A Survey of State Enterprises in India

Summary

A Survey of State Enterprises in India is a 1962 Forum of Free Enterprise booklet that reprints a sequence of Economic Times articles and editorials from 8 and 16 February 1962, framed by an introduction signed by A. D. Shroff, the Forum’s President. The booklet collates a comparative study of sixteen large Central Government companies — covering roughly 91 per cent of actively functioning Central Government undertakings by paid-up capital — alongside private-sector benchmarks drawn from a Reserve Bank of India sample of 1,001 industrial companies and the Economic Times’ own panel of 51 industrial giants.

Shroff’s introduction frames the booklet as a corrective to information opacity: even Parliament’s Estimates Committee, he notes, has had to flag the difficulty of obtaining authentic data on state enterprises. The argumentative spine of the survey is that the public sector underperforms the private sector across every standard profitability measure — profits before tax as a percentage of total capital employed, gross profits to net worth plus borrowings, and profits after tax to net worth alike — and that the position is aggravated by the very low interest charge (around 2½ per cent) on government loans to these enterprises, which at normal market rates would have wiped out reported profits. The booklet further argues that, contrary to claims of pro-consumer pricing, public-sector units realised a 15.3 per cent profit margin on sales in 1959-60 and 24.9 per cent in 1960-61 against an average of 10 per cent charged by the private sector — so the consumer, too, has ‘had a raw deal’.

A second cluster of pieces attacks the accounting practices of state enterprises directly: publication delays beyond the limits set by Section 210 of the Companies Act; aggregation of salaries, fuel and power into uninformative ‘overhead’ lines; physically uncounted or wrongly valued stocks at Hindustan Shipyard, Praga Tools, Hindustan Steel, the National Coal Development Corporation and Fertiliser Corporation of India that have left profits overstated by lakhs and crores; and a Reserve Bank Bulletin study judged to have ‘struck a vacuum instead of gold’ by skipping the profit analysis altogether. An Appendix of six tables, supported by illustrative bar-charts of relative size, balance-sheet structure and profit ratios, supplies the underlying data on which the polemic rests.

The booklet brackets its data with two ideological frames: a quoted line from Eugene Black, then President of the World Bank, insisting that private enterprise be accepted ‘as an affirmative good’ rather than ‘a necessary evil’, and a closing aphorism by Shroff himself — ‘Free Enterprise was born with man and shall survive as long as man survives.‘

Key points

• The booklet reprints two Economic Times articles (8 February 1962) and an editorial (16 February 1962) under the Forum of Free Enterprise imprint, framed by an introduction by A. D. Shroff.

• The survey covers 16 large Central Government companies — about 91 per cent of actively functioning Central Government undertakings by paid-up capital — benchmarked against a Reserve Bank sample of 1,001 firms and the Economic Times’ panel of 51 industrial giants.

• Across every standard ratio — profits before tax to capital employed, gross profits to net worth plus borrowings, profits after tax to net worth — the public sector trails the private sector substantially.

• The relative advantage public-sector units show in post-tax figures is attributed to large tax concessions arising from the youth of the companies, not from operational efficiency.

• Public-sector units charged a higher profit margin on sales (15.3 per cent in 1959-60, 24.9 per cent in 1960-61) than the private sector’s ~10 per cent average, refuting claims of consumer-friendly pricing.

• Interest on government borrowings worked out at only about 2½ per cent — well below market rates — and at commercial rates would have wiped out reported public-sector profits.

• Published accounts of state enterprises are shown to breach Companies Act Section 210 timelines, conceal salaries and fuel within ‘overhead’, and carry unverifiable inventory and unrecognised losses across multiple corporations (Hindustan Shipyard, Praga Tools, Hindustan Steel, National Coal Development Corporation).

• A Reserve Bank of India Bulletin study of these enterprises is dismissed for skipping the profit analysis altogether — ‘struck a vacuum instead of gold’.