PSUs Autonomy Vs Government Dictates – UPSC GS3

  • Along with higher dividend payment, public sector undertakings (PSUs) will now be mandatorily required to outline a plan for non-core asset monetization.
Advantages of asset monetization of PSUs
  • Will help generate cash: which can be shared by the government.
  • Doesn’t need to be shared with the states: Dividend income is a significant component of non-tax revenue for the central government and, unlike tax revenue, it doesn’t need to share it with states.
Problems faced by PSUs:
  • Squeezing of PSUs for many years:  Over the past five years, a sample of 55 listed PSUs in aggregate paid over 70 % of their profits as a dividend.
  • Dilemma faced by PSU: whether they should increase their market capitalization or act as a source to fulfil governments budgetary needs.
    • If PSUs regularly pay higher dividends, they would have so much less to invest, which will affect growth over time.
    • Subpar revenue and profit growth would affect the ability of PSUs to pay dividends.
    • Slower growth and a weaker balance sheet will affect valuations and market capitalization.
  • Government interferences: can lead to low valuations of PSU,
    • The interests of minority shareholders are not always aligned with the government of the day.
    • Government intervention and general rules of operations may not always allow PSUs to effectively compete with the private sector.
  • Skewed profits: About 70% of profits among PSUs come from sectors, such as petroleum and coal, where private sector presence is negligible also denoting lack of competition.
Conclusion:  The government should give PSUs autonomy and allow them to compete and create value. The best way to increase market value on a sustainable basis is to increase profitability and earnings visibility.
Scroll to Top