Private good, public loss: PSEs have been losing mkt share to private peers

In the United Kingdom, the contest among Conservative candidates for the party’s top post centres on apportioning the legacy of their late leader Margaret Thatcher. Rishi Sunak, a former chancellor, has promised to slash taxes as Thatcher did as prime minister. Foreign Secretary Liz Truss has started dressing like Thatcher. India has its version of Thatcher’s policies, wherein the state is either monetising or privatising assets to achieve the goal of minimum government.

An analysis of public sector enterprises' performance shows why the government wants disinvestment. Consider insurance. An August 2022 report by the Comptroller and Auditor General (CAG) said that four public sector insurers lost more than Rs 26,000 crore between 2016-17 and 2020-21. They charged lower premiums on group health insurance coverage and ended up paying more in claims. The losses eroded gains from other businesses, like general and automobile.

A Business Standard analysis of data in the CAG report shows the market share of the four insurers is eroding. They commanded 63 per cent of the market in 2016-17: their share declined to 49 per cent in 2019-20. Net earned premium grew 13.8 per cent between 2016-17 and 2019-20, compared to their private competitors gaining 82.7 per cent in the same period.

Other state-owned firms are no better. Data shows that the profits of profit-making central public sector enterprises (CPSEs) declined in 2019-20. Losses made by loss-making enterprises were at a decadal high. In absolute numbers, profit-making CPSEs fell from 183 in 2017-18 to 171 in 2019-20. Loss-making CPSEs rose from 72 to 84 in the same period.

The deterioration is stark when compared to private companies. Public sector banks performed better in terms of net profit than their private sector peers between 2017-18 and 2021-22 but their interest income grew slower. Interest income for private banks grew 48 per cent, against the 36 per cent growth by state-owned ones.

Data from the Reserve Bank of India shows that private banks’ credit and deposit growth is consistently better than the public sector.

Critics of free market economics may argue that the public sector has taken banking and insurance to the masses: a responsibility the private sector would not have done of its own volition. But do we need 12 public sector banks to further public good?