Why the Centre’s PSE capex story isn’t as rosy as it sounds (2024)

Writing in The Indian Express last week, union minister for petroleum and natural gas Hardeep Singh Puri said that PSEs had utilized their profits for capex investment, and that as of February, public sector oil and gas companies were implementing projects with a combined investment of ₹5.67 trillion. But this is spread over several years, and the pace of growth would be a better indicator.

One measure of PSE capex is ‘net block’, or the sum of a company’s assets on a given date, adjusted for depreciation. In 2022-23, net block of all operating PSEs rose 5.7% (the change in net block over a year can represent the incremental capital investment in that year). In the covid era, and after, growth in PSE capex has been markedly slower than a decade ago.

Overall government capex—by government ministries and PSEs—has dropped from 8.8% of GDP in 2008-09 to 7% in 2020-21. Private sector capex has seen an even steeper fall since the 2008 financial crisis, from 25% of GDP in 2008-09 to 19% in 2020-21. And the drop in PSE capex is in spite of an increase in the number of operational PSEs, from 213 in March 2009 to 254 in March 2023.

Sectoral skew

Even as the number of PSEs has grown, only a handful of sectors account for a bulk of PSE assets. Power-generation companies (such as NTPC) and oil companies accounted for 52% of PSE assets in 2022-23, though this is down from the 60% it was a decade ago.

One sector that has increased its share of PSE assets in a significant way in the last decade is transport and logistics. This included companies building and servicing the dedicated freight corridor project, subsidiary companies of oil majors set up to provide fuel transport services, and the main public sector shipping company, the Shipping Corporation of India. And though successive governments have a stated aim of exiting non-core sectors, PSE assets have grown in these sectors too. For example, assets of PSEs in hotels and tourist services have grown from ₹228 crore to ₹473 crore in the last 10 years.

Also read: Why India Inc’s capex plans slowed down in FY24

Company weight

In the context of PSE capex, the skew is even greater when seen through the prism of individual companies. In 2022-23, of the 254 operational PSEs, only 119—fewer than half—showed capital investments that year. Further, just 10 of these 119 PSEs accounted for 80% of the capex that year. Indian Oil Corporation (IOC) shows an effective capex (as measured by the change in net block) of ₹18,596 crore in 2022-23, accounting for about 16% of the total PSE capex.

Five of the top 10 companies in capex were from the oil sector, accounting for around a third of capex across investing PSEs. Across the world, the oil sector has gained windfall profits from high fuel prices of the last few years, and Indian public sector oil companies have risen along with the tide. Beyond the oil sector, NTPC Green Energy and the Dedicated Freight Corridor Corporation of India were other companies to make significant investments.

Increasing centralization

With windfall profits, oil companies are self-sustaining, but others aren’t. A major shift in the last decade has been the increasing importance of central government support for non-oil PSEs. Central government support for PSEs, either via equity or loans, now accounts for 62% of their total stated ‘capital outlay’, up from 21% a decade back.

This ‘capital outlay’ of PSEs, as stated in budget documents, is not necessarily the same as their actual capex. At times, government support is used for purposes other than new plants and machinery too. In 2022-23, for instance, the government invested ₹26,386 crore in telecom firm BSNL, accounting for almost all the company’s stated capital outlay for the year. However, almost all that money made its way back to the government as ‘AGR dues’—the licence fee BSNL owed to the government for spectrum. These are edges in PSE capital investment that need to be sorted.

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