Dimensions and Methods of
UNIT 11 APPRAISAL OF PUBLIC Evaluating Enterprises Performance ENTERPRISE PERFORMANCE-II Objectives After going through this unit you should be able to:
• • •
Evaluate the performance of state level public enterprises; Learn about the growth, investment and financial status of SLPEs; Get acquainted with performance of state electricity boards, railways, ports, postal system and transport.
Structure 11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8 11.9 11.10 11.11 11.12
11.1
Role of State Level Public Enterprises Growth of State Level Public Enterprises Investment in SLPEs Financial Performance of SLPEs Performance of State Electricity Boards Performance of Transport Sector Performance Evaluation of the Postal System Performance of Ports Performance Evaluation of Railways Summary Self Assessment Questions References and Further Readings
ROLE OF STATE LEVEL PUBLIC ENTERPRISES
Public Enterprise System in our mixed economic system has been considered as an engine of development. It has a pivotal role to play in the attainment of the national objectives and the establishment of a socialistic pattern of society .The pre-eminent role for the Public Enterprises was assigned in the Industrial Policy Resolution, first enunciated in the year 1948. Eight years later, in 1956, a comprehensive policy document on Industrial Policy was adopted. Till date, inspite of certain changes in accent, the Industrial Policy Resolution of 1956, continues to be the cornerstone of the nation’s industrial policy. Unlike in the west, where the public sector has developed in phases, the public enterprises in India, particularly the Central Government Public Enterprises, are a result of a deliberate policy. Under this policy, all industries in strategic areas, and in the nature of public services, were reserved for the public sector. This policy also envisaged a “commanding role” for the state in certain other industries, while leaving the initiative to the private sector for the rest. But, it is not clear as to why the state governments are lagging behind in starting these major enterprises. In fact, most of the Central Public Enterprises were created with reference to this policy. In the case of SLPEs there is no such policy base. However, even given this constraint, there is room for the State Government to indicate its preference between the public and private sectors. Quite interestingly, in spite of differing political views of the various State Governments, one does not see the growth or reduction of the public enterprises as a direct result of political philosophy. 1
Public Enterprise: Need for SLPEs Performance and Evaluation
As already indicated, the Industrial Policy Resolution of 1956 continues to form the basis of public sector policy of the Government of India. It envisages them to play the role of nation building and the establishment of an egalitarian society. This ideological commitment can be realised more through the role of the State Level Public Enterprises (SLPEs). Public enterprises are the tested instruments for the socioeconomic development of any region. Balanced Regional Development has been the core consideration in the Industrial Policy Resolutions of the Government of India. This statement of Balanced Regional Development by the centre is a sort of a paternalistic overlord approach to issues and an effort of coordination in order to arrive at uniformity in development devoid of pragmatism. It is actually the Regional Development, balanced or not, that is the main concern of every state government, which is committed to its region and naturally interested in its development. An overview approach of Balanced Regional Development at best can be used only as a political lever to acquire control over the regions and influence the voters. All regions cannot develop equally, nor can the rate of development of the already developed regions be suppressed. All that can be done is to speed up the rate of development of the underdeveloped regions so as to raise them to the socio-economic standards conceived as a necessary minimum. The relationship between Public Enterprises and the regional development is that the former is an important agency of planned development and the latter is an important aspect of such development. Identifying the backward region means, infact identifying the locations for public investment, for no entrepreneur would willingly volunteer to invest in those regions. In such cases, it becomes inevitable for the Government to step in solely or through major participation by the Government in conjunction with private enterprises. The latter, thus, has a restricted or no opportunity in those fields and the prospect of regional development, depends on the floating of Public Enterprises. Since the economic activities, so nearly reserved for the state, are basic in stimulating regional development, SLPEs become pivotal as an agency. The state as a region for development assessment becomes relevant because of two main reasons. Firstly, statistical evidence, to the extent available is more reliably available in terms of states. Secondly, the states happen to be important Administrative Units for effectuating several programmes of development. Wide regions within state, whose level of economic prosperity is perceptibly poorer than else where in the same state, have the same significance of a problem as the underdeveloped states vis-à-vis the country. In terms of economic development through industrialization, contribution to the state could be from either the private sector or public sector or both. It is not logical, however, to conclude that where public sector was non-existent, Private sector must have had a hey-day or vice-versa. Industrialization of any region depends on the entrepreneurial bent of mind of the people of that region, risk taking capacity of the people and availability and easy accessibility to either raw material or the infrastructure for starting industries. The cultural background of the region also has an influence on this aspect. If outside capital is invited, there is always an apprehension that the profits may be taken away by those entrepreneurs for their use elsewhere, while at the same time, the very industrial activity in the state by anyone will produce certain other advantages like employment opportunities a number of ancillaries coming up and the whole thing accelerating more and more economic development. But for some reason if outside private investment is not encouraged and if local private investment is not forthcoming, then it becomes, the responsibility of the state Government to step into the field. It is also possible that the private entrepreneur may opt for a location of his choice and not necessarily a place which is backward and needs to be developed. Under 2such circumstances, it becomes the responsibility of the Government to exercise
Dimensions and Methods some sort of regulatory control, so that the industry is steered to a specified location.of Evaluating Enterprises Alternately, the government may adopt a more positive stance and offer various Performance incentives to encourage industrialization at places, so earmarked. The government, therefore, has to play its part in different ways through different instruments at different times. Regulation of Industries Act 1951 and licensing procedures are tools for this purpose. While the licensing issuing authority is the central government, processing of the applications is done by the state government. The state government’s opinion in this respect, therefore, carries considerable weight. However, the extent to which the state may succeed depends on its political relationship with the central government and the encouragement and guidelines given by the central government with regard to the state. But the very basis for all these is the Industrial Policy Resolution of 1948 which was revised and restated in 1956 and the subsequent modified statements.
The state government has a set of corporate reasons for entering into and encouraging Public Enterprises, some initiated by the Central Government constituting the Central Sector and the rest initiated by the state itself as state sector. In fact, Public Enterprises in India operate at the three levels of administration: central, state and municipal (or local bodies). The need for setting up SLPEs according to S. D. Sharma are: a) Development of basic infrastructure such as the construction of roads and bridges, the provision of electricity for the industry and for irrigation for agriculture; b) Exploitation of local resources and entrepreneurship; c) Promotion of balanced regional development; d) Upliftment of weaker sections of society such as the Harijans and Girijan society in general in the form of adequate efficient and economic road transport; e) Setting up of manufacturing corporations to take over and revive sick industrial units; f)
Improving the health of citizens by the provision of safe potable water;
g) Provision of shelter to the needy; h) Protection of the agriculturists and the consumer from the middle men. From the above it is evident that social purpose is the main need for the setting up of SLPEs. Policy Determinants in SLPEs The first link in the development of SLPEs is to examine whether State Government has a clearly defined policy. Unlike private enterprises the establishment of SLPEs is not a market phenomenon but the outcome of deliberate policy measures. This necessarily implies that the State Government has enunciated clear policies on SLPEs defining the objectives to be fulfilled. The objectives can be both commercial and social. But a policy approach facilitates the definition of objectives in order to demarcate the areas for private investment and public. Further, distinction has also to be made between areas for investment by central PEs and those reserved for SLPEs. A policy is not a once-for-all document but subject to regular scrutiny and changes. The formulation of policy is not within a vacuum. It is the outcome of economic, social and political development in each state. State Government has a major advantage over the centre in being closer to the society. This advantage enables a quick recognition of the problems likely to come up and also the ability to tackle the problems more effectively. A policy approach can, therefore, be divided into shortterm policies and long term policies. Long term policies identify the means to achieve 3
Public Enterprise: this vision. The relationship between the two time policies is symbolic, where Performance and not Evaluation flexibility does mean generality. Clearly defined policies enumerate the objectives of SLPEs, policies and objectives are, however, not the same thing. Policy is broadbased and general but not ambiguous while objectives are specific and clear .The difference between policy and objectives has often led to confusion in assessing SLPEs.
While formulating the policies and objectives of PEs the following considerations are relevant: a) They should have a demonstrable link with the socio-economic mission which lead to the creation of the enterprise and / or other officially declared policies of the Government; b) They should be laid down clearly and communicated to the enterprise by the Government in writing and not unofficially or informally; c) They should be compatible with the basic socio-economic mission of the enterprise; and d) If the basic mission of the enterprise is predominantly social and is likely to make the enterprise financially unviable, this should be specifically recognised and provided for and the trade-off between social benefits and financial inviability delimited. Objectives of SLPEs The Central Public Enterprises have been set up in pursuance of an explicit public policy (Industrial Policy Resolution, 1956) to occupy the commanding heights of the economy, to fill the gaps in areas critical for the development of the country and provide wherewithal to finance its planned economic growth. The SPLEs owe their existence not so much to a coherent policy as to historical factors and pragmatic adjustments to demands of the environment. A large number of the SLPEs came into being on account of historical necessity, in that, the erstwhile princely states were owning them prior to the formation of the present states of the Indian Union. Some of the SLPEs were born on account of the decisions of the State Governments to wind up their departmental economic activities and instead organise them in the form of Public Enterprises so as to increase their commercial competence. A large number of these enterprises were set up as public organisation to take advantage of the funding from the financial institutions and development banks. These institutions as a policy measure do not extend financial support to the government departments. Many SLPEs were setup in pursuance of the enactment’s legislated by the central government to make the states of the union partners in propelling such activities, on the one hand, and evolving a uniform framework for the control and implementation of policies with respect to such sectors, on the other. Examples are Agro Development Corporation and Fisheries Corporation. Another type of SLPEs in this category is the Welfare Corporations, which have come up almost in all the states following the all-India pattern. Finally, a considerable chunk of the SLPEs have come into being on account of the decisions of the various state governments to assume the entrepreneurial responsibilities to commercially exploit certain local resources or to seed the industrial growth in some backward areas. Control of inflation, equitable distribution of scarce commodities, mopping up of monopoly profits, creation of job opportunities, exploitation of local resources extension of balancing facilities and intermediate inputs and raising of revenues have weighed heavily in favour of this entrepreneurial role. To sum up, there have been some very specific reasons responsible for establishing the SLPEs. The performance of these enterprises could be judged in terms of indicators having appropriate linkages with their objectives. 4
Dimensions andfor Methods Thus, SLPEs, except the Electricity Boards are smaller companies set up entirelyof Evaluating Enterprises different purposes. The growth of the SLPEs is the result of a mix of socio-ecomonic Performance and political reasons. The major ones are as follows:
a) To obtain external funds from the financial institutions and other agencies; b) To maintain control over the natural resources of the state and generate funds through exploitation of these resources. This has led to the formation of corporation in the areas like forests, minerals and fisheries; c) To intervene in some sectors to ensure availability of inputs and remunerative prices for products in the agricultural sector; d) To provide credit at reasonable rate without exploitative elements, which does not rule out due returns on investment; e) To develop an entrepreneurial class in the state; f)
To take over sick units and check unemployment;
g) To promote industrial development; h) To spin-off new companies from existing enterprises whenever new projects were conceived. This was done partly on the insistence of the financial institutions which were willing to loan further sums to a newly formed subsidiary company rather than to the existing loss making corporation; i)
To satisfy the political pressure groups and lobbies;
j)
To decentralise some of the corporate activities. For example, some State Governments have further broken up the Industrial development Corporations into Regional development Corporations;
k) To ensure administrative convenience as corporate form provides flexibility in management of resources; and l)
To create lucrative positions to accommodate politicians, administrators etc.
Classification of SLPEs Classification: The classification of the SLPEs is an onerous task. Their widely differing nature lack of commonality in objectives and disparate origins are the major contributory factors to the complexity of the task. Some efforts have been made to classify the enterprises. The State Bureau of Public Enterprises in Andhra Pradesh. Karnataka, Rajasthan, Kerala and Tamil Nadu, classify their enterprises in various categories. The classification of the SLPEs in Andhra Pradesh has undergone changes from departmental basis to the nature of activity basis. In the case of Karnataka and Tamil Nadu, the classification of the SLPEs has been attempted on the central pattern wherein the enterprises have been divided into two major categories: i) ii)
Enterprises producing goods and services, and Enterprises engaged in trading and marketing.
In Rajasthan, the SLPEs have been categorised in terms of the form of organisations. The Capoor Committee Report on the SLPEs suggested a thirteen fold activity classification. The academic research on SLPEs has adopted the classification followed by the Central Bureau of Public Enterprises. Any effort to classify the SLPEs should have in the backdrop, the motive or objectives for making such an attempt. The purposes for classifying the SLPEs may range from suggesting the rate of return and the extent of subsidy to understanding their organisation and evolving of appropriate control structures. In each case the approach to the classification matrix will be different. As far as the rate of return is concerned, it seems appropriate to classify the SLPEs in the five-fold divisions. The Standing Group of Management of Public Enterprises in the state, which submitted its 5 Report in 1978, classified SLPEs into thirteen groups.
Public Enterprise: As state above, it is, however, possible to identify, for the sake of simplicity, the Performance and Evaluation SLPEs into five groups:
1. 2. 3. 4. 5.
Manufacturing Trading and marketing Financial Promotional Welfare
The merits of the proposed classification are many. Firstly, it keeps the basic purpose of the setting up the SLPEs in the various states at the centre of the classification system. Secondly, it presents a basis for comparing the inter-state performance of the SLPEs because of its broad based nature. Thirdly, it is very simple to understand and operate. Finally, it takes fully into consideration, the “Public” and “enterprises” elements of the SLPEs by dividing them into appropriate categories in terms of the precedence of one element over the other. On priority considerations one could expect that as we go down the classification hierarchy, the component of commercial objectives keeps reducing while the social objectives keeps increasing. Broadly the classification suggest that the enterprises involved in manufacture of products come under manufacturing sector .The enterprises like Handloom Development Corporations and Handicrafts Corporations can be brought under trading and marketing enterprises. The enterprises like Industrial Development Corporations and State Finance Corporations can be classified as financing institutions whereas enterprises such as Small Scale Industries Development Corporations, Mineral Development Corporations and Fisheries Development Corporations can be classified as promotional enterprises. The welfare enterprises are those which have as their mission the task of improving the welfare of some targeted group of people or area. Backward Classes Corporations and Scheduled Castes Corporations come under this category. Typology The SLPEs, for the purpose of studying their typology, could be divided into various forms of organisations and their sectoral pattern. These enterprises have been organised in the form of departmental undertakings, statutory corporations and boards, companies registered under the Companies Act and Cooperative Societies Act and Joint Sector Companies. The company form of organisation regulated by the Companies Act, 1956 dominated the scene. By 1977, almost 70 per cent of the SLPEs had the status of companies registered under the Companies Act. Approximately, 15 per cent of the enterprises are statutory corporations and the rest cooperatives and other societies. The departmental enterprises constituted a little less than 10 per cent of the total number of 588 SPLEs. In 1987, the percentage of government companies increased to 80 per cent. The statutory corporations and boards constituted 10 per cent of the total number of SLPEs. The departmental enterprises were reduced to 3 per cent of the total number of SLPEs. This shows that the State Governments, in principle recognised the need for greater autonomy to the SLPEs. The elimination of the departmental enterprises in Orissa and Bihar illustrates this case. The tendency to register the SLPEs under the cooperative societies act is gaining momentum in the agriculture related industries and welfare sector. The reason is not too far to seek. The SLPEs under this category besides discharging an economic activity, have to enlist the people’s cooperation in fulfilling their objectives. The sectorial pattern of the State Level Public Enterprises in India reveals that these enterprises are engaged in variety of activities ranging from industrial development 6and financial promotion, trading and marketing, contract and construction services,
Dimensions consumer goods, engineering goods, development of backward regionsand and Methods weaker of Evaluating Enterprises sections of the society to agro-industries, minerals and metals, development of small Performance industries, and tourism. As on March 31,1986 the top five sectors in terms of number of the SLPEs, barring the other enterprises, were agro-based industries, engineering industry, trading and marketing, industrial development and financial promotion and consumer goods. These categories of enterprises had a lion’s share in the investment of all the SLPEs in the country and represented nearly sixty per cent of the total investment in the SLPEs.
Coverage and features of SLPEs There are some important features of the SLPEs in the country with a little or no difference between one state and the other as considered below: i)
Novelty of State in Business: Public utilities in the field of electricity and road transport are the first state enterprises in almost all the states. State governments have entered into business more or less for the first time in a number of new fields, e.g., ceramic, alcohol manufacturing, handicraft and life insurance. Other examples are the manufacture of sugar, chemicals, fertilizers and minerals. Thus, all these are activities which are new to the state government and to their administration.
ii)
Size of the Enterprises: State Electricity Boards and State Road Transport Corporations are large in terms of their area of operation, investment and number of people involved. There are also few major SLPEs which are comparatively little smaller than Electricity Boards and Road Transport Corporations in size, investment etc. belonging to other areas of operation like coal, minerals, cement etc.
iii) Period of Establishment: A large number of SLPEs have been established over a short period. This, combined with the novelty of the enterprises, the nature and extent of problems of organisation and management of SLPEs have attracted the attention of the state government and legislatures during the last one and half decades. Barring public utilities and a few other major enterprises (for historical reasons), most of them were established during the sixties. In the seventies they were multiplied. Perhaps, this is also a special feature of PEs organised by the Central Government. iv) Interface with the Government: Because of closer relationship with the state administration the SLPEs and their management’s are bound to be influenced by the Government in ways different from the rest of industrial and commercial activities of the country. They are influenced directly by the policy of the state government and sometimes also by the policy of the central government. Besides the formal Industrial Policy, legislature enactment’s and the Resolutions of the government of India the state government influences directly the operational policy of these enterprises in such matters as appointments, pricing, location, expansion, distribution and helping certain sections of the society. Thus, in implementing the government policy certain social and political implications are involved. v) Financing Pattern of Enterprises: SLPEs get finances including working capital not only from the state government but also from different sources in the equity capital as given below: i)
they have finances of central government and state government in a few enterprises; ii) they have finances from public with majority state government capital; iii) they have state government investment and other PE’s investment; and iv) there are few SLPEs where there is more than one state’s investment involved. Loan capital is also obtained by these enterprises from state government public and various other institutions.
7
Public Enterprise: for Autonomous Corporations: One of the interesting features of vi) Preference Performance Evaluation SLPEs and is that in quite a number of cases activities performed by Government Departments were entrusted to new autonomous corporations. This was done in order to take advantage of the financial facilities which would not have been otherwise available as, financial institutions do not lend to departmental enterprises. Therefore, quite a few departmental activities were transferred to autonomous SLPEs. This is a special feature of SLPEs. Unlike the Central Government enterprises, the financing of SLPEs is done to a large extent, both in terms of equity and loan through institution funds.
vii) Bureaucratic Dominance: For management of their enterprises, state governments have to depend largely on their own civil service cadres particularly at the middle and higher levels. The increase in the number of SLPEs, the expansion of their activities, and paucity of managers increased this dependence. However, as there is no clear and well-defined policy for the development of managerial cadres, most of the SLPEs have gone outside the Government for technical personnel at different levels. It may be mentioned that for the middle and lower level posts, most of the staff is recruited by the enterprises themselves. The top levels are manned mostly by deputationsists resulting in bureaucratic dominance. In respect of the middle and lower level personnel, most of the SLPEs adopted the pay structures of the state Governments. viii) Political Leverage: Appointment of ministers, MPs, MLAs / MLCs other political party leaders as chairmen or members of the Boards of these enterprises, has been an important feature in almost all the states in the country. It is alleged that the top level posts are used as berths for active and defeated politicians. ix) Development of Backward Regions: An important features of SLPEs is that some of them are intended for the development of backward regions. The State Government of course, is obliged to sponsor industrial enterprises with a view to promoting regional development in the underdeveloped areas possessing too little initiative and capital. Specifically, Industrial Development Corporations, State Financial Corporations, Small Scale Industries Development Corporations, Rural Development Corporations and Land Development Corporations are playing an important role in this regard. x) Industrial and Infrastructural Development: Rapid industrialization and creation of infrastructure all over the state is yet another major objective of the State Governments. To achieve this, State Governments have established different corporations. Industrial Infra-structure Corporations, Housing Boards Construction Corporations, Electricity Boards, Transport Corporations and Irrigation Development Corporations, are intended to create the necessary infrastructure. State Industrial Corporations, Small Scale Industrial Development Corporations, State Financial Corporations, Khadi and Village Industries Boards play an important role in industrialization of state which is an important feature of SLPEs. xi) Utilisation of Local Resources and Distributions of Essential Commodities: An important feature of the SLPEs is that they have been created for exploitation and utilisation of the locally available resources such as minerals, water, forest wealth hides and skins, fisheries, diary etc. Some states have considered that distribution of essential commodities is the state’s prime objective. Therefore, SLPEs have been established with this purpose. xii) Employment as an Objective: Creation of more employment opportunities by expanding and increasing economic activities in the state is one of the major 8 objectives of the Five Year Plans of the State Governments. The best strategy to
and Methods of create more employment is through SLPEs. Therefore, Dimensions a special feature is Evaluating Enterprises provision of employment to various sections of the society, through various Performance SLPEs in the area of rural electrification, housing, construction, mining, transport, irrigation and dairy industry.
xiii) Development of Weaker Sections of Society: In recent years, the development of the weaker sections of the society is one of the major policies of the Government. In order to achieve it, State Governments have stated a variety of SLPEs to help backward classes, scheduled castes, scheduled tribes, women and physically handicapped. Many of SLPEs are small in size. The preference is for autonomous corporations. The SLPEs conform closely to Government policies. They cater to various development requirements of the state in so many ways. It is true that they are expanding very rapidly in terms of investment and size in all the states of the country.
11.2 GROWTH OF STATE LEVEL PUBLIC ENTERPRISES Public enterprises in India function at the three levels of administration: Central, State and Municipal (or local bodies). Even though have an extensive survey and research has been conducted on the Central Public Enterprises, the enterprises pertaining to the other two categories have not been systematically examined. The Institute of Public Enterprise (IPE) at the instance of the Planning Commission is engaged in the task of developing the extensive data-base on the SLPEs. Development through SLPEs has been adopted as a policy by the State Governments in the country. Though no State government officially stated the aims and objects of this philosophy, it can be inferred that one important object is to attract funds from the financial institutions and banks to enable the states to undertake activities on a long scale. Another aim is to cut the red tape associated with Government administration and help expedite service and works. Yet another reason may be to keep the growth of these corporations on the lines of Central Enterprises. The organisations and forms of SLPEs broadly fall under the following categories: i)
Department Enterprises, like A.P. Government Text Book Press, Punjab Roadways and Government Silk Weaving Factory in Karnataka.
ii)
Government companies like the Bihar Mica Syndicate Ltd., Kerala Tourist and Handicrafts Corporation Ltd. and Haryana Dairy Development Corporation Ltd.
iii) Public Corporations and Boards like Rajasthan State Road Transport Corporation, A.P. State Financial. Corporation and Orissa State Electricity Board. iv) Companies registered under Cooperative Societies Act, like Assam State Cooperative Marketing and Consumers Federation Ltd., A.P. Women’s Cooperative Finance Corporation Ltd., Milk Producers Cooperative Ltd. in Gujarat. v) Joint ventures like Gujarat state Fertilizers Company Ltd. and Gujarat Narmada Valley Fertilizer Company. A large number of enterprises have been organised in the form of Government Companies followed by statutory corporations in almost all the states: This shows the clear-cut preference for Government companies and statutory corporations for 9 organising SLPEs.
Public There Enterprise: has been a massive growth in the number of SLPEs. From a mere 23 in the Performance and Evaluation First Plan period, the number of SLPEs shot up to 1993 during 1966-67. The number of SLPEs rose to 594 by the end of the Fifth Plan period. During the Sixth Plan period, the number of SLPEs increased to 777. During the Seventh Plan Period, the number of SLPEs further went up to 802. In terms of numbers there are approximately threefold of the Central Public Enterprises. The major expansion of Central Public Enterprises took place during 1955-65. The growth was most marked in the SLPEs during 1970-85. The Public Enterprise system substantially expanded during 1970-85 in Andhra Pradesh, Assam, Gujarat, Haryana, Himachal Pradesh, Kerala, Maharashtra, Orissa, Punjab, Bihar, Uttar Pradesh and Rajasthan. In many other states, viz. Assam, Nagaland, Mizoram, Manipur, Tripura and Arunachal Pradesh, the growth of SLPEs has been a more recent phenomenon. The State Governments have set up the SLPEs as a policy with the deliberate intention to use them, as an instrument of public policy to quicken the pace of development.
The rapid growth in the number of SLPEs in the various states has imposed a severe burden of effective management. This is visible from Table 11.1 and 11.2. Table 11.1 : State Level Public Enterprises (1990) Sl. No.
State
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27.
Assam Bihar Manipur Meghalaya Nagaland Orissa Sikkim Tripura West Bengal Atunachal Pradesh Mizoram Harayana Himachal Pradesh Jammu & Kahsmir Punjab Rajasthan Uttar Pradesh Chandigarh Delhi Andhra Pradesh Karnataka Kerala Tamil Nadu Pondicherry Gujarat Madhya Pradesh Maharashtra
25 39 6 8 6 45 1 7 40 3 1 20 14 14 45 13 83 10 5 42 46 71 68 3 37 29 45
6 18 2 5 11 4 6 4 11 8 8 1 1 4 6 3 9 11 8 11
31 57 6 10 6 50 1 7 51 3 1 24 20 18 56 21 91 11 6 46 52 74 77 3 48 37 56
28.
Goa, Daman & Diu
8
-
8
733
137
870
10
Total
Registered Companies
Statutory Bodies
Total
and Methods of Table 11.2 : Number of SLPEs in 1990-91 Dimensions and 2000-01
State
No. of SLPEs 1990-91
Evaluating Enterprises Performance 2000-01
Andhra Pradesh
46
128
Assam
43
49
Bihar
47
54
Gujarat
48
45
Haryana
21
21
Himachal Pradesh
17
20
Jammu and Kashmir
14
85
Karnataka
58
111
Kerala
92
26
Madhya Pradesh
34
65
Maharashtra
54
14
Manipur
08
72
Orissa
33
53
Punjab
36
24
Rajasthan
39
59
Tamil Nadu
45
41
Uttar Pradesh
83
82
West Bengal
51
54
Others
26
N/A
802
1003
Total
So far as the sector-wise distribution of the SLPEs is concerned, the Report of the Seventh Finance Commission (1978) had made the estimates of investments of the state governments in their enterprises separately for 3 categories, namely, financial institutions, promotional enterprises and others. This was also accepted by the subsequent Finance Commissions, namely, Report of the Eighth Finance Commission (1984) and the Report of the Ninth Finance Commission (1989). The first includes the State Financial Corporations set up under the State Financial Corporation Act, 1951 as well as enterprises held eligible for refinance facilities by the Industrial Development Bank of India. The promotional category includes enterprises which are engaged mainly in promoting the development and other industries of all regions through providing infrastructural facilities, financial and managerial assistance, technical know-how etc. as well as through works of development for backward areas or other weaker sections of the population. This category, therefore, includes Small Industries Development Corporations, Industrial Development Corporations, Handicrafts and Handloom Development Corporations, etc. A statement giving the state-wise breakup of enterprises is given in Table 11.3. It is under the 3 categories 11 as mentioned above.
Public Table Enterprise: 11.3 : Break–up of State Level Public Enterprises under Three Categories Performance Evaluation (other thanand State Electricity Board and State Road Transport Corporations)
State
Financial
Promotional
Andhra Pradesh
4
10
38
52
Arunachal Pradesh
1
1
-
2
Assam
2
7
25
34
Bihar
4
8
26
38
Goa
1
2
4
7
Gujarat
3
8
28
39
Haryana
5
10
9
24
Himachal Pradesh
1
6
8
15
Jammu and Kashmir
3
5
10
18
12
11
54
77
Kerala
6
12
68
86
Madhya Pradesh
5
6
22
33
Maharashtra
2
15
25
42
Manipur
2
3
3
8
Meghalaya
1
3
5
9
Mijoram
1
1
2
4
Nagaland
1
3
7
11
Orissa
3
8
65
76
Punjab
2
11
14
27
Rajasthan
4
5
26
35
Karnataka
12
Commercial
Total
Dimensions 6 and Methods 10 of Evaluating Enterprises Performance
Sikkim
2
2
Tamil Nadu
4
9
40
53
Tripura
2
3
38
43
Uttar Pradesh
5
24
32
61
West Bengal
5
12
43
58
78
186
563
827
Total
Sources: First Report of the Ninth Finance Commission 1989-90. Ministry of Finance, Department of Economic Affairs, Government of India.
There is another set of data on sector-wise distribution of the SLPEs, prepared by the SLPEs Working Group, Institute of Public Enterprises, Hyderabad shown in Table 11.4. It shows that manufacturing and promotional enterprises dominate the scene followed by trading welfare and financial enterprises. This indicates the emphasis the various state governments have placed on the entrepreneurial and promotional role of Public Enterprises. Kerala, West Bengal, Karnataka, Bihar, Assam, U.P., Gujarat, Tamil Nadu and Punjab had a maximum concentration of the SLPEs in the manufacturing group. Andhra Pradesh, Maharashtra, Manipur, Orissa and Rajasthan set up more of promotional SLPEs. Table 11.4: Sector-wise Distribution of State Level Public Enterprises in India State
Manufacturing Trading
Finance Promotional
Welfare Total
Andhra Pradesh
15
07
02
17
05
46
Assam
19
02
02
14
06
43
Bihar
20
06
04
14
03
47
Goa
04
-
-
03
01
08
Gujarat
17
06
04
16
05
48
Haryana
07
01
02
08
03
21
Himachal Pradesh
04
03
01
09
-
17
Jammu and Kashmir
05
03
02
04
-
14
Karnataka
23
12
02
16
05
58
Kerala
53
08
03
17
11
92 13
Public Enterprise: Madhya Pradesh
13
06
04
10
01
34
Performance and Evaluation
Maharashtra
12
05
03
23
11
54
Manipur
03
01
01
02
01
08
Mijoram
-
-
01
-
-
01
Orissa
10
06
03
13
01
33
Punjab
15
03
03
13
02
36
Rajasthan
14
03
02
18
02
39
Tamil Nadu
18
03
04
15
05
45
-
02
02
14
-
18
Uttar Pradesh
34
07
04
18
20
83
West Bengal
25
07
02
16
-
51
Meghalaya
03
02
01
02
-
09
317
94
53
254
82
802
Tripura
Total
Source: State wise Study Report, SLPEs working Group, Institute of Public Enterprises, Hyderabad.
11.3 INVESTMENT IN SLPEs From the above analysis it is quite clear that there has been a massive growth in the number of State Level Public Enterprises in India. Thus, it goes without saying that the SLPEs occupy a place of importance in the public enterprise in the country. They have become a vital instrument of public policy in spurring the overall economic development in all the states of the Indian Union. As a result, there has been a spectacular growth in the investment in the State Level Public Enterprises since the fifties. According to the ministry of Disinvestment, estimated total investment in State Level Public Enterprises was of the order of Rs 1,62,063 crores as on 31st March 2000. Six states, viz., Gujarat, Maharashtra, Karnataka, Uttar Pradesh, West Bengal and Punjab accounted for a total investment of Rs 1,03,084 crores, accounting for 63.6% of total investment in all SLPEs. The total investment of 19 states increased to Rs 2,52,045 crores in 2002-2003 as shown in Table 11.5. Table 11.5 : Investment in SLPEs, 2002-03 (Rs. in crores) State 14
No. of SLPEs
Estimated Total Investment
128
Dimensions 48,794 and Methods of Evaluating Enterprises 3,732 Performance
1.
Andhra Pradesh
2.
Assam
42
3.
Bihar
54
8,169
4.
Delhi
15
10,964
5.
Gujarat
50
25,758
6.
Haryana
45
443
7.
Himachal Pradesh
21
4,731
8.
Jammu and Kashmir
20
1,948
9.
Karnataka
85
27,813
111
16,429
26
7,923
12. Maharashtra
66
20,855
13. Manipur
14
81
14. Orissa
72
7,297
15. Punjab
53
13,384
16. Rajasthan
28
11,576
17. Tamil Nadu
59
6,192
18. Uttar Pradesh
41
17,773
19. West Bengal
82
18,183
1,012
2,52,045
10. Kerala 11.
Madhya Pradesh
Total
Source: Ministry of Disinvestment, 2003
The number of public sector undertakings run by the states has grown rapidly over the years. They vary widely in regard to size, activity and financial performance. The investments in SLPEs have been growing at a rate above 20 per cent during the past decade. The share capital investment of states in as many as 827 undertakings (other than State Electricity Boards and State Road Transport Corporations) is estimated at Rs. 5,164 crores at the end of 1988-89. During a period of twelve years the number of SLPEs has increased from 437 in 1976-77 to 716 in 1982-83 and finally to 837 in 1988-89, recording a growth of 66 per cent. The investment in these enterprises has grown at a higher rate and the paid up capital alone has gone up from Rs. 605 crores to Rs. 5,164 crores. The major states which have recorded a sudden massive growth in investments are Bihar (Rs. 203 crores), Assam (Rs. 60.51 crores), Gujarat (Rs. 209.25 crores), Kerala (Rs. 287 crores), Maharashtra (Rs. 386 crores), Uttar Pradesh (Rs. 1,790 crores) and West Bengal (Rs. 182 crores). The data on the SLPEs also indicate that majority of the SLPEs are involved in the manufacturing of industrial and agricultural products. As such many of them compete with the private sector companies in areas such as electronics, chemicals. Fertilizers, electrical and mechanical equipments and agricultural products. The institute of Public Enterprise (IPE), at the instance of the Planning commission, is engaged in the task of developing an extensive database on the SLPEs. As on March 31, 1986 the database includes information of the various aspects of functioning of 636 SLPEs in 24 states of the country. The investment in enterprises other than the State Electricity Boards and the State Road Transport corporations as on March 31, 1977 was on the order of Rs. 2,860 crores. The total investment rose to Rs. 10,000 crores as on March 31, 1986 while 15
Public Enterprise: inclusive of the State Electricity Boards and the State Road Transport Corporations, Performance and stood Evaluation the investment at Rs. 25,000 crores as on March 31, 1986. This shows that the investment in SLPEs other than electricity boards and road transport corporations had increased at an average growth rate of 39 per cent per annum during 1977-86. The average rate of growth of investment in the SLPEs inclusive of these two categories of enterprises was 20 per cent per annum, while the average rate of growth of investment for the central public enterprises during the this period was 30 per cent per annum. This is shown in Table 11.6.
Table 11.6 : Investment of State Governments in State Public Enterprises (Rs. in crores) 1976-77 State
No.
Share
1980-81 No. Capital
1982-83
1988-89
Share
No. Capital
Share
No. Share Capital
Capital
Andhra Pradesh
28
54
41
174
42
195.4
52
313.9
Assam
24
21
25
26
25
29.2
34
60.5
Bihar
24
18
35
62
39
76.9
38
203.0
Gujarat
19
15
36
49
37
54.8
39
209.2
Haryana
13
16
16
26
20
19.2
24
77.0
8
6
13
26
14
30.2
15
57.7
Jammu and Kashmir
10
22
14
39
14
42.7
18
66.1
Karnataka
29
57
45
180
46
2113
77
259.4
Madhya Pradesh
12
13
25
30
29
39.3
33
318.0
Maharashtra
27
66
44
127
45
139.2
42
386.0
Manipur
2
2
6
4
6
4.6
8
5.8
Maghalaya
5
7
8
12
8
12.9
9
24.7
51
44
71
149
71
171.5
86
286.9
3
6
6
5
6
5.4
11
21.3
Orissa
19
38
41
75
45
87.6
76
249.9
Punjab
22
31
41
48
45
3.2
27
178.4
Rajasthan
15
16
12
31
13
39.4
35
124.9
3
-
-
-
1
0.6
10
7.9
35
40
62
154
68
225.0
53
292.3
4
2
6
6
7
6.2
8
16.3
Uttar Pradesh
50
85
82
209
83
271.6
West Bengal
29
37
35
72
41
71.7
58
182.2
Mizoram
-
-
1
-
1
0.5
4
2.3
Arunachal Pradesh
-
-
2
1
3
1.2
2
7.0
Goa
5
1
7
3
8
8.0
7
22.8
Himachal Pradesh
Kerala Nagaland
Sikkim Tamil Nadu Tripura
Total
437
674
716
61 1790.1
837
Source: Report of the Finance Commission
Electricity Boards and the State Road Transport Corporations, the investment stood at Rs. 25,000 crores as on March 31, 1986. This shows that the investment in SLPEs 16
Dimensions and Methods other than electricity boards and roads transport corporations had increased at an of Evaluating Enterprises average growth rate of 39 per cent per annum during 1977-86. The average rate of Performance growth of investment in the SLPEs inclusive of two categories was 20 per cent per annum, while the average rate of growth of investment for the central public enterprises during this period was 30 per cent per annum.
The investment in SLPEs almost doubled over the six period under reference as shown in Table 11.7. The growth in investment was more pronounced during 198283, 1984-85 and 1986-87. This might have had a linkage with the expenditure dimensions of the planning process in India which encourages higher expenditure immediately after the opening years of the plan and during its terminal year. In terms of sectors, the manufacturing, trading and service and financial enterprises took the lead. The promotional and welfare enterprises have lagged behind. Table shows the sector-wise investment in the SLPEs during 1981-82 to 1986-87. It is evident that investment has more than doubled in SLPEs over a span of six years. The years 1984-85 being the terminal years of the Sixth Plan, was the watershed in the growth of investment. Table 11.7 : Investment in SLPEs in Different Sectors Sector
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
Manufacturing
1924.50
2431.38
3004.63
3620.00
4222.83
4299.26
Trading & services
1049.62
1264.14
1647.49
2084.74
2297.47
2547.24
Financial
1864.22
2577.11
3040.43
3680.85
4309.03
4781.42
Promotional
719.23
884.83
1121.27
1472.49
1423.79
1323.28
Welfare
568.02
729.27
918.00
1375.35
1498.96
1373.09
6125.59
7886.73
Total
9731.82 12233.43 137523.08 14324.29
Sources: SPLE Working Group, State-wise Study Report Institute of Public Enterprise (IPE), Hyderabad
As on March 31, 1986 the top five sectors in terms of numbers of the SPLEs barring the other enterprises were agro based industries, engineering industries, trading and marketing, industrial development and financial promotion and consumer goods. These categories of enterprises had a lion’s share in the total investment of SLPEs. They represented about 60 percent of investment in the SLPEs, respectively. Thus, a large number of states have given a boost to the growth of investment in the SLPEs. The states in which the investment has grown about three-fold and more during 1987-86 include Uttar Pradesh, Orissa, Bihar, Andhra Pradesh, Himachal Pradesh, Nagaland, Goa, Manipur, Tripura, Meghalaya, Pondicherry, Madhya Pradesh, Tamil Nadu and West Bengal. The states in which investment has increased almost two-fold and more are Punjab, Rajasthan, Mizoram, Jammu & Kashmir, Assam and Gujarat. There has not been an appreciable growth of investment in SLPEs in Haryana, Maharashtra and Kerala. Besides direct investment by the government there has also been a huge increase in implied subsidy to State Level Public Enterprises. 17
Public Enterprise: Implied subsidy denotes excess of subsidy enjoyed by the PSUs out of government Performance and Evaluation investment either directly or indirectly. This constitutes cash losses, fiscal benefits and a notional 15% return on the investment made by the state government in the form of equity, preference shares and accumulated reserves, if any. The summation of all – less the dividend (if any) paid back by the SLPEs to the State government constitutes implied subsidy. Thus, presence of implied subsidy means a burden on the State exchequer. Table 11.8 gives a detailed view implied subsidies to SLPEs.
Table 11.8 : Implied subsidies to SLPEs (Rs. in crore) State
Implied Subsidy
Financial/Year
Implied Subsidy
Financial Year
Bihar
99.00
(1985/6)
318.00 (1994/5)
Karnataka
175.36
(1985/6)
1339.00
Kerala
100.00
(1985/6)
498.00 (1996/7)
Madhya Pradesh
165.89
(1985/6)
1474.93
(1997/8)
Maharashtra
54.00
(1985/6)
1140.00
(1997/8)
Rajasthan
69.18
(1985/6)
1256.76
(1997/8)
West Bengal
199.00
(1985/6)
674.00 (1997/8)
(1997/8)
Source: Ministry of Disnvestment, 2002
The States Can Ill Afford to Maintain Their SLPEs In recent years in addition to the investment in the SLPEs, which have proved a drastic drain on state resources. The Governments have been forced to put in more money into running these enterprises. In six States alone, the budgetary outgo has been to the tune of Rs. 1961 crore in the year 2000-01. This amount can well be spent to health and education, which will to a long way in improving the lot of the general public. Table 11.9 illustrates how State resources are going into unproductive ends. Table 11.9 : Budgetary Outgo, Grants/Subsidies, Guarantees, Waiver of Dues and Conversion of Loans into Equity (Amount Rs. in crore) State
1999-2000
2000-01
Assam
155
92
117
Haryana
694
848
1206
1341
1717
3974
Kerala
371
269
211
Orissa
336
279
98
Karnataka
18
1998-99
West Bengal
1797
1447
Total
4694
4652
Dimensions and 2355Methods of Evaluating Enterprises Performance
7961
Source: Ministry of disinvestment, 2000
19
Public Enterprise: Performance and Evaluation
11.4 FINANCIAL PERFORMANCE OF SLPEs In the States, nearly Rs. 75,000 crore has been invested in statutory corporations and nearly Rs. 42,000 crore has been invested in the government companies. Together, investment in public enterprises amounts to about Rs. 3,50,000 crore. On this investment, the rate of return generated by the State level public enterprises is nearly zero. It is difficult to obtain a firm figure of the rate of return in the aggregate, because the State level public enterprises are heavily in arrears in finalising their accounts. Whatever accounts are available show that the rates of return of most of the PSEs of the States do not cover even a fraction of their cost of funds. Data compiled in the Planning Commission show that the average rate of return on capital invested in State Electricity Boards (SEBs) that account for the bulk of the States’ investments in PSEs has been persistently negative. Far from yielding the 3 per cent rate of return on their net fixed assets as stipulated in the Electricity (Supply) Act, 1948, the SEBs registered a negative return of 18.7 per cent on their capital in 1998-99, revealing a steady deterioration over the nineties. State road transport undertakings (SRTUs), the other major enterprise of the States, also has been a drag on their budgets. During 1997-98, the losses of all the SRTUs taken together were reported to be Rs. 1,282 crore, reflecting organisational inefficiencies on the hand and the uncompensated burden of social obligations on the other. While there has been some improvement in their physical performance of late, the loss per bus per day has increased from Rs. 425 in 1997-98 to Rs. 565 in 1998-99. In several States the SRTUs are in extremely bad shape, with the bulk of their fleet of buses off the road and employees going without pay for years. About 11,00 autonomous SLPEs in 28 states and 7 union territories, are poorly managed and most of them are making losses. The electricity boards and road transport corporations dominate the State Level PEs both in terms of investment made and number of employees. There are very few, if any, large or medium industrial enterprises in the states. SLPEs are mostly developmental and promotional and a few are financial and welfare. The table 11.10 shows a sample of 747 enterprises, with an investment of Rs 1,18,548 crore (equity Rs. 33,293 crore plus long term loan Rs. 85,255 crore). State governments prefer loan to equity to finance their enterprises as dividend earned on equity by the state government is after tax which goes to the central exchequer. The figures in respect of 577 enterprises show a profit of Rs. 1817 crore and a loss of Rs. 3,095 crore (1998-99). The state of affairs of SLPEs is reflected in a large number of enterprises not finalising their accounts within the time limit. The fact is that some enterprises never took off or became defunct after some years. Delays in finalisation of the accounts so common for SLPEs come in the way of assessing their financial health. The range of delay in Orissa is from 1-37 years, followed by Punjab (4-25 years) and Bihar (1-22 Years). 305 SLPEs, out of 747 in 12 states, had an accumulated loss of Rs. 7,534 crore, which is 2-76 times of their paid-up capital of Rs. 2,732 crore. In 2002-2003, the net accumulated loss of SLPEs of 18 states amounted to Rs 43,498 crores. There were approximated 491 loss making SLPEs and 204 non-working SLPEs out of a total of nearly 1000 SPLES.
20
Dimensions and Methods of Table 11.10 : Financial Data of SLPEs (2002-2003) Evaluating Enterprises Performance
Net Accumulated Loss (Rs. Crores)
No. of Loss-making SLPEs
Andhra Pradesh
2919
62
09
Assam
2885
36
10
Bihar
5060
12
28
Gujarat
6774
24
10
Haryana
384
10
04
Himachal Pradesh
605
13
02
Jammu & Kashmir
587
16
01
Karnatka
1888
30
07
Kerala
3510
52
13
600
08
15
Maharashtra
1775
44
18
Manipur
N/A
10
N/A
Orissa
2372
22
24
Punjab
1435
25
28
315
11
08
Tamil Nadu
N/A
33
N/A
Uttar Pradesh
5327
21
19
West Bengal
7062
62
08
State
Madhya Pradesh
Rajasthan
No. of Non-working SLPEs
Source: Ministry of Disinvestment, 2003
Most State level public enterprises are running at a loss. Therefore, they are unable to pay any dividends. State Electricity Boards and State Road Transport Undertaking are chronic drain on State budgets. The performance of Electricity Boards is critically affected by the following factors:
• • •
Structure of tariffs involving and excessive cross-subsidisation; High unit of cost of supply due to old plants and bottlenecks in availability of inputs like coal; and Technical inefficiencies resulting in high cost of generation, and sometimes camouflaged as theft.
The strategy of unbundling the SEBs into separate units looking after generation, transmission and distribution, is presently being tried out in some States. Such unbundling is possible with or without privatisation and States may select a suitable option depending on their circumstances. However, the determination of proper tariffs reflecting costs and keeping subsidisation and cross-subsidisation implicit in the tariff structure should be rationalised and kept at minimum levels. State level tariff commissions need to look at the issue of revision of electricity tariff structure keeping in perspective the interests of different categories of consumers, changes in cost structure, the functional implications for the SEBs, as also for the State governments. 21
Public Enterprise:Undertakings (STUs) are also running in losses in many States. Poor State Transport Performance Evaluation productivityand combined with subsidised tariffs, concessions, and higher share of low profit routes keep the STUs in the red. Key elements of reforms in this sector are tariff revisions in line with input costs, elimination of concessions, suitable mix of profitable with non-profitable routes, and improvement in efficiency parameters, including lowering of the staff-bus ratio.
Most other SLPEs, subject to exceptions, are in the doldrums. They need to be sold off. Closure, disinvestment of equity, merger of SLPEs operating in the same products and services where horizontal/vertical integration may lead to economies and externalities, and voluntary retirement schemes may help reduce the fiscal burden. Table 11.11 : summarises disinvestment transactions till February 2002.. Table 11.11 : Disinvestment Transactions Completed Upto February 2002 Year
No. of Companies in which Equity Sold
Target Receipt for the Year (Rs. crore)
Actual Receipts (Rs. crore)
1991-92
47
2,500
3,038
1992-93
35
2,500
1,913
1993-94
-
3,500
Nil
1994-95
13
4,000
4,843
1995-96
5
7,000
362
1996-97
1
5,000
380
1997-98
1
4,800
902
1998-99
5
5,000
5,371
1999-00
2
10,000
1,829
2000-01
4
10,000
1,870.53
2001-02
10
12,000
5,632
Source: Ministry of Dininvestment, 2002
11.5 PERFORMANCE OF STATE ELECTRICITY BOARDS Power industry in India is in the concurrent list. The responsibility lies both with the central and state government. The supply of electricity commenced in the India in the 1880s with the commissioning of a small 130 KW hydroelectric plant at Darjeeling. A thermal power plant based on coal was set up in Calcutta in 1897. Till Independence, the supply of electricity was confined mainly in and around urban centres. Most of the ventures were due to the initiatives of the private players. However, the enactment of electricity supply Act (1948) changed the scenario. This resulted in the establishment of the state Electricity Boards (SEBs). SEBs took over the operating private players and enlarged the customer base and made the electricity available to the rural areas. The SEBs generates, supply and distribute electricity within a state. The ESA – Electricity (Supply) Act, also permits them to undertake activities related to the electrical equipment business such as leasing out its generating stations, conducting investigations and granting loans to licensees. An SEB enjoys all the powers of a licensee under the Indian Electricity Act of 1910. 22
Dimensions and Methods Until 1991, only central generating companies were responsible for supplying power of Evaluating Enterprises to the grid without power of distribution. The major players are NTPC, NHPC & Performance NPCIL. Since 1991, now independent power producers (IPPs) also fall under this category. Besides SEBs & central generating companies, the power industry also includes the licensees. The licensees are private players licensed by the government to generate and supply power within an area e.g. Total Electric Company (TEC), Bombay Suburban Electric Supply Limited (BSES), Gujarat Industrial Power Corporation Ltd. (GIPCL) and Central electricity Supply Corporation (CESCO). The state government has the authority to grant licenses for 30 years, renewable for a further 20 years after the expiry of the renewal or license.
Performance of SEBs in generating capacity has been quite reasonable. The installed generating capacity was about 10,000 Mw in 1951 and it increased to more than 75000 MW in 1995. However the cumulative average growth rate has declined from 12.7% in the 1960s to 7.3% in the 90s SEBs are present in all the three segments of power industry – generation, transmission and distribution. But the financial performance of SEBs has deteriorated due to several factors.
•
•
•
• •
Gap between tariff and lost: The average unit cost of supply of utilities has been progressively increasing over the years. During the last one decade the increase in the unit cost supply has been steep and reached the level of 327 paise per unit in 2000-01 (ER) as compared to 108.6 paise/KWh in 1990-91. The increase in the total cost of supply could be attributed mainly to the increase in the cost of fuel, establishment & Administration cost, interest payment liability and the cost of power purchase. Though the average tariff has increased substantially during the past few years, the increase has not been commensurate with the increase in the cost of supply. As a result, the gap between the cost of supply and average tariff has been widening over the years. This gap has increased from a level of 50 paise in 1996-97 to about 110 paise in 2001-02. The level of recovery, therefore, has declined from 77% in 1996-97 to 69% in 200102. Though the number of consumers and the quantum of sales have increased in this period, the number of consumer has been mainly in the domestic and agriculture sectors, who are getting power supplies at subsidized rates. This could be one of the reasons for the widening gap between average cost of supply and average tariff. Commercial losses: The commercial loss of a SEB is the gap between the total revenue receivables and total expenditure in a given year. The commercial losses (without subsidy) of the SEBs increased from Rs 4560 crore in 1992-93 to Rs 25259 crore in 2000-01. Subsidy: Gross subsidy on energy sales has been increasing over the years because of the policy of some of the states to provide electricity at subsidised rates to agriculture and domestic consumers. The gross subsidy per unit (kWh) of energy sold during 2000-01 works out to 126.62 paise. The SEBs make an effort to recover the losses due to the subsidised power supply to domestic and agriculture consumers by way of cross-subsidisation mainly to the industrial and commercial consumers. Rate of Return: The return on assets employed by SEBs has been turning more and more negative because of growing level of commercial losses. It was (-) 12.7 % in 1992 – 93 and increased to (-) 44.1% in 2001 – 02. Adverse Capital Stricture: The entire capital structure of most of the SEBs is being financed through interest bearing loans. Very few SEBs could convince the government to convert the loans into equity. As a result of the lop–sided capital structure, the interest burden is increasing over the years. This has an adverse affect on the finances of SEBs. 23
Enterprise: •PublicPlant Load Factor: The average PLF at present is around 63 %. The same for Performance andisEvaluation the SEBs 58 % whereas
for the private sector it is 73 %. The cost of energy from the IPP power stations corresponds to a PLF of 68.5 % and above. Such high PLF is not possible in Indian context due to the changing pattern of demand in Faber of peaking requirements. This leads to the inflated cost of power. Thus SEBs have to pay such high cost of power.
• •
Investment: In order to reduce the T×D losses and increase the generating capacity, there is need for investment. Neither the Central nor the State Governments have such money for investing in the power sector. Net Internal Resources: It refers to the surplus left with the SEBs after meeting the revenue expenditure and loan repayment obligations. It includes depreciation etc. as the SEBs function on commercial lines, the IR would have been positive. However, IR have been negative in all the years except in 1995-96.
The unsatisfactory and deteriorating financial health of SEBs has acted as a constraint not only for adding new capacity, improving the transmission and distribution system, carrying out renovation and modernisation programs, but also for carrying out much needed reforms in the electricity utilities. Presently, restructuring and regulatory reforms are contemplated with a view to bring about reforms in the SEBs through establishment of State Electricity Regulatory Commissions. The establishment of Regulatory Commissions, as provided by the Act passed by the parliament, would lead to rationalisation of tariff and also provide for transparency in provision of subsidies, wherever required. The State Government can exercise the option of providing subsidies, over and around those recommended by the Regulatory Commissions, on condition that the State Governments Compensate the SEBs by providing adequate budgetary support. When tariffs are rationalised and budgetary support is provided, SEBs are expected to improve their financial position. Reform of the Power Sector would be greatly aided by the establishment of independent regulatory agencies responsible for setting tariffs and regulation power purchase agreements. Accordingly, the Government of India has enacted Electricity Regulatory Commission Act, 1998 for setting up of independent regulatory bodies viz. The Central Electricity Regulatory Commission (CERC) and the State Electricity Regulatory Commissions (SERCs) at the Central level and State level respectively. These regulatory bodies would primarily look into all aspects of tariff fixation and matters incidental thereto. Reform State Path
Orissa
Haryana
UP
AP
Date of Instituting Reform Act
April 1996
March 1998
Sept. 1998
Oct. 1998
June 1999
June 2000
March 2001
Regulatory Commission Established
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Utility Unbundled Process Stage
Yes
Yes
Yes
Yes
Yes
Yes
In the process stage
Separate Distribution Companies Established
Yes
Yes
No
Yes
No
Yes
In the process stage
Distribution Privatised
Yes
No
No
No
No
No
No process
24
Karnataka Raj
Delhi
stage
The reform in power sector in Orissa is of particular country for the following reasons:
• • •
Dimensions and Methods of Evaluating Enterprises interest to the rest of Performance the
It is the first State to start the reforms in the power sector. It has used the full package of reforms – from Unbundling, Corporatisation and Privatisation. It is supported and financed by both World Bank and DFID.
11.6
PERFORMANCE OF TRANSPORT SECTOR
Worldwide, transport growth has been consistently higher than the economic growth due to specialisation, sourcing of material on a wider scale, the use of just-in-time strategies, increase and dispersal of retail and wholesale activities etc. prices of transport service have also been falling as a result of increased productivity due to competition among suppliers of transport services as well as pressure from users. The transport system in India has not been able to keep pace with these developments and considerable effort is required to correct the shortcomings. An efficient transport system is a prerequisite for sustained economic development. It is not only the key infrastructure input for the growth process but also plays a significant role in promoting national integration, which is particularly important in a large country like India. In a liberalised set-up, an efficient transport network becomes all the more important in order to increase productivity and enhancing the competitive efficiency of the economy in the world market. The transport system also plays an important role of promoting the development of the backward regions and integrating them with the mainstream economy by opening them to trade and investment. India’s transport system comprises a number of distinct modes and services. These include railways, roads, road transport, ports, inland water transport, coastal shipping, airports and airlines. The sector has expanded manifold in the first fifty years of planned development, both in terms of spread and capacity. Along with the increase in quantity, there have been several developments of qualitative nature, such as emergence of a multi-modal system in the form of container transport, marked reduction in the arrears of obsolete assets, improvement in the self-financing capacity of the sector and the establishment of new centres of excellence for manpower development. Impressive as this progress is, the country’s transport system is far from adequate both in terms of spread and capacity and suffers from a large number of deficiencies and bottlenecks. The quality and productivity of the transport network and resources also needs improvement. It emphasised the need for improving the capacity and quality of the transportation system through technological upgradation and removing distortions in the intermodal max by evolving a rational tariff and investment policy. It also laid stress on improvement of the self-financing capacity of this sector and on the need for ensuring an improved transport system to provide speedy, efficient, safe and economical carriage of goods and people. While the achievement of objectives and targets set for some subsectors, particularly roads and ports, have been encouraging, the progress in the case of others has not been as good. This is particularly true of railways where shortfalls in achievement of physical and financial targets as well as policy objectives are anticipated. While capacity shortages on both the main road and rail links continue to be a serious constraint to overall growth, even the existing infrastructure is inefficiently utilised.
25
Public This isEnterprise: because over the years, a large number of distortions have appeared in the Performance and Evaluation transport sector because of a deliberate policy or lack of it. Another reason for this state of affairs is inadequate maintenance of the existing assets. The condition is pervasive across various modes of transport. The productivity of freight trains is constrained by the condition of tracks and rolling stock. Though the Indian road network appears and only 20 per cent of paved roads are estimated to be in good condition. The average productivity of a truck is 200 Km a day against a potential of 350-400 Km that could be possible through reduction of road congestion. Although, various productivity indices in the ports sector have been looking up including reduction in the waiting period for the ships, increase in the turn time etc., there is still scope for further improvement. The delay in the installation of modern instrument landing or traffic control facilities have constrained the capacity of our major international airports while inadequate draft in our waterways limit the use of inland water transport.
Some of the demand for transportation is due to administrative policies that are often at variance with the pattern of demand that would emanate from the market economy. Presently coal and POL together constitute around 55 per cent of total rail traffic. The movement of coal by railways is mainly for power generation. This is the result of the insistence by State Electricity Boards on locating power plants within the geographical boundaries of the State regardless of the distance from the source of fuel supply. The problem was redressed to some extent by the creation of the National Thermal Power Corporation. It may diminish further with the onset of reforms in the energy sector, the emergence of strong grid to transfer power from one location to another, development of mechanism that will permit the trading of power across State boundaries etc. As a result, in the near future, there may be change in the pattern of setting up of power plants. This would create an opportunity for the transportation sector, particularly for the railways to move towards more high, having cargo traffic such as container traffic. Creating transport infrastructure and operating transport services have major implications for the environment. With rapid economic growth, increase in population and increasing integration of the economy, the demand for transport services is rising at a fast pace. This is, however, leading to the use of scarce land and contributing to the atmospheric pollution in a big way. Sound pollution, road congestion, etc., are other environmental hazards due to transport. Water transport, in addition, leads to pollution of sea and coastal waters and also endangers marine life. While steps are necessary to minimise the environmental impact of transport infrastructure and services in general, priority attention needs to be given to the road transport sector, particularly in large cities, where the adverse impact on the environment is maximum. All major projects, including those in the transport sector require environmental clearance before they are taken up. In large cities like Delhi, initiatives have been taken to enforce Bharat Stage II norms for vehicular emission. Stricter norms conforming to Euro III-IV are also under consideration. However, what is required is a nation-wide policy on the use of clean fuel and phasing out of old vehicles. There is also need to improve the quality and efficiency of the public transport system in order to reduce dependence on private vehicles. In the larger national interest, it is also important that rail transport, which is a cleaner and more fuel-efficient system vis-àvis road transport is accorded higher priority. Safety of operation is an area of concern in all modes of transport. Though the accident rates have come down over the years, the number of fatalities remains high. In the road sector, the sheer magnitude and severity of road accidents require immediate attention increased to over 70. The Indian economy is going through structural changes. The share of value added by the primary sector is constantly declining while the share of non-primary sector has been increasing. 26
Dimensions Methodsa of The demand for transport is influenced by these structural changes. Forand example, Evaluating Enterprises decline in the share of agriculture and increase, the share of manufacturing may lead Performance to an increase in demand for transport. Shower growth in population, however, may reduce demand for transport, which may partly be offset by the fact that the share of mobile population (ages 15-60) is likely to increase. Taking all factors into account, it is expected that traffic elasticity with respect to GDP will continue to decline in line with the past trends but will still be around 1. This growth in transport demand has to be met by expanding domestic supply as transport infrastructure is non-tradable. Investment in transport must, therefore, reflect the need to make up for existing capacity shortages and also to allow for growth in demand.
Budgetary resources for the transport sector are likely to be limited, especially when fiscal prudence is the overriding consideration. However, within the budgetary constraints, transport infrastructure development needs to be treated as a high priority area for continued resource requirement and would greatly exceed the capacity of the budget to meet the costs of maintenance and expansion. Internal generation of resources through rational pricing and user charges is, therefore, essential for the successful development of transport infrastructure. Increasing participation of the private sector would also be necessary to augment the resource base and increase competitive efficiency. The major thrust of policy or transport sector is needed in the following areas:
• • • • • • • •
Meeting the transport demand generated by higher growth of gross domestic product (GDP). Ensuring transport growth in a manner that all regions of the country participate in the process of economic development and is paid special attention to integrating remote regions such as the North-East into the economic mainstream. Capacity augmentation, quality and productivity improvements through technology up-gradation and modernisation. Emphasis on higher maintenance standards so as to reduce need for frequent reconstruction of capacity. Higher generation of internal resources and increased private sector participation in providing transport services. Increase in overall economic efficiency by bringing in competition into the provision and maintenance of transport infrastructure and services wherever possible. Higher emphasis on safety, energy efficiency, environmental conservation and social impact. Developing an optimal inter-modal mix, where each mode operates efficiently and according to its comparative advantage and complement services provided by other modes of transport.
11.7 PERFORMANCE EVALUATION OF THE POSTAL SYSTEM India has one of the most extensive networks of postal service in the world. A basic profile of the postal sector of India is given below:
• •
The Indian postal system is the largest in the world, with the number of post offices/outlets numbering 1,54,919 as on 31 March 2001. The permanent post offices, called Departmental Offices, number 26,037. Of these, 1,28,882 (83 per cent) are in the rural areas and are called Extra
27
Public Enterprise: Branch Departmental Performance and Evaluation
• • • • •
•
Offices (EDBOs).
The total manpower under the Department of Posts is about 6,00,000 almost equally divided between permanent employees (who number 2,94,301) and extra-departmental employees (numbering 3,09,649). The total revenue expenditure of the Department in 2001-02 was Rs. 5,210.83 crore, with a revenue deficit of Rs. 1,458.37 crore. The plan outlay constitutes a very small fraction of the total expenditure and was Rs. 135 crore for 2001-02 or 2.59 per cent of the revenue expenditure. The entire Plan outlay is funded through budgetary support. There are no externally-aided projects. The total expenditure as percentage of receipts for the Department of Posts was 160 per cent in India as compared to 101 per cent in the United Kingdom, 102 per cent in the United States, 99 per cent in Brazil and 138 per cent in Sri Lanka in 1998. Except courier services, postal operations are still a State monopoly.
The Indian postal system currently provides 38 services which can be broadly divided into three categories of activities:
• • •
Communication – letters, postcards, newspapers. Transportation – parcels money orders etc. Other services – resource mobilisation, postal life insurance.
Postal finances have deteriorated sharply over the last decade. Postal deficit is an open ended subsidy and forms part of the general budget. The deficit has shot up almost 16 times. This has serious implications for resource availability for other needy sectors like infrastructure and social development. The trends of postal deficit are shown in Table 11.12. Table 11.12 : Trend of Postal Deficit (Rs. in Crore)
Year
Deficit
1992-1993
91.81
1997-1998
993.43
1998-1999
1590.97
1999-2000
1740.53
2000-2001
1576.35
2001-2002
1458.37
Source: Tenth Fine Year Plan
Postal services in India have been highly subsidised, as part of Government Policy. While subsidy on a few items covered under the Universal Postal Service Obligation 28
Methods (UPSO) may be justified, the pricing of non- UPSO servicesDimensions need to beand fixed on of Evaluating Enterprises commercial principles. The projections are shown in Table 11.13.
Performance
Table 11.13 : Subsidy on Services Rendered Through the Postal Network (Projections – 2002-03) Service
Post Card Printed Post Cards Letter Cards Registration Money Order Reg. Newspaper (Single) Reg. Newspaper (Bundle) Printed Books Parcel Others Total
Subsidy per unit (Rs.)
Traffic (in million)
Total deficit (Rs. in crore)
6.70
193.30
129.59
1.73 4.79 18.93 29.61 8.54 14.39 10.44 3.37 N.A. N.A.
93.49 329.48 196.08 106.73 73.09 18.06 25.90 64.29 1996.13 3,096.55
16.16 157.66 371.28 316.05 62.44 26.00 27.03 21.65 185.27 1,313.13
Source: Department of Posts
The postal department should endeavour to achieve self sufficiency and consolidation. Various steps necessary in this sector are mentioned below:
•
•
•
• •
•
There does not seem to be any justification for subsidizing services like registration, newspapers, postal orders, money orders etc. Only Insurance, Speed Post and Foreign Mail are yielding a surplus. This policy of blanket subsidy needs to be reviewed and replaced by a policy of pricing the services appropriately, keeping the UPSO in mind. The steering committee on communication and Information for the Tenth Five year Plan has recommended inclusion of postcard, inland letter, and money orders upto a certain limit to be under UPSO. Price of other services should be determined on commercial basis. Under the Indian Postal Act, 1898, the central Government fixes the tariffs for various postal articles and these are approved by the Parliament. Due to various reasons, tariffs have not been revised at reasonable intervals. Revision of postal tariffs has not been keeping pace with the increase in operational costs. The present system of tariff fixation needs to be replaced by a more dynamic, objective and transparent mechanism. The Indian Post Office Act, 1898 is totally archaic and obsolete. It does not meet the requirements of changed circumstances. It needs to be replaced with a forward – looking legislation to take care of new developments. The present scheme of opening rural post offices (EDBOs) has a large element of in–built subsidy of 67 per cent in normal areas and 85 per cent in hilly and tribal areas. This is not sustainable in the long run. Two feasible options that must be explored are converting extra department employees into franchisees of the department for providing postal services in rural areas and reactivating the scheme of licensed postal agents. To take advantage of the emerging scenario of convergence, post offices need to be developed as multi product and multi–service delivery centres in which delivery of postal services would only be part of the job. The Government is now moving towards consolidation and integration of the steps taken in the part for 29 computerization and modernization of the postal system in harnessing the
Public Enterprise: emerging technologies to improve the services offered through the network. Performance and Evaluation About 2 crore postal transactions are done through the network. About 2 crore
postal transactions are done through computers every month. A VSAT network for prompt transmission of money orders with 150 micro earth stations capable of linking about 5000 post offices has been established.
•
•
•
•
So far 192 mail offices have been modernized. The field formations are also restructuring the delivery arrangements in the post offices keeping in view the requirements of customers in specially new colonies in urban areas. To meet the challenger of changing market demand, a member of new services have been introduced, such as speed post, business post, express parcel post, media post, greeting post, data post, passport services and satellite post. In order to bridge the digital divide, “e-Post”, for delivering e-mail at the doorstep of the citizens, is running in the five states namely Andhra Pradesh, Goa, Gujarat, Kerala & Maharashtra. To provide the facility of paying all types of bills at one window, “e-Bill post”, an internet based utility bill collection was launched in the post offices. Generation of substantial additional revenue through non–tariff methods like commercial exploitation of land and introduction of IT based financial services are the two other important components of the strategy for making the Government run postal services self–financing. Except courier services, the postal services are still a state monopoly. To ensure efficiency and improved quality of service, it may be desirable to open up selected postal services to private entrepreneurs. This will ensure flow of required funds into the sector, bring in new technology and also enable the department to pay greater attention to its main activity i.e. carrying of mail. To ensure competition and a level playing field, the establishment of an independent regulatory authority may be considered.
11.8
PERFORMANCE OF PORTS
There are 12 major ports and 184 minor / intermediate ports along the 5560 km coastline of India. The major ports are Kolkata / Haldia, Mumbai, Jawaharlal Nehru Port Trust (JNPT) at Nhava Shewa in Mumbai, Chennai, Kochi, Vishakhapatnam, Kandla, Mormugao, Paradip, New Mangalore and Tuticorn. A new major port, Ennore port, has started functioning near Chennai from 2001. The major ports handle about 15 per cent of the country’s port traffic of the country, with the minor / state ports handling the remaining 25 per cent. Ports are a key component of infrastructure. Recent policy initiatives have ushered in new institutional arrangements and have yielded results in terms of measurable outcomes such as the delay at ports. However performance lags international standards. Private investment in the sector has been mainly from captive users. The performance of ports has shown the following improvement over the years:
• • • •
There has been an improvement in terms of total cargo handled at major ports. There has been an impressive growth of container traffic in the last few yearswith growth rates of over 10 per cent per annum over the last three years (20022003). There has been an improvement at major ports in the principal indicators of port efficiency (Average turn-around time, average output per ship-berth-day, average per-berthing time)
Productivity indicators vary widely from ports to ports. This may suggest that 30 there are institutional innovations at better performing ports, such as JNPT,
Dimensions and Methods of Evaluating Enterprises The major initiatives taken for improvement in performance of ports can bePerformance
which could be adopted in other ports.
summarised as follows:
•
•
•
•
•
Corporatisation of Major Ports: The functioning of major ports under various port trusts is operationally inflexible, and they are unable to respond quickly to changing market situation due to delays inherent in the decision making process. Steps are thus being taken by the Government towards corporatisation of major ports. Private sector participation: The areas identified for private participation in ports are: Leasing out assets of ports; construction and operation of container terminals, multiple cargo berths etc; leasing of equipment for cargo handling; pilotage; captive facilities for port based industries. Joint ventures: The objective of setting up joint ventures is to attract new technology, introduce better managerial practices, expedite implementation of schemes, foster strategic alliances with minor ports and enhance confidence of private sector in funding of ports. Tariff policy: Currently, the tariff stricture is determined by the cost-plus approach, which is not an appropriate pricing mechanism for cargo services. While fixing tariff, the improvement in productivity and efficiency needs to be taken into account. It needs to be ensured that the users do not pay for the inefficiencies of the ports. Development of Hinterland / port connectivity: the lack of proper connectivity with hinterland has hampered the development of ports. Hence, the development of other modes of transport-railways, highways, inland, water transport and even pipelines is essential.
11.9 PERFORMANCE EVALUATION OF RAILWAYS Railways is a massive organization in India that carries more than 10 million Passengers and a million tones of freight each day. There are about 14,000 odd trains including about 8500 passenger carrying trains. For the past few years however, the Indian Railways have not performed well. The topmost problem has been to find funds for even essential investments. The causes of this grave situation are:
• • • • • • •
Shrinking of central budgetary support Limited scope for infernal generation of resources Own tariff policies Fall in share of rail in land transportation Huge surplus staff Impact of pay commission Griming number of pension beneficiaries
Under such limitation of resources, careful planning of investment is required. But large part of the resources has been thinly spread across several hundreds of works like including a huge shelf of new line and gauge conversion projects with little prospect of early completion. Line capacity is quite short in areas of heavy traffic, speeds do not improve and safety is allays a nagging concur. An appraisal of the Railways has reference in the report of the Railway Expert croup (July 2001) set up in 1998, with Dr. Rakesh Mohan as chairman. The report notes that the Railways is on the verge of a financial crisis, and suggest fundamental 31
Public Enterprise: changes in order to farce the emerging competitive pressures. The group considers Performance and Evaluation that the Railways has to make a deliberate choice it can opt for the strategic High Growth scenario that has the Potential to double the rate of growth, and emerge as a strong, modern system, or allow this fine institution to wither. The causes of performance of Railways can be evaluated as follows:
•
Investment in the transport sector, including the Railways, was a priority in the initial phase of India’s planned development. In the first three, five year plans Railways received adequate budgetary resources for their strengthening and modernization and facilitate industrial and economic development. But thereafter, a decline of budgetary support started and became a major cause of the situation to day. A plan outlay for Railways is shown in Table 11.14. Table 11.14 : Plan Outlay for Railways Plan
Railways (Rs. in crores)
Up to 4th th
5 6 th 7 th 8 th 9 th
Railways outlay as % of Total Plan Outlay
3200
10.3
1523 6555 16549 27202 45413
5.3 6 7.6 6.3 5.3
Source: Status paper on Indian Railways: 2002
•
In terms of revenue performance, the Railways enjoyed fairly satisfactory results during the first three plan periods. But in the twenty years that followed, it defaulted several times on payment of dividend to general revenues and resorted to loans from general revenues for the Development found (used for financing an remunerative but essential works, passenger amenities and staff welfare. During the seventh plan period (1985-90), there was a fairly balanced increase of tariffs of both passenger and freight traffic. The year 1989-90 was significant for the raised level of freight tariff. It was however, the starting point of a relentless trend of freight increases over almost a decade. Diversion to roads-the high freight charges led to a steady loss of traffic to the roads, aggravating the trend that had set in after the deregulation of trucking in the 1980s. Delays and losses in transit added further to the loss of revenues and downturn of financial performance. Returns from the growing levels of passenger traffic, accounting for nearly 60 per cent of the transport output, were wholly inadequate to meet its costs, mainly because of a continuous policy of tariff restraint. The year 1997-98 marks a precarious phase for Railway finances with the implementation of pay commission recommendations, which put up staff costs by a third. Freight traffic also dropped by 29 million tones below target. Table 11.15 shows the financial status of the Railways.
•
• • • •
Table 11.15 : Trend of Railway Finances % Staff costs Traffic receipts Ratio of (1) & (2) Railway Fund Balances Plan expenditure 32
1996-97 100 100 41.7 3370 100
1997-98 1998-99 1999-00 2000-01 2001-02 135 118 47.8 3564 99
156 122 53.3 1253 107
162 135 50.0 149 10.9
176 143 51.2 359 113
185 155 49.8 994 131
