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Government all set to bail out two of top three biggest loss making PSUs

The government is reported to be working on a ₹ 74,000 crore bailout package for state run telecom companies BSNL and MTNL, according to the Times of India.

BSNL is India’s biggest loss making public sector unit (PSU) with losses estimated at ₹ 13,804 crore in F.Y. 19 while MTNL is the country’s third largest loss making PSU racking up a loss of ₹ 3,398 crores. Separating these siblings of destruction is the national carrier Air India, which comes in at second place with a loss of ₹ 7,365 crores in F.Y. 19.

If this bailout package of ₹ 74,000 crores goes through, the two telecom PSUs would be the biggest drain on government expenses overtaking none other than Air India which has received budgetary support of ₹ 30,520 crore since 2012.

The bailout plan was considered the best option for the sickly PSUs, as closing them down is estimated to cost approximately ₹ 1.2 lakh crore or ₹ 1.2 trillion. Further, considering that the telecom sector is undergoing immense stress, disinvestment of the two companies would not find many takers.

The biggest reason BSNL & MTNL are in losses is because of unnecessary employee cost it incurs. Therefore, it comes as no surprise that a major portion of its bailout package will be used to satisfy costs related to terminate redundant employees. The break-up of the bailout package would look like this. Of the proposed bailout ₹ 10,993 crore and ₹ 29,182 crore will be used to provide for early retirement benefits and voluntary retirement scheme (VRS) which are both employee related costs. ₹ 20,410 crore will be allotted for rollout of 4G spectrum and the remaining ₹ 13,202 crore will be earmarked for capital expenditure.

BSNL & MTNL have been struggling to compete with private players in the sector due to high costs, poor management and unnecessary government intervention. While the telecom industry is fast migrating to 4G and even preparing for 5G, the two PSUs are yet to rollout 4G services. Average Revenue Per User (ARPU) of these two telecos stand at ₹ 38 compared to ₹ 70 for private players.

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