B. Performance of PSEs

If one examines the achievements of the PSEs by the yardstick of objectives they were expected to achieve, as listed in Chapter-3, one would observe that many of these objectives have, at best, met with limited success. The infrastructure for economic development is still inadequate. The return on investments in PSEs, at least for the last two decades, has been quite poor, and the PSEs have not able to generate resources for development. The PSE Survey shows that between 1986-87 & 1997-98, the Central Government owned PSEs, as a whole, never earned post tax profits that exceeded 5% of total sales or 6% of capital employed. Thus, the return earned by the public sector was significantly lower than the rate of return for a time deposit of one year in commercial banks. Also, the PSEs' highest return on Capital Employed (6% in 1995-96 and 1997-98) is at least 3% points below the interest paid by the Government on its borrowings. Thus, adjusted for the effective interest rate, they have actually been giving negative return on capital. If the profits of the PSEs working in the monopoly environment are excluded, the picture becomes even worse.

Another study shows that, for the period 1988-89 to 1997-98, (a) the unit gross profits and post tax profits of a sample of PSEs in the manufacturing sector were significantly lower than the private sector companies (when measured as a proportion of sales revenue net of indirect taxes), and (b) excluding the profits of PSEs in the monopoly areas (petroleum, power, coal & lignite), the post tax profits turn to losses for the manufacturing PSEs for 9 out of the 10 years. The following Table demonstrate the above points.