Public sector units (PSUs) have been facing a financial crunch for a while now with the issue becoming severe since the beginning of this year. Many of the PSUs, be it in the defence sector, aviation, telecom, are finding it difficult to pay salaries to their staff.
Mahanagar Telephone Nigam Ltd (MTNL), Bharat Sanchar Nigam Ltd (BSNL), defence firm Hindustan Aeronautics Ltd, national carrier Air India and even research institute Tata Institute of Fundamental Research (TIFR), have been struggling since the beginning of 2019 and some of them are still finding it difficult to pay salaries to their employees. Some, like TIFR, have announced that they will pay only half of the net salary to its staff for February due to the financial crunch.
"Due to insufficient funds, all staff members and students/ post-doctoral fellows of TIFR, its centres and field stations will be paid 50 percent of the net salary for the month of February immediately," TIFR registrar Wing Commander (retd) George Antony said in a letter to the employees, a PTI report said.
Most PSUs are making losses and that is a primary factor for non-payment of salaries. There is no cash to dip into. And some like BSNL, for whom this should be the last resort, are also dipping into their cash reserves. "When the business model is unviable and is dependent on government funds, then staff salaries get deferred and even vendors cannot be paid," an economist told Firstpost.
Kris Lakshmikanth, CMD, The Head Hunters India, a CXO-level hiring firm, said that one of the reasons for the cash crunch is the various welfare schemes that the Narendra Modi government has announced in the interim budget. "To fund these schemes the government needs money from PSUs and this is impacting their finances," he said.
How long will it last?
Industry experts felt it was a temporary phase that would be over by the end of the fiscal year. There is an economic slowdown and that is having an impact on the cash flow situation of PSUs also, said DK Srivastava, chief policy advisor, EY India.
The fact that PSU enterprises have had to give a dividend to the government has also impacted their finances. PSUs usually give dividends but in a slowing economy, it has squeezed their cash flow further.
The government had earlier budgeted Rs 52,500 crore dividend income from public sector enterprises for the year 2018-2019 but later it revised this figure to Rs 45,100 crore due to lower earnings of the PSUs. Faced with a crunch due to the shortfall in tax revenues, the government has now pressed cash-rich PSUs like Indian Oil Corporation (IOC) and Oil and Natural Gas Corporation (ONGC) to pay a second interim dividend for the current fiscal after seeking regulatory nod.
While IOC has called a board meeting on 19 March to consider paying a second interim dividend, ONGC has declined saying it does not have surplus cash to make such payments within a month of an interim dividend payout, sources with direct knowledge of the development said.
As per regulations, a company cannot declare a second dividend within a month of the previous payout and companies like ONGC would need to seek approval of the market regulator SEBI to make such a payment, a PTI report said.
In a major relief to about two lakh employees of the state-run Mahanagar Telephone Nigam Ltd and Bharat Sanchar Nigam Ltd, the department of telecom released Rs 1,021 crore to pay their salary dues before the Holi festival, said media reports.
The department of telecom (DoT) on Tuesday released the employees' salary dues of Rs 171 crore to the MTNL as part of an internal settlement and Rs 850 crore to the BSNL, which is to come from the firm's internal accruals, said a report in The Economic Times.
The report quoting an official said that the cash-strapped BSNL now is in a position to disburse all salaries and dues of Rs 850 crore to its employees before Holi.
Unviable business models
The issues with PSUs is that they are not run as viable business models. There is heavy subsidisation on the final product. The PSUs fund losses through bank borrowings. Some of the PSU banks are themselves facing cash crunch and hence are unable to fund these units, analysts, who did not want to be named, told Firstpost.
Companies like MTNL and BSNL, for instance, had a monopoly earlier but that is not the case now. MTNL is fairly irrelevant but unlike a private sector firm where number of employees can be reduced when the bottom line is being affected, here the staff strength cannot be downsized. With fewer customers, the company is unable to pay salaries.
Commenting on the current PSU fund crunch situation, Sachchidanand Shukla, Chief Economist, Mahindra Group, said, "Essentially, there are balance sheet challenges with entities and the government having front-loaded expenditure and back-ended revenues is constrained to cut expenditure in the last couple of months. This is the typical cycle."
DK Srivastava said the PSUs will have to work on improving their finances. Until then, this fund crunch will continue, he said.
"What we are seeing now is an adjustment being made by the government to reach their target set for the fiscal year. As soon as the new fiscal year begins, the government will start spending again and so I feel the economy should start to bounce back closer to elections," Srivastava said.
However, these PSUs will have to re-evaluate their business models, do some innovation to stay relevant and earn money to sustain themselves.