30% of state public enterprises loss-making: RBI Report

Mumbai: Around 30 percent of the operating 849 state-level public enterprises (SLPEs) in the country are estimated to be incurring losses, an RBI report said on Thursday.

This has adverse fiscal consequences since loss-making SLPEs depend on budgetary support, impacting the state finances instead of bolstering them, said the report titled 'State finances: A study of Budgets of 2015-16', released by RBI here.

States started to set up public enterprises as an instrument of public policy to fulfil various socio-economic objectives. Major sectors operating SLPEs are manufacturing, finance, power, infrastructure, agriculture and allied services.

Suggesting initiatives for improving performances of SLPEs, the report said apart from budgetary support, state governments need to invest in research and development for enhancing product quality while consumer preferences need to be gauged through market surveys.

Alternatively, disinvestment or transfer of ownership to private entities may help improve performance, says the report, adding that, providing the company's workforce with an ownership interest in the company through an employee stock ownership plan (ESOP) is a viable option for SLPEs.

The disinvestment process, if preceded by restructuring of SLPEs, may help in higher price realisation on sale of equity, the report said, suggesting granting autonomy to these enterprises.

About the states' power utilities, the report said even as aggregate technical and commercial (AT&C) losses moderated from 26.4 percent in 2010-11 to 22.7 percent in 2013-14, they are still at an elevated level.

Outstanding debt of Discoms has increased from about Rs 2.4 trillion in 2011-12 to about Rs 4.3 trillion in 2014-15, with interest rates in the range of 14-15 percent. The Central government announced Ujwal Discom Assurance Yojana (UDAY) on November 5, 2015 in order to effect a turnaround in the financial viability of state-owned discoms and improve operational efficiency.

If states take over 75 percent of discoms' debt under Uday, it may reduce the latter's interest burden to around 8-9 percent, thus improving overall efficiency, the report said