This newspaper had, last year in September, pointed out that the dues of the Centre, centrally-owned PSUs as well as those owned by state governments were probably around Rs 7 lakh crore; and the number would climb further if the Rs 2.5 lakh crore owed to the Food Corporation of India were to be added.
Dealing with the government, this newspaper has suggested on various occasions, is probably one of the bigger counterparty risks that firms face, given how long their dues pile up for. In one celebrated case, Ajit Gulabchand of HCC lost his Lavasa city project despite his dues to the banks for this project being a lot less than what NHAI owed him against arbitration claims. This newspaper had, last year in September, pointed out that the dues of the Centre, centrally-owned PSUs as well as those owned by state governments were probably around Rs 7 lakh crore; and the number would climb further if the Rs 2.5 lakh crore owed to the Food Corporation of India were to be added. A recent post by Pavithra Manivannan and Bhargavi Zaveri of the CMI-Finance Research Group in The Leap Blog (bit.ly/3vY6uUn)—the blog is edited by economist Ajay Shah—documents this in more detail, though only for 57 central PSUs that are controlled by ministries ranging from heavy industry to petroleum and power.
Manivannan/Zaveri show that the annual average—over FY18, FY19 and FY20—of outstanding payables stood at Rs 1.3 lakh crore. The annual average procurement value, meanwhile, was just a fifth of this, at close to Rs 30,000 crore! This should spell out how doing business with the government effectively means that a firm needs to stay prepared to remain unpaid for great lengths of time. Never mind that such large sums owed translate into a capital crunch for the business to grow, and more important, into the inability to pay other associated businesses and even lenders. In a nutshell, if you are in business with the government, be ready to have your loans declared NPAs if your payment gets stuck with the government. While various ministers have, from time to time—finance minister Nirmala Sitharaman said this during the pandemic—talked of getting PSUs to clear their dues on time, sadly, there have not been too many solutions that have worked so far.
Now that the GSTN platform is working, one solution is to generate 24×7 reports on orders placed by PSUs as well as payments made; if this is put on a dashboard, chances are there will be more pressure to clear dues faster, especially if monetary penalties for delayed payments are built into the system. Another solution that the FM had spoken of earlier is to allow suppliers to borrow against PSU dues; while this will improve their cash flows, the cost of this borrowing will probably get reflected in the prices quoted to the PSUs.