Post-Covid capex pumps PSU muscles
market capitalisation of listed PSUs coincides with GoI's efforts to revive the economy post-Covid through capex. For most of the decade leading up to the pandemic, PSUs were losing valuation, relative to their earnings, as investors chased fancier private companies. Two things changed after Covid.
One, government-owned banks emerged stronger after cleaning their balance sheet of bad loans. These banks were aggressive lenders when Indian households fed their pandemic-starved consumption through credit. Two, GoI stepped on the infrastructure pedal, creating unprecedented business for PSUs in the sector and allied heavy industries.
The altered market perception about PSUs has shaped GoI's approach to divestment. It now looks at state enterprise more holistically through assets and income, instead of seeking budget-balancing exits.
A reappraisal of PSUs, however, could slow the longer trend of GoI getting out of business. And it needs to filter out the temporary effects of economic management.
PSU banks are unlikely to retain their new-found health against private competitors for an extended period. Government capex, similarly, has a shelf life, after which private investment is expected to take over. That means companies borrowing from the cheapest lender, often from abroad, to build capacities.
Neither consumption- nor investment-led growth assures a special place for PSUs. They will have to compete.
Indian governments, since the economic liberalisation of the 1990s, have admitted governance remains a weak area for PSUs. If the public sector is to contribute more meaningfully to India's growth, it needs to be able to make business decisions without political interference.
