Are Kerala PSEs a boon or bane? Premium

Important financial parameters show that this sector needs significant scrutiny and radical reforms

Two workers of the Kerala State Electricity Board installing a transformer in Kochi. | Photo Credit: Thulasi Kakkat

The role of public sector enterprises (PSEs) has been strategic and ideological. Although they have played a strategic role in the evolution of the Indian economy, of late they have lost significance. However, Kerala, with 153 enterprises, has accorded a respectable place to PSEs in its economic landscape. Of them, 31 have been transferred, closed, merged, or remain inactive. The effective number in 2020-2021 was only 116, with 10 of them being added in the fiscal year which was under the grip of the pandemic. This article attempts an evaluation of the contributions of these enterprises to the economy of the State, counted as among the five ‘most fiscally vulnerable States’ by the Reserve Bank of India.

A disqueting story

A reliable data base is not only the handmaid of good policymaking, but is also a powerful tool for public scrutiny. On this score, Kerala PSEs have been a big failure because in 2020-21, only 19 PSEs provided audited accounts. The arrear lag ranges from one year to six.

The important financial parameters based on the report, A Review of Public Enterprises in Kerala 2020-21, tell a disquieting story. In 2020-21, the turnover of all the working PSEs was ₹34,365 crore (some 4.3% of the GSDP). This was ₹2,199 crore lower than the previous year. This is a serious fall because employment increased from 1.29 lakh in 2019-20 to 1.33 lakh in 2020-21; and investment by 10.05%. More importantly, the average investment per employee increased, while the average profitability per employee registered a loss. For the three public utilities alone — Kerala State Electricity Board (KSEB), Kerala State Road Transport Corporation (KSRTC) and Kerala Water Authority (KWA) — the loss was ₹1.67 lakh per employee.

The return on investment in 2020-21 was -15.8% per annum. This is an unsustainable loss for a State which chose to invest 8.5% of GSDP in PSEs. That, in this year, the State government gave grants and subsidies to the tune of ₹4,697 crore (an increase of 1,471%) besides a Central government grant of ₹1,655 crore (a step up of 156%) cannot be ignored. This is besides a generous 234% increase in budgetary support (₹7,066 crore) from the government in 2020-21 compared to the previous year. This leverage was to succour PSEs to stay alive. The imprudent use of taxpayers’ money during the health crisis needs a convincing explanation.

The continuing net worth erosion of PSEs is a running sore. Net worth means paid-up capital, all reserves, write back of depreciation minus accumulated losses, and deferred expenditure. The net worth loss of ₹5,696 crore in 2018-19 more than doubled to ₹11,630 crore in 2020-21. These numbers are net for all the PSEs. But if the three public utilities alone are considered, the net worth loss was ₹18,611 crore. Besides the public utilities, the Cashew Development Corporation was the largest loss maker. The net worth of enterprises such as the Tourism Development Corporation was fully negative. The industrial policy reform, reportedly underway, will have to take note of these realities.

That the PSEs contributed ₹13,328 crore to the State exchequer by way of taxes and duties in 2020-21, which accounts for 28% of the own tax revenue of the State, is significant. That this big share from PSEs, which generally do not evade taxes, is indicative of the poor tax mobilisation effort also needs to be mentioned.

At this stage a few general remarks seem to be in place. There is no clear linkage between the massive financial and physical investment made and the actual performance on the ground. That the government departments which administered most of these enterprises have not always left the management to experts is a misadventure. The norm that public resources should be spent with efficiency, wisdom and prudence has been observed in its breach. The size structure and output composition of the PSEs are uneven and do not display a rational mix. Nearly 70% of the enterprises had a turnover below ₹50 crore. Along with the KSEB, which accounted for 42% of the total turnover, the Civil Supplies Corporation, Financial Enterprises and the Beverages Corporation, which follow immediately in turnover ranking, made a total of 73%. Nearly 78% of the total investments were also accounted for by the three public utilities. While power supply and provisioning of essential commodities have important social objectives to perform, the production and sale of liquor and chitties are probably not the priority areas to attract ‘sovereign’ allocations. It is a matter for consideration whether the government should step into areas that do not promote common good, spread effects, and other strategic needs.

With the private sector reluctant to invest, especially in manufacturing, Kerala youth look to the public services as a great job provider. KSEB, KSRTC and KWA, alone account for 52% of employment. Cashew nut processing was once the leading employment provider in the private sector. Today, with regard to negative net worth, this sector is next to KSRTC and KSEB followed by the Civil Supplies Corporation. These four enterprises accounted for ₹26,420 crore of net worth loss. All public watchdogs including the trade unions remain silent on this. The four also made a total loss of ₹2,813 crore in 2020-21 (54% of all the loss-making ventures). If social ownership of any production or service fails to deliver common good, including triggering a multiplier effect to catalyse more investment and employment, then it remains as a millstone around the fiscal neck of the State. This sector demands rigorous scrutiny and radical reforms.

M.A. Oommen is Honorary Fellow, Centre for Development Studies, Thiruvananthapuram, and Distinguished Fellow, Gulati Institute of Finance and Taxation, Thiruvananthapuram

• The role of public sector enterprises (PSEs) has been strategic and ideological. Although they have played a strategic role in the evolution of the Indian economy, of late they have lost significance. However, Kerala, with 153 enterprises, has accorded a respectable place to PSEs in its economic landscape. Of them, 31 have been transferred, closed, merged, or remain inactive.
• In 2020-21, the turnover of all the working PSEs was ₹34,365 crore (some 4.3% of the GSDP). This was ₹2,199 crore lower than the previous year.
• With the private sector reluctant to invest, especially in manufacturing, Kerala youth look to the public services as a great job provider. KSEB, KSRTC and KWA, alone account for 52% of employment. Cashew nut processing was once the leading employment provider in the private sector.