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Cover Feature

Published on: Jan. 24, 2022, 8:02 p.m.
Rating the PSUs
  • Of the 25 CPSUs that have received the “excellent” tag, seven come under the railways

By Rakesh Joshi. Executive Editor, Business India

That Central PSUs are not performing well is evident from the government’s own rankings: only 25 of them have been rated as “excellent” in a performance review conducted by the department of public enterprises (DPE) for 2019-2020, down by 10 from the previous year’s figure. The rankings, shared with all ministries in a department note, have marked the performance of 28 units as “poor”. Of the remaining, 18 have been categorised as “very good”, 66 as “good” and 30 as “fair”. That means only a sixth of the PSUs were regarded as “excellent” in the government’s performance assessment. 

The DPE rates the CPSUs based on their performance against customary memoranda of understanding (MoUs) signed between the administrative ministries and individual CPSUs. Because of the collation and analysis of data on a large scale, the report normally has a lag of one year. Like the ranking of states on ease of doing business, the ranking of PSUs was also an exercise by the Modi government to “name and shame” the laggard units and goad them into improvement.

The MoU parameters which form the basis of ranking include: revenue from operations, asset turnover ratio, EBITDA as a percentage of revenue, return on net worth, return on capital employed, market capitalisation, exports and imports as a percentage of revenue from operations , capex and managing contracts efficiently.

Of the 25 CPSUs that have received the “excellent” tag, seven come under the railways, four under power, three under defence, two each under shipping and atomic energy, one each under civil aviation, bio technology, housing, food and public distribution, mines, and some other sectors.

Indian Rail Finance Corporation (IRCON) and Rail Vikas Nigam Limited (RVNL) were adjudged as the best PSUs in the country by the DPE with a score of 99/100. IRCON is a leading turnkey railway construction company with a footprint in more than 21 countries. As for RVNL, it has achieved a rare feat of receiving an “excellent” rating for the last 10 successive years by DPE. It ranked first among the railways PSUs for the six times out of the last 8 years. Atal Behari Vajpayee, former Prime Minister, had launched National Rail Vikas Yojana (NRVY) on 26 December, 2002. Conceived during the term of Nitish Kumar as Railway Minister, it was aimed at removing capacity bottlenecks in critical sections of the Indian Railway network. “Significantly, in FY21, RVNL crossed the turnover of Rs15,000 crore, despite the Covid pandemic,” says Rajesh Prasad, director (Operations), RVNL.

Among other PSUs in the “excellent” category are Indian Railway Catering And Tourism and Indian Railway Finance Corporation. Shipping Corporation of India Ltd, Biotechnology Industry Research, Chandigarh International Airport Ltd, NTPC Ltd, and Power Grid Corporation of India Ltd are in the top category.

Four of the 10 CPSEs in the power sector, including Power Grid Corporation of India Ltd, Power System Operation Corporation, NTPC and SJVN Ltd, have been assessed as “excellent”, while PFC, REC, THDC India Ltd and NHDC Ltd have been classified as “very good”. NHPC and North Eastern Electric Power Corporation Ltd have been assessed as “good” and “fair”, respectively.

  • Power sector: not so bad

Of the nine CPSEs under the department of defence procurement, Hindustan Aeronautics Ltd, Mishra Dhatu Nigam Ltd and Goa Shipyard Ltd have been rated as “excellent”. 

In the coal sector, the Coal India Ltd and NLC India Ltd have been rated as “good”, NLC Tamil Nadu Power Ltd has been assessed as “fair”. None of the CPSEs that come under heavy industries have made it to the “excellent” category, and have been mostly classified as “poor”, “fair” or “good”.

The two CPSEs under science and industrial research – Central Electronics Ltd. and National Research Development Corporation – have been assessed as “poor”, as is the only CPSE coming under the Ayush ministry – the Indian Medicines & Pharmaceutical Corporation Ltd. CEL was recently sold off under this year’s disinvestment programme.

The CPSU under the IT ministry – National Informatics Centre Services, which forms the backbone of the government’s IT services, has been assessed as “good”.

In telecom, Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL) have been rated as “poor”.

Two CPSUs – Broadcast Engineering Consultants India Ltd, and National Film Development Corporation Ltd – have been rated as “poor” and even flagged for not submitting adequate documents.

  • Coal India: rated 'good'

PRP carrot and stick 

Will the staff of CPSUs lose on their performance related pay (PRP), if the firms that employ them fail to meet new goals of market capitalisation, return on capital, asset-turnover ratio as well as production and capex targets? 

The Department of Public Enterprises is hoping that the move, while seeking to improve the performance of CPSUs, will also help boost investors’ interest in these firms, many of which are to be privatised over the next few years under a new policy. But the final call will be a political one which will be taken at the highest level.

Market capitalisation, return on capital, asset-turnover ratio as well as production and capex targets are parameters which will be included in the PRP criteria under the customary Memorandums of Understanding (MoUs) being signed between administrative ministries and individual CPSUs, effective 2021-22 financial year.

Another new parameter being included is Ebitda (earnings before interest, taxes, depreciation, and amortisation) which will replace ‘operating profits’ to capture a firm’s operating profitability more accurately. While goals on market capitalisation, asset-turnover ratio and return on capital employed carry 5 marks each in a total of 100, achieving 75 per cent of annual capex target by the third quarter will fetch 2 marks.

Marks for production/generation/transmission have also been doubled to 20 to ensure the CPSEs keep utilising their capacities.

According to officials, the revised MoU guidelines are aimed at “building skin in the game for the management” of the CPSEs while aiding the Centre to fetch more non-debt receipts from disinvestment. What this means is that a slippage in the performance on the parameters could result in a firm’s performance rating downgrade and consequent reduction in variable pay of its staff.

Currently, PRP can be as high as 150 per cent of basic pay for CMDs while it is 40 per cent for the lowest grade officers, if the rating of the PSU performance is ‘excellent’ (a score above 90 per cent), which ensures 100 per cent PRP eligibility. A downgrade would bring down MoU rating from ‘excellent’ to ‘very good’ and from ‘very good’ to ‘good,’ resulting in reduction from 100 per cent eligibility of performance-linked pay for excellent rating to 80 per cent and 60 per cent, respectively. Less than 50 per cent score means staff may be denied PRP.

The combined salary bill of around 250 CPSUs (both Central and state) stood at Rs1.53 lakh crore in FY19; these firms employ over 15 lakh people.

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