Hidden Strengths of Public Sector Units ( PSUs) in India – Nov 2017

PSUs in India have played a major role in building the Indian Economy and the Industrial Development in India. After the Industrial Policy of 1956, many new PSUs were created in India serving the strategic needs and forming the base for Industrial Development. In each of the PSU in the sector , the PSUs emerged as  leaders in the  sector.

After opening of the Economy in 1991 and emergence of competition, many of the leading PSU’s lost their charm and started making losses. They had lost their leadership position and became marginal in the sectors they were the leaders.

Even today, some of the units are able to maintain the market leadership and operate very successfully keeping their competitiveness alive. PSUs including the loss making ones have lot of hidden advantages and their intrinsic value is much higher than the accumulated losses and there is a good scope for turning around them.

1. Land Bank. Most of the PSUs have land banks in leading cities in India and their value far exceeds their book value. Some times, the value could be even more than 10 to 20 times of their book value. Capitalising the land bank by sale, lease and joint development will provide the required competitiveness going forward. The concepts of REIT’s and Invit’s could be explored. In case of sick units, the land bank could be capitalised, the loans repaid and there will be scope for payment of dividend and meeting employee liabilities. Some of the PSUs sitting on huge land include Railways, BSNL,MTNL and the leading Public Sector banks.
2. Assets at low historical costs. In many cases, the equipments are in operations ,even after the economic life is over. The assets are reported at historical costs. Their replacement value and market value are much higher than the value in the books. Even after incurring high maintenance expenses, still they are able to produce products which are much cheaper than others.
3. Social Infrastructure / Town Development / Social Development. The PSUs in many cases are mega enterprises. While they were being formed about one third of their investments were towards , development of town around factories, schools, colleges , hospitals. Apart from serving the commercial objectives , they also served the social and economic development objectives. They have good experience in managing townships , social infrastructure and played a key role in development of towns and communities.
4. High quality Talent. PSUs pay one of the highest salaries, in the sectors they operate today. The selection process in PSUs is very good and through competitive examination, they were able to attract very good talent. Once, they are in the system, the continuing education is given lot of importance and the personnel are deputed to attend the world renowned courses in the sector.  Whenever Private sector have requirements for high quality personnel, PSUs become the hunting ground.
5. Wide distribution network. The consumer facing PSUs have the largest distribution network in the sectors they operate. Competitiveness of an enterprise is determined by the reach a corporate has. The network can be effectively utilised for cross sale of products of other PSUs and the complementary products from other corporates. This can help to earn fee based income using the distribution network.
6. Transparent accounts. PSU accounts are subjected to audit at various levels and various stake holders are involved in close scrutiny of the operations. The accounts reflect the real financial status of companies. There is no incentive , even to hide losses.
7. Technology. PSUs are the first movers in technology adoption and in India, most of the spending on Hardware, Software and R&D happens in PSUs. As a result , they have some of the good technologies. Companies like HAL, NTPC, BHEL ,etc are known for good technologies.
8. Systems and Procedures . They have very good well defined systems and procedures. Starting from preparing a Perspective Plan, they prepare Corporate Plans and Annual Plans and budgets for many years now.
9. Engagement of leading Management Consultants. PSUs have taken the help of leading management consultants in the World, to prepare their growth strategies and they get the best inputs for preparing robust growth plans.
10. Capital expenditure. Even during the Crisis, the Capital expenditure was happening only in PSUs. Most of the mega  projects valued at thousands of crores are executed by PSUs. This also helped in maintaining the GDP growth rate.
11. Large dividends. Government being the largest shareholder or sole shareholder of PSUs, the dividend declared by PSUs has emerged as one of the major sources of revenue for the Government. The oil PSUs also pay huge taxes and help generate income for the government.
12. Government backing. They have a strong share holder, the Government, which can continue to support the new initiatives towards higher business growth.

In the light of the above, the PSUs which still have competitiveness , should draw up aggressive growth plans to preserve their competitiveness going forward in future. In others, scope for capitalising the above strengths to be explored. The PSUs having large land banks have to draw up a strategy based on capitalising the land bank without losing much time.

Considering the increased uncertainties in the Economic Environment, PSUs have a  role to play in stimulating the investments in the Economy and need to increase their competitiveness to become agile. This will happen through culture change and improving the decision making process. The response to the fast changes in the environment is the need of the hour. The best practices in Private sector in bringing good decision making process across PSUs and sharing best practices from best PSUs will go a long way in making the PSUs relevant in future.