Economic Highlights

New Delhi, 19 October 2009

Unrealistic Forbes List

MORE PSUs SHOULD FIGURE

By Shivaji Sarkar

Indians were euphoric that 13 companies made it to the Forbes 50 fabulous list, a jump from nine earlier. However, only one public sector navratna company – Bharat Heavy Electrical Ltd (BHEL) is on it. Thus, the list would suggest that our navratnas are not real world class jewels and are mere imitation or the poor man’s gold. This would also put a question mark on whether the navratnas are doing well as is claimed.

The concern for 18 navratnas is legitimate. There are 56 mini navratnas too. These are institutions fully funded by the Indian public and have been brought back to health after long nurturing, policy corrections and reduced bureaucratic meddling.

One or two like the national carrier Air India might have gone back to its pre-reform era practices but most are known to do well. Forbes or any such international listings need not be rated too high but still they decide certain standards and corporate try to acquire those standards for greater transparency. Are not the public sector organizations adhering to such norms?

Indians love to criticize themselves. The questions raised above are normal for any average person. The nation does not trust its own system, corporate and officials. Most of them are at fault and have been responsible for much of the morass that has set in. There may be islands but these are ignored. It needs a scrutiny if the public sector has to be given any benefit of doubt.

On the contrary, don’t organizations like Forbes have standards that ignore many aspects? The Forbes would certainly not agree. The list includes only companies with a minimum revenue and marketing cap of $ 3 billion along with a five-year track record of operating profit and return on equity. 

Forbes claims to have evaluated 910 companies. It whittles the candidates down by first looking at each company's five-year track record for revenue, operating earnings and return on capital. Then they look at the most recent results, share-price movements and the outlook for the year ahead. A loss in the last fiscal year knocks the company out. It also makes judgment calls stated to be based on the differences in transparency, accounting and conditions among countries.

Public sector companies certainly have a better track record in maintaining accounting transparency. The audit procedures are often multiple and grueling. So these certainly cannot be knocked out on this important technical aspect. Recent trends have shown that they are top on the priority of job hunters as they have emerged as the best employers.

This apart, Forbes has not made the condition of model employer as being one of the criteria for the selection to fabulous category. Its methodology is strict and adheres to the financial aspect of a company. It also evaluates only on a scale spanning five years and that a company has to continue with a level of performance and would not be awarded for a freak delivery.

It ignores the fact that public sector organisations were set up in this country on the concept of “no loss no profit” so that they could deliver their social goals in an objective manner. The PSUs were initially set up largely in those sectors after Independence where the private sector would not dare to trudge, be it power, steel or heavy industry, metals trade or any such area where the risk factors were unknown and possibly heavy.

The Oil and Natural Gas Corporation (ONGC) Videsh alone has oil assets of $ 2.1 billion. If its parent ONGC is added to it, it would surpass the $ 3 billion criteria. But ONGC also has to ensure that petroleum prices remain at an affordable rate despite high international prices. So it is not called a fabulous group by the Forbes.

Even now the private sector is riding piggy back on the public sector in many critical areas. In some, wherever the private sector has decided to become partners, like the highway or power distribution, they are charging the nation too exorbitantly.

Alas, the Forbes does not take these into account. In its evaluation, a Shylock would have better rating than a business group sharing the goods with the people – beneficiaries. Forbes needs to re-look at their methodologies.

This does not justify the misadventures, if any, of the public sector organization. The CAG audit and Government’s evaluations not only of the 74 navratna and mini-navratna but of 160 Central Government PSUs recorded a profit of Rs 91,083 crore in 2007-08.  Most of these organizations are also earning profit for over past five years. The investments in the Central PSUs increased by 8.31per cent. These also earned foreign exchange amounting to Rs 74,283 crore.

It is not to say that there was no loss making units. There were 53 such enterprises in addition to the 160. They incurred a loss of Rs 11,274 crore and the list includes closed units of the Fertilizers Corporation of India and Hindustan Fertilizers.

There were some other loss-making units as well such as the Artificial Limbs and Manufacturing Corporation of India (ALIMCO) and the Food Corporation of India (FCI), which have non-financial social objectives. ALIMCO is providing immense services in rehabilitating the physically handicapped and the FCI has the objective of ensuring food security.

The Forbes or any other international listing does not consider this to be an activity. They forget that without such organizations the corporate would not even be able to function and their financial performance would not be so bright. But these organisations would never find place in the Forbes list.

The 13 companies who have found place in the list witnessed a compounded annual growth in profits in excess of 10 per cent over the last four years. It is a very high level of profit taking. Forbes does not also evaluate the impact of such profit taking on the international society. It has many including high prices and inflation.

If Forbes revises its methodology and includes social objectives and appropriate treatment to the labour force, certainly many more Indian public sector companies would find its place in the list. Possible after the Lehman Brothers scandal it needs to do that because now it has been internationally established that mere financial performance does not reveal the entire gamut of activities of a corporate group. The Fabulous 50 list must not only speak about the so-called financial health but also reveal how good the corporate citizen is at the global level.--INFA

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