Wednesday, February 10, 2016

What PSUs can expect from Union budget

AS FINANCE Minister Arun Jaitley is giving his final touches to Annual Union Budget, the public sector has tremendous hope pinned on the minister’s annual financial statement. One of the prime drivers of Indian economy, public sector contributes considerably for the overall growth of the economy. With the economy growing over seven percent annually, it is incumbent on the government to spell out some concrete measures...
for the benefit of the sector. Here are some points that the sector can hope for some big announcements from the Finance Minister.

Strategic sale in PSU units
The Centre might announce a comprehensive policy on strategic sale of sick PSUs. The strategic sale policy will continue next fiscal but it will be modified to suit current realities and focus on unviable units. A big-ticket disinvestment, including strategic sales in high-value companies such as Bharat Heavy Electricals Limited (BHEL), and oil and defence public sector units (PSUs) such as Oil and Natural Gas Corporation (ONGC), Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL), Bharat Petroleum Corporation (BPCL), Hindustan Aeronautics Limited (HAL) and Bharat Earth Movers Ltd (BEML) will be top priority area for the Union Minister.
To meet the fiscal deficit target, the government will rely on proceeds from disinvestment for which the budget will set ambitious targets.
A number of PSUs have already been identified as loss-making and it would be better even in terms of the Exchequer to go ahead with strategic sale in them.
A final decision on the issue is likely to be announced in the Union Budget where Finance Minister Arun Jaitley is expected to reiterate the government’s policy for strategic disinvestment.

Policy on revival of sick PSUs
The government is also likely to announce a comprehensive package for the revival or closure of loss making PSUs. The government has already begun the process of closing down sick PSUs such as three unviable units of HMT, including the once popular HMT Watches, along with HMT Chinar Watches and HMT Bearings.
The Department of Public Enterprises — the nodal agency for all central PSUs – already has in place a list of loss-making firms that are close to six dozen.

Selling of sick PSUs 
There may be an announcement on a roadmap to sell off loss-making public sector undertakings, which are lying idle, to generate revenues for 2015-16. The list of PSUs to be privatised will be shortlisted soon, and a plan about which ones to be taken up in the first stage is being finalised.

Privatisation of sick PSUs
The government has already made it clear that it will shut some of the sick PSUs that are no longer sustainable. But the finance minister has also expressed readiness to look at privatisation of some loss-making public sector companies. Will he spell out some concrete measures? For this we have to wait till Feb 29.

Bailing out sick PSUs
But the biggest question in everybody’s mind is will the government announce any bailout package for the sick PSUs? Former NTPC chairman Arup Roy Choudhury committee advocated involvement of some profit-making central public sector undertakings (CPSEs) in aiding the revival of the sick ones.
However, that thin hope now seems to have fizzled out with the cash-rich PSUs showing unwillingness to spend money in reviving their sick brethren.
The report has already been submitted to the ministries of public enterprise and heavy industries.
Now, after the report was submitted, the revival package outlined by the Arup Roy Choudhury committee hangs in balance since the latter are not keen on extending any such lifeline.

Pay Commission recommendations
On expenditure side, the big outgo will be due to the implementation of the 7th Central Pay Commission recommendations for pay and pension hikes with effect from January 1 this year. This will also impact employees of the PSUs.
The government has decided, according to The Hindu, to announce hikes slightly more generous than the Commission’s recommendations. The payouts that will begin from April 1 will include arrears for three months. More than Rs. 1 lakh crore has been budgeted under the head.
Although this payout has turned out to be the biggest challenge for the Finance Minister in meeting the fiscal deficit target, the source said “full effort is [on] to ensure there are no further pauses in the committed fiscal consolidation targets.”
Jaitley, who was the first Disinvestment Minister in the Atal Bihari Vajpayee-led NDA, proposes to unveil in his budget speech a two-year road map for three types of sales of government stake in PSUs.
He may outline a plan for winding up loss-making units, including rules for the disposal of their assets and land. Passage next month of the new bankruptcy code by Parliament during the budget session, it is expected, will aid these sales.

Listing of profit making PSUs
There might be a big announcement about possible listing of profitable PSUs on stock exchanges through public sales of shares.
The government will invite global companies to bid for its stakes in such companies with the aim of inducting cutting edge technology and improving corporate governance in them.

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