The Good, The Bad and The Ugly Within India’s Public Sector Companies

A CAG report points to diminishing returns for the government and the taxing drain of public resources by many notoriously moribund and woefully mismanaged companies.

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On December 21, the Comptroller and Auditor General (CAG) of India presented a financial audit report on the state of Central Public Sector Enterprises (CPSEs) to Parliament.

The report shines a light on the good, the bad and the downright ugly within the CPSEs.

Currently, a total of 697 CPSEs comprising 488 government companies, six statutory corporations and 203 government-controlled other companies fall within the audit purview of the CAG. Out of the 697 entities, the businesses of 607 entities has been examined by the CAG. This report excluded 90 CPSEs whose accounts were in arrears for three years or more or were defunct/ under liquidation or their first accounts were not due.

Overall, the scene painted by the CAG is quite dismal. It points to diminishing returns for the government and the taxing drain of public resources by many notoriously moribund and woefully mismanaged companies.

While there are some bright prospects within CPSEs, they are more than counterbalanced by the bad apples.

Let’s dig in.

Central government’s equity holdings and loans disbursed 

The accounts of 427 government companies and corporations by the national auditor show that the central government holds equity worth Rs 4,52,908 crore in share capital in FY20, which increased by a marginal Rs 48,485 crore compared to FY19. Outstanding loans disbursed by the central government as of March 31, 2020, amounted to Rs 3,04,899 crore, which increased by Rs 21,683 crore compared to the previous years.

In the larger picture, investments in government companies and corporations increased by Rs 5,45,125 crore or 23.15% to Rs 28,99,833 crore in FY20 compared to Rs 23,54,708 crore in FY19. The cumulative figure of Rs 28,99,833 crore includes equity investments and loans granted by corporations, state governments and financial institutions.

Credit: CAG Report.

Equity holdings of the central government in government companies and corporations has moved up from Rs 3,59,560 crore in FY18 to Rs 4,52,908 crore in FY20, an increase of 25.9%. In respect of the long term loans given by the central government to government companies and corporations, the figure has gone up from Rs 77,254 crore in FY18 to Rs 2,83,216 crore in FY19 to Rs 3,04,899 crore in FY20.

Also read: We Need to Make Sense of the Modi Government’s Big Privatisation Push

Profit-earning CPSEs

The number of government companies and corporations that earned profit was 224 in 2019-20 as compared to 233 in 2018-19. The profit earned decreased to Rs 1,40,976 crore in 2019-20 from Rs 1,77,758 crore in 2018-19. The Return on Equity (ROE) of 224 CPSEs was 15.31% in 2019-20 as compared to 18.69% of 233 CPSEs in 2018-19. ROE is a financial indicator calculated by dividing net income by shareholders’ funds.

Three sectors, namely, power, petroleum and coal and lignite contributed maximum profits to the central government’s kitty. The three sectors combined earned Rs 95,311 crore accounting for 67.61% of the total profits of government companies. 

Defence, coal, atomic energy and space CPSEs earned a net profit of Rs 41,472 crore, which is 29.42% of the total profit of Rs 1,40,976 crore earned by all the 224 profitable companies.

Seven CPSEs – ONGC, Coal India, Power Grid Corporation, NTPC, Gail, Mahanadi Coalfields and Power Finance Corporation Limited – all contributed over Rs 5,000 crore of profit, and their cumulative profits come to Rs 64,353 crore which accounts for 45.65% of the total profits earned by the 224 CPSEs in FY20. 

Credit: CAG report.

Loss-making CPSEs

A total of 181 government companies incurred losses during the year 2019-20. Out of these 181 loss-making companies, 115 CPSEs have incurred losses for three to five years in the last five years whereas 64 CPSEs have incurred losses continuously for five years. The losses incurred by CPSEs increased to Rs 68,434 crore in 2019-20 from Rs 40,835 crore in 2018-19. The accumulated losses of these 181 CPSEs from FY18 to FY20 comes to a total of Rs 1,55,060 crore. 

Not surprisingly, BSNL and Air India figured in the list of the 14 companies that inflicted losses of more than Rs 1,000 crore in FY20.

Credit: CAG report.


As of 31 March 2020, there were a total of 188 government companies with a whopping accumulated loss of Rs 1,74,596 crore under the aegis of the central government.

Of the 188 CPSEs, 140 CPSEs incurred loss in the year 2019-20 amounting to Rs 22,203 crore whereas 48 CPSEs had not incurred loss (including zero profit) in the year 2019-20, even though they had accumulated losses of Rs 19,536 crore. Thirty-three out of 188 CPSEs were under the process of winding up or closure or liquidation or strategic disinvestment.

Also read: Air India Sale: Long After Narendra Modi, Taxpayer Will Be Carrying the Can

Companies with negative net-worth

There were a total of 90 companies out of 188 whose net worth had been completely eroded because of accumulated losses. As against the equity investment of Rs 49,422 crore in these 90 companies as of March 31,2020, the cumulative negative net worth of these companies was at Rs 1,15,829 crore. Included in this list of 90 companies are seven listed companies whose net worth was at a negative Rs 39,008 crore as against the equity investment of Rs 6,592 crore. 

Return on capital employed

As per the CAG report, there has been a consistent decline in the ROCE of companies for the last three years. ROCE is a ratio that measures a company’s profitability and the efficiency with which its capital is employed. ROCE is calculated by dividing a company’s earnings before interest and taxes (EBIT) by the capital employed. In this case, the capital employed is calculated as Capital Employed = Paid-up Share capital + Free Reserves and Surplus + Long term loans – Accumulated losses – Deferred Revenue Expenditure.

The CAG report states that the ROCE in FY20 for the 425 companies assessed on this count decreased significantly in comparison to that for the year 2018-19 due to a decrease in EBIT and increase in capital employed.

Return on Equity

The ROE of the 425 companies assessed on this metric registered marginal growth in percentage in FY19 before dramatically falling in FY20. As can be seen from the table, this is due to a sudden decline in the total net profit of the 425 companies.