised accounts for 2016–17 — every second working PSU failed to finalise their accounts. Of the 33 which did file accounts, 21 had earned a profit of Rs 621.59 crore. The CAG report states “Analysis of investment and accumulated losses disclosed that in respect of 30 working PSUs, their entire net worth had been eroded. The total accumulated loss of these PSUs was Rs 9,026.60 crore against their paid-up capital of Rs 1,717.68 crore.”

Known And Unknown Losses

If this looks bad consider Bihar. The state of Bihar owns 74 public sector enterprises. Of these only 30 are working and 44 are not working. Of these 30 functional entities, only 18 enterprises managed to finalise their accounts — 11 have reported a profit of Rs 278.18 crore and seven have incurred losses.

The losses of Bihar’s PSEs at Rs 1,437.93 crore are nearly five times the profits and accumulated losses amount to Rs 11715.65 crore. This though is not the whole picture yet as 56 of the entities are yet to file final accounts and the pendency dates back to 1977–78. Ergo the total loss simply cannot be established.

It would be seductive to believe that this is just another instance typical in Bihar. The state of affairs in Uttar Pradesh, its neighbour on the Gangetic plains, is worse. The Uttar Pradesh government owns 103 public sector enterprises of which only 57 are working. The score sheet merits attention — 17 of the entities had notched losses of Rs 19,299.56 crore. The accumulated losses of all the entities are Rs 66,638.34 crore and the outstanding debt/loan is Rs 87,187.34 crore. And yes this is only half the story as the 63 of the PSUs had not finalised their accounts — some since 1981–82.

The rot is spread across the states. India’s states own 1,309 public sector enterprises of which 989 are deemed working. The data reveals a horrifying story. Analysis of data on 19 states shows there isn’t a single state where the profits earned by PSUs are more than the losses registered.

The quantum of losses incurred by states’ public enterprises was Rs 97,078.61 crore — which is nearly three times that of central PSUs — and the profits earned were Rs 17537.38 crore. Translated, the state enterprises were losing five rupees against every rupee they earned as profit.

Net of profits, the state PSUs lost Rs 79,541 crore or roughly Rs 218 crore per day — that is more than what the central government will spend this year on providing income support to farmers or what it has allocated for rural employment under MGNREGS. The outstanding loans of the entities is nearly of the entities is nearly Rs 7.5 lakh crore and state governments were sitting on losses of Rs 3.81 lakh crore accumulated by the public enterprises.

History Of Rot

It is not that the rot set in overnight. The political class has allowed the stench to pervade over years. Take the case of Punjab where accumulated losses shot up from Rs 5,011 crore to Rs 9,343 crore in five years and outstanding loans/debt rose four-fold from Rs 12,839 crore to Rs 52,899 crore between 2012 and 2017. In the case of Rajasthan, accumulated losses doubled from Rs 50,951 crore to Rs 1,01,241 crore. Industrialised states, despite a thriving ecosystem, too failed to stem the slide — Tamil Nadu saw accumulated losses double from Rs 38,233 crore to Rs 78,854 crore and Maharashtra from Rs 11,219 crore to Rs 36,770 crore in the same period.

One of the measures of determining the efficiency of any commercial entity is the return on investment. How are the state enterprises faring against this measure? The return on investment of Bihar’s PSUs works out to a negative 6.14 percent. In Uttar Pradesh, the PSUs delivered an average return on investment of negative 19 percent.

Madhya Pradesh and Punjab recorded an RoI of 0.88 percent and and 0.42 percent. Accumulated losses had eroded the net worth of PSUs in many states — 30 in West Bengal, 19 in Rajasthan, 15 in Assam, 11 in Gujarat and nine in Andhra Pradesh.

Juxtapose this with the cost of capital, states on an average borrow at rates between 6.5 percent and 8.5 percent — imagine the opportunity cost of precious capital. A common element across states is the burgeoning losses in the power sector — thanks to the prevalence of profitable politics over cost-sensitive economics.

In Andhra Pradesh, the losses in the power sector “accounted for 99.54 percent of the total losses” incurred by the working PSEs in 2016–17. In Assam and Rajasthan, losses eroded the net worth of power companies. In Uttar Pradesh, three power companies lost Rs 16,542 crore. In Maharashtra, two distribution arms lost Rs 19,103 crore. In Madhya Pradesh and Tamil Nadu power companies added over Rs 5,000 crore to the tally of losses.

Crisis Of Governance

The state of rot in public sector enterprises illustrates the magnitude of waste and the crisis of governance across states. The non-filing of finalised accounts is symptomatic of the level of apathy. The Companies Act 2013 stipulates that the annual financial statements of companies are to be finalised within six months from the end of the financial year.

Failure to finalise accounts is punishable with imprisonment of officers of the defaulting company and fine of between Rs 50,000 and Rs 5 lakh. In 2016–17, only two of 21 PSUs in Chhattisgarh finalised their accounts. The law, it is said, does not make any distinction of ownership — could a private company escape attention and punitive action?

There is systemic sloth and there is political perversity. Administrative ministries and departments are required to finalise and file accounts on the floor of the state legislatures. These are then available to be scrutinised by elected members and committees such as the Public Accounts Committee to ensure accountability and outcome realisation of public expenditure. But laws have to be enforced.

Such is the level of systemic insolence that nearly half the enterprises defined as working ones do not finalise their accounts. What is even more telling that repeated strictures from a constitutional authority such as the CAG have failed to nudge embarrassment or even fear. Indeed, given the intransigence of state governments in 2017, the Comptroller and Auditor General was forced to deploy in innovation in audit — it used a matrix of filings in the previous three years to derive the state of the enterprises.

Waste Of Public Wealth

The state of state PSUs is a scandal that scarcely makes it to national headlines or finds a toe-hold in the national narrative. It rarely finds mention in Parliament or even in state legislatures.

The trouble with socialism, it is often said, is that governments eventually run out of other people’s money. The maxim, once popularised by Margaret Thatcher, has been successfully challenged and laid low in India. State governments have successfully found ways and means to keep a political shibboleth alive with deficit and debt.

In an economy struggling to balance budgets, it is incredible to find the system inured to gargantuan wastage. In a few weeks, the 15th Finance Commission is expected to finalise its report on division and allocation of national resources. Already 25 of 29 states have submitted petitions seeking at least 50 percent of the divisible pool be allocated to the states. The rationale is the phenomenon of rising expenditure — of loan waivers, social programmes, and income support interventions. What remains unstated and camouflaged is the wastage of capital and erosion of national resources.

The sloth is reflected in the macroeconomic data for states. In the ten-year period between 2010 and 2019, the non-development expenditure of states has gone up from Rs 3.5 lakh crore to Rs 9.8 lakh crore and outstanding liabilities have shot up from Rs 18.2 lakh crore to Rs 45.4 lakh crore.

The Indian taxpayer is not a constituency for the political class — it is merely the revenue centre. It would be futile to expect an Avenger or a Justice League to emerge from the political firmament.

The only hope is that the Finance Commission — the only apolitical platform with monetary muscle — will induct efficiency in its recommendations to enforce fiscal discipline on the states. The right to a share of entitlements must be linked to the obligation of outcomes. It is time the alibi street passing through the ghetto of profligate politics is shut down to ensure accountability for public wealth.

Shankkar Aiyar, political-economy analyst, is the author of Aadhaar: A Biometric History of India’s 12-Digit Revolution; and Accidental India.

You can email him at and follow him on Twitter. Previous columns can be found at Thought Capital. This column was first published here.



Journalist-Analyst. Author of ‘Accidental India, ‘Áadhaar: A Biometric History’ and ‘The Gated Republic’. Studying how politics rules the economics of people!

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Shankkar Aiyar

Journalist-Analyst. Author of ‘Accidental India, ‘Áadhaar: A Biometric History’ and ‘The Gated Republic’. Studying how politics rules the economics of people!