Return of the PSUs

NEW DELHI: Till recently, they were derided as bureaucratic destroyers of wealth and struggled to attract talent. Now, PSUs are suddenly hot  property once more, thanks to the slowdown. 

On January 13, announcing its financial results for the year 2008-09, infotech giant Infosys announced that it had shifted cash worth Rs 1,000 crore from private sector banks to public sector major State Bank of India (SBI). Infosys thus did exactly what thousands of retail investors had already done. Spooked by rumours that the American sub-prime crisis would have disastrous repercussions on Indian private sector banks, they opted for the security of a government-owned bank. 

India Inc is reeling under one round after another of layoffs and salary cuts. But not only are public sector units hiring, their staffers are likely to get a hefty pay hike —amounting to almost 50% in most cases — thanks to the government's recent acceptance of the Pay Commission report. 

Many senior bureaucrats have said off the record that they were contemplating early retirement from government service in order to avail of lucrative offers from the private sector. All those plans have been put on hold. "Why accept a job which may not even exist tomorrow?" asked one. The improvement in quality of life thanks to the Pay Commission won't hurt. 

For years, PSUs that went to Indian Institute of Management-Ahmedabad during recruitment season returned empty-handed. This time, 41 out of 234 members of the Class of 2009 signed up for a sarkari job. 

Indians who grew up in the post-liberalization era may find it hard to believe, but there was a time when the public sector truly occupied the commanding heights of the economy, when an SBI branch manager in a mofussil area was a local deity almost at par with the DM and SP, and when a government job considerably enhanced one's prospects in the marriage market. 

All that, of course, changed with economic reforms, which opened a whole new world of multinational salaries and globetrotting careers to young Indians. Private enterprise flourished. New business empires were created, old ones reinvigorated. PSUs were consigned to the shadows, derided as bureaucratic, sluggish and wealth destroyers. Talk of disinvestment and privatization gained ground, since "government had no business to be in business". It seemed that PSUs would soon go the way of the dinosaurs. 

Only, they didn't. In fact, they're back with a vengeance. Welcome to today, which seems much like the day before yesterday. Globally, socialists are chuckling. The US government is frantically extending bailouts to former icons of capitalism like General Motors and Citibank (a few days back, TOI headlined a front-page report `USA turns into USSR'. 

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It's no different in India. At a time when many leading private sector companies are seeing dips in profitability, if not outright losses, PSUs are going from strength to strength. Unwieldy size now comes across as reassuring solidity and economy of scale. No wonder investors too have rediscovered their virtues. 

Consider the insurance sector. In December 2008, LIC's market share in collection of premium for insurance cover was 60% — up from 56% in the same period last year. 

Similarly, public sector banks have increased their business and profitability as well. In the October-December quarter of 2008-09, while mobilization of many private sector banks dipped, that of public sector banks increased rapidly. The deposits of State Bank of India (SBI) increased by 36% or Rs 1,83,00 crore against around 24% for the entire sector. 

Similarly, in credit disbursal too, SBI and other PSU banks have outpaced the private sector banks. 
In the October-December 2008 quarter, while SBI's profit increased by 37%, ICICI Bank's declined by around 3.5%. 

Naturally, PSU chiefs are crowing. Says Bharat Heavy Industries CMD K Ravikumar, "Due to their innovative yet conservative approach, good corporate governance and highly dedicated and motivated workforce, PSUs have been able to face this time of recession much better then their private sector counterparts." 

Another PSU chief said the main difference between the public and private sector is that the former provides job security. But, "this is vital to motivate employees in tough times," he said. 

And what's the stock market verdict? Well, the BSE sens*x has crashed 38% since September 15 last year. The PSU index too has declined, but by a comparatively modest 24%.