Wanted: A kiss of life for these unloved, dying PSUs

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26 Aug, 2025 12:21

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Shishir Asthana

Moneycontrol Research

Every year, the government comes out with an eye-watering target for disinvestment proceeds. But unfortunately the whole sell-off process has become synonymous with Life Insurance Corporation bailing out the government by acquiring the shares up for sale: In effect, money going from one of the State’s pockets to the other.

But there are companies so dire that even the insurance giant will not touch them. In such cases, the government asks the company to utilize its own cash balance to buy out the promoter, i.e. itself. Every year, by hook or by crook, the government tries to meet its divestment target from listed companies.

However, most of the basket cases are in the unlisted public sector. Many of them are bleeding so profusely that there is no alternative but to let them die. Some are loss-making but stand a chance of surviving in the competitive environment with modernisation, focused management and capital influx. In such companies divestment is not a solution; instead, the government should give away its entire stake to professional management more capable of sailing the ship.

This seems to be the reasoning behind government’s think tank Niti Aayog's recommendation of immediate strategic sales in 12 central public sector enterprises (CPSEs). Companies included in this list are National Textile Corporation, Fertilisers and Chemicals Travancore, Hindustan Antibiotics, Scooters India and Hindustan Fluorocarbons.

Most of the companies in the list are loss-making even at the operating level. Old machinery, products not aligned to market needs, lack of vision and high fixed costs are some of the reasons for the sorry state of these companies.

Take the case of National Textile Corporation with 30 operational mills and 60 closed ones. The company makes an operational loss and has been able to refurbish its existing units only by selling assets of the closed ones.

While Indian textile companies have been making a mark for themselves globally, NTC does not even have a brand of its own.

Incorporated in 1968, NTC is younger than one of the biggest private sector players, Vardhaman Textiles, that was incorporated in 1951. Yet the difference between the two companies is summed up in Vardhaman Textiles’ mission statement on the first page of its annual report. "If there is anything that 51 years of working in India’s textile sector has taught us, it is the need to keep reinventing." NTC's annual report does not carry any mission statement.

A directionless approach is written all over NTC's balance sheet. Bloated manpower, which has been a problem with most loss-making public sector units, is also an issue at NTC. Its employee cost as a percent of revenue stands at 24 percent as compared to only 7.3 percent for Vardhaman. All other factors being equal, its own manpower is taking the company down.

The other public sector companies have more or less a similar tale to narrate. To Niti Aayog's credit all the companies identified have a good potential to survive and prosper, in other hands. An aggressive management and a few harsh decisions will do the job.

Air India's example has shown that freezing recruitment is unlikely to solve the problem. Air India has for the last 18 years put a stop to hiring; as a result its average employee age is now 50 years. This is lethal for an industry where youth is an advantage both in the cabin and in understanding constantly-evolving technology.

The very fact that these companies are able to book revenue shows there is a market for their products. Internal restructuring is all that is needed to bring these companies on track, but a militant labour union might make the deal unattractive. Government will have to either clean up the companies by offering a generous VRS or assuring the new owners a smooth transition.