Dr. Ajab Singh, Asst. Professor, Department of Commerce Veerbhumi Govt. P.G. College, Mahoba, U.P., India

Transcription

1 INTERNAL FINANCING IN CENTRAL PUBLIC SECTOR ENTERPRISES IN INDIA Dr. Ajab Singh, Asst. Professor, Department of Commerce Veerbhumi Govt. P.G. College, Mahoba, U.P., India Abstract:- This paper endows a perspective drawing to Internal Financing of Central Public Sector Enterprises in India. Internal resources are used significantly in financing of plan outlay in CPSEs. Since 2005/06 to 2014/15, share of internal resources in plan investment (IRPI) in relation to total internal resources was on an average more than 73 percent and in the range of 49 percent to 100 percent, while the share of internal resources in plan investment (IRPI) in relation to total plan outlay was on an average 58 percent and in range of 51 percent to 71 percent in same period. During the span 2005/06 to 2014/15, net profit to net worth ratio continuing on an average 14.3% in the CPSEs and in the range of 10.7% to 17.85%, is a noticeable return on proprietor s fund. The average interest payments in same period are made 21.93%, which can say more than one-fifth of PBIEET(i.e. gross profit). Reasons behind to increase the interest burden sharply are the consistently change in financial structure of CPSEs. As on 31 st March, 2003, share of long term loans was percent of total financial investment, whereas it reach to 80.6 percent as on March ending In absolute terms, total Internal resources went up from crore in FY 2005/06 to crore (1.6 times greater) in FY 2014/15. In the year 2005/06 to 2014/15, on an average more than 71 percent operating CPSEs generated internal resources. Remaining 29 percent are those operating CPSEs which incurring either losses or operating on break even- point. It can be said that almost profitmaking CPSEs contribute in internal resources generation. This paper examines the Internal Financing of Central Public Sector Enterprises in India, with a view to wit the overall financial performance of these CPSEs. Using current PE surveys, MOHI&PE annual reports, we firstly, current key highlights of performance in terms of several variables as well as justification of internal financing in CPSEs. Secondly, it has been studied of Government policy to internal financing in CPSEs and gross trend of internal financing in CPSEs in India. Finally, several components of internal resources generation in CPSEs and their contribution and share of internal resources of CPSEs in plan outlay are analyzed and also suggested various measures for generation of internal resources in Indian CPSEs Keywords- Central Public Sector Enterprises, Efficiency, Financial Autonomy, Internal Financing. Introduction:- Internal financing is an important source of capital for expansion purposes; for corporate profits can be readily ploughed back in to business. Since expansion money is venture capital, the employment of company s own funds is a sound, conservative means of financing expansion. This mode of financing, if used for productive purposes within the business, may have a multiplier effect on the accumulated surplus. It projects a healthy financial picture of the corporation. Satisfactory accumulated earnings are an indicator of the prosperity of a country. The arrangements of initial capital in CPSEs are provided by the budget adjustments, but in the situation of development and expansion, it has been emphasized on internal financing. This system of financing is called accumulated profits policy, ploughing back of profits, self financing or earnings retention. In this arrangement, an enterprise retains some of its net profit and utilizes it in capital expenditures and future development plans. It can be said in terms of definition that Internal financing is an outcome the efficiency of any enterprise and which is in the form of reinvestment of excess. In such excess has been comprised not only net profit but also increase in depreciation and reserve funds. It is worth mentioning here that Government has adopted the necessities of internal financing in these enterprises for the sake of national development and accelerator of the economy of the country. The aggregate financial investment in CPSEs skyrocketed from 29 crore in 5 enterprises at the outset of the first five year plan (April 1,1951) to crore in 298 at the end of third year of twelfth five year plan( March 31,2015). It is noted here that the financial investment during over , increased by 1,03,962 crore and exhibited growth of 10.48%. Although the total investment has enhanced significantly in CPSEs over the years, the structure of financial investment in CPSEs has also under-gone change. As the share of paid-up capital in total (financial) investment was percent during , it decreased to percent in and even to percent in The share of longterm loans, on the other hand, rose from percent in to percent in and to percent in The ratio of total turnover of 19,95,902 Crore to the GDP of 1,25,41,208 Crore at current market prices during stood at 15.91%. The major contribution of the production is coming from petroleum, coal, steel, electricity, power generation and marketing of services. Some of latest prime points concerns to performance of central public sector enterprises in India are presented in the underneath Table 1 as follows: 16

2 TABLE 1: CURRENT KEY HIGHLIGHTS TO PERFORMANCE OF CPSEs IN INDIA (As on 31 st March 2015) Total Number of CPSEs 298 Number of Operating CPSEs 235 Investment( Crore) Reserves& Surplus ( Crore) Total Turnover( Crore) Overall Profit( Crore) Profit of profit making CPSEs( Crore) (157 CPSEs) Loss of loss making CPSEs( Crore) (77 CPSEs) Dividend paid by CPSEs( Crore) Contribution to the Central Exchequer( Crore) Foreign Exchange Earnings by ( Crore) Employment( in numbers) Total Market Capitalization of CPSEs( 13,27,127 Crore) Percentage change in Market Cap.(2015 over 20.35% 2014) Total Market Capitalization of BSE ( 1,01,49,290 Crore) Percentage change in Market Cap. Of BSE(2015 over 2014) BSE Sensex Percentage change in BSE Sensex over previous year Market Capitalization of CPSEs as % of BSE Market Cap. Source: Department of Public Enterprises, Ministry of Heavy Industries & Public Enterprises, Government of India. Table 1 depicts several main points pertaining to the CPSEs. There were 45 CPSEs listed and traded on the stock exchanges of India as on March 31,2015. The total market capitalization of these CPSEs based on stock prices on Mumbai Stock Exchange as on March 31,2014 was 11,02,730 crore. Market capitalization of these CPSEs as on March 31,2015stood at 13,27,127 crore. There was, consequently, an increase in market capitalization of CPSEs by 20.35% (2,24,397 crore) as on March 31,2015 over market capitalization of previous year. During this period, the market capitalization of Mumbai Stock Exchange increased by 36.87% and Sensex increased by 24.89%. Market Capitalization (M_Cap) of all listed CPSEs as a percentage of BSE M_Cap decreased from 14.87% as on March 31, 2014 to 13.08% as on March 31,2015. JUSTIFICATION OF INTERNAL FINANCING IN CPSEs India is such a developing country, which having the serious problem of capital. It has been emerged great importance of internal financing in industrial and commercial enterprises of public sector. Indeed, it is easy to plough back to more amount of earned profits by public sector enterprises in contrast to IRACST International Journal of Commerce, Business and Management (IJCBM), ISSN: private sector, because most of the share capital of these enterprises although in hands of Government. Thus, if dividend not provide to Government for a long span, no specific problem will arise. To the point of view of righteousness to internal financing in CPSEs, following arguments may be given: i. Assist in Expansion of Enterprises: It may solve the problem of unnecessary delay in expansion of CPSEs by financing of public enterprises. Because if any enterprise want to expansion through its internal resources, then Government should not be any difficulty for approval to the pertaining expansion of enterprises. ii. iii. Enhancement in Financial Autonomy: Financial autonomy of CPSEs might be raised by the way of internal financing and this opportunity may achieve by the enterprises through ploughing back their surpluses according to the national policies and priorities in corresponding enterprises. Decrease in the Cost of Financing: Financing cost of enterprises may reduce due to internal financing, because financing on the basis of these resources, will not be emerged any kind of dividend and interest burden on the enterprises. iv. Measure of Efficiency: It is a fundamental reason of internal financing to earn profits.thus to earn profits is a significant measure of the efficiency to enterprises. In back few years, more emphasis has been given to enhance the efficiency of CPSEs. v. Reduction in Dependency on Budget Resources: On account of financing through these resources, dependency on Government will reduce for financial necessities by that may prevent to unnecessary tax burden and deficit financing. vi. Control of Private Sector s Profits on the Cost of public Sector: In Indian context, emphasis is being made on ploughing back of profits or to earn profits in public enterprises by this reason that most of the enterprises in India manufactures to such articles, which use in the forms of raw materials or capital goods in the industries of private sector. Therefore, if public enterprises would not earn proper profits, then in one side, it will be difficulty of financial resources for its expansion and development, in another side, profits of private sector will be raised on the cost of public sector. The Bureau of Public Enterprises, Public Enterprises Survey ( ), the apex body which guides and maintains the working of various public sector units, has repeatedly underlined the need to strengthen the internal resource base of the undertakings. In its communication to the respective undertakings it pointed out that the surpluses generated by the units should further be used for expansion and diversification. 17

3 REVIEW OF LITERATURE To the point of view of internal resources generation and capital formation by public enterprises, several scholars, experts, policy makers and prominent economists expressed their opinion and justify the creation of internal generation resources. According to V.K.R.V. Rao (1963), the public enterprise should prepare and implement a programme of planned profits for each enterprise so that each enterprise can make its maximum contribution to the funds available for reinvestment in the same enterprise or investment or other enterprise in the public sector. In fact, in due course, the public sector should become the most important financing source for its further expansion and increasingly shed its reliance on the public exchequer, whether through loans or taxes, for its requirements or capital needs. Ramanadham (1963) also emphasised the need of internal resource generation by public sector for mainly to reasons. For one thing, increasing proportions of the nation s investible funds are being used through the medium of the public sector; hence the responsibility devolves on the government for ensuring that no gains of capital formation otherwise realisable have been lost due to this institutional decision on investment. Further, there has been a heavy borrowing from aboard in recent times. This therefore, leads, us to the inevitable conclusion that for the long-term solvency of the national economy, a reasonable level of profitability, in order to make retention in the public sector, is to be unequivocally realised. B.P. Mathur (1969), analysed the differences in financing in public enterprises and private enterprises. He also made an attempt to discuss the question of self-financing and the private equity participation in public enterprises. In this very context, Late(Mrs.) Gandhi (1970), opined that the public enterprises should provide commercial surpluses so that finance for further economic development is generated. Moreover, several national thinkers and the opposition leaders have also viewed that the public enterprises should generate internal resources for their future expansion and development so that the burden on the public exchequer is considerable reduced. The National commission on labour(1984), opined that as the resources for development programme become scarce, the public sector come to be regarded as a source of surplus funds for investment and the welfare of the workers approach got toned down considerably. The other articles in which discussed the various facets of public enterprises financing encompass those by Sarkar( 1982), Mishra( 1975), Chatterjee (1983) and Chattopadhyaya (1976). The Parliamentary Committee (40 th report) has expressed the hope that public enterprises will in due course be generating more surpluses to be deployed for internal expansion.it is quite clear from various plan documents, other official papers, views of economists and national leaders that generation of profits for the purpose of making sufficient resources available for investment is certainly an important objective of the Indian Public sector. NEED OF THE STUDY The process of economic reforms has been going on for more than two and a half decades to adopt consistently the policy IRACST International Journal of Commerce, Business and Management (IJCBM), ISSN: measures for improving the performance of CPSEs in India. Thereby, I propelled to analyze the internal financing of operating Indian CPSEs in switching scenario in recent nearly ten years and come to know the new barriers to sustain internal financing of CPSEs in the country. OBJECTIVES OF THE STUDY It is probably important to assess empirically, whether the internal financing of central public sector enterprises has, in fact, improved over a period of time. This exploratory exercise endeavours to document the long-term trends in some aspects to the internal financing of CPSEs for the period of ten years, viz., to More particularly, it seeks to examine the Government policy to internal financing in CPSEs and gross trend of internal financing in CPSEs in India. Furthermore, several components of internal resources generation in CPSEs and their contribution and share of internal resources of CPSEs in plan outlay are analyzed and also suggested various measures for generation of internal resources in Indian CPSEs. RESEARCH METHODOLOGY The present study lays both quantitative and qualitative analysis based on exploratory research. To effectuate the objectives and result of the pertaining study, secondary data have been collected on all India basis by using Public Enterprises Surveys, annual reports of Ministry of Heavy Industries and Public Enterprises, Government of India, Economic Surveys, Ministry of Finance, DEA, E D, Government of India and Planning Commission, First Five Year Plan to Eleventh Five-Year Plan, New Delhi In addition, reference books, policy papers and articles, so on., were also consulted for collecting information. GOVERNMENT POLICY TO INTERNAL FINANCING IN CPSEs Today, it is widely accepted that the public sector enterprises should generated surpluses in order to finance their future expansion and development plans. It has also been very clearly bought out from the emphasis laid down in the Five Year Plan documents and other official papers. It is established in the first two Five Year Plans that the public sector should make a significant contribution to the pool of investible funds by generating commercial surpluses. It was also expected that the public sector enterprises would augment the revenues of the state and provide resources for further development. The Third Five Year Plan observed that every effort must be made to ensure that they should yield an adequate surplus on the basis of which to plan further expansion and future development. Moreover, for the development in due course, to become self-financing, the surpluses from past investments constitute the main source. It is important that in selecting their projects for implementation, the government constantly keep in mind the importance to get results from these investments as early as possible. In continuation of this thought, the Fourth Five Year Plan laid greater emphasis on the generation of internal resources by pointing out the acceptance by the government of the recommendations of various committees to mop up the resources from various projects and suggesting specifically a 18

4 rise in the rate of return on capital employed to 15.0 percent by the Industrial and Commercial Undertakings excepting the public utilities. The need to ensure a reasonable rate of return on public sector investments so as to generate the surpluses for their self-financing received further emphasis in the Fifth Five Year Plan Period. It can be observed that the subsequent plans further sharpened the focus on the need for the generation of internal resources. For instance, the Sixth Five Year Plan ( ) advocated the Central Government Non departmental Undertakings to earn 10.0 percent return on their investment per annum. The Seventh Five Year Plan required the generation of internal resources by the public enterprises through improvements in efficiency and productivity. The view is abundantly clear from the following statement: Consistent with the resources constraint, the public sector will have to concentrate its efforts in the Seventh Five-Year Plan increasingly on those areas and industries it alone can undertake projects requiring high investment and sophisticated or frontier areas of technology. In a similar way, the Bureau of Public Enterprises, the apex body which guides and maintains the working of various public sector units, has repeatedly underlined the need to strengthen the internal resource base of the undertakings. In its communication to the respective undertakings it pointed out that the surpluses generated by the units should further be used for expansion and diversification (PES-1982/83). It is mentioned in the Eighth Five Year Plan ( ) document that the public sector will continue to perform a key role in the coming years. However, certain critical weaknesses that are now apparent will have to be addressed to. The public sector, as envisaged by Jawaharlal Nehru, was to contribute to the growth and development of the nation by providing surplus reinvestible resources. This has not happened as it should have. The PSEs will need to increase their collective savings or internal resources from 3.4 per cent of GDP in to 3.8 per cent. In the relation to internal resources generation by CPSEs, it has been written in Ninth Five year Plan ( ) that the public sector enterprises have to compete with their private sector counterparts for raising resources. This necessitates more autonomy for CPSEs to enable them to improve their financial performance. CPSEs are required to maximise generation of IR during the Ninth Plan period. It is expected that the CPSEs would be able to raise the projected level of Internal and Extra Budgetary Resources (IEBR) during the Ninth Plan. It is noticed in Tenth Five year Plan ( ) that the savings rate of Public Enterprises in 8 th Plan, 9 th Plan were 3.06% and 3.47% of GDP at current market prices. It is actually expected to decline (2.85%of GDP mp ) quite significantly during the Tenth Plan period. This is the result of two conflicting forces. On the one hand, the share of public enterprises in GDP is expected to decline due to the disinvestment process; and, on the other hand, the profitability of the remaining enterprises, particularly the State Electricity Boards, is expected to improve. It should be noted, however, that it was not possible to fully take into account the impact of disinvestment on the share of public enterprises in GDP IRACST International Journal of Commerce, Business and Management (IJCBM), ISSN: because of the uncertainties involved in the process, and therefore, these are only indicative calculations. This should not create too many problems in the macroeconomic sense since any additional disinvestment will only result in a further decline in the share of public enterprises, which is exactly balanced by an increase in the share of the private corporate sector. In this plan Government expected to Public Enterprises to gross investment their financed through own savings up to 2.85% of GDP at market prices. In the Eleventh Five year Plan ( ), it has been stated that realization of PSEs resources in 10 th plan was 2.61% of GDP and projection for 11 th plan was made 4.02% of GDP as 1.41 greater than previous plan. Resources of PSEs in 10 th plan were realized of crore (34.9%) in which share of centre and States & UTs were crore(48.5%) and crore (16.8%). On this basis projection for 11 th plan was made of crore (32.6%) having the share of centre and States & UTs were crore(49.1%) and crore (49.1%) at prices. In this Plan, IEBR of CPSUs is estimated at Rs crore (74.5%). TREND OF INTERNAL FINANCING IN CENTRAL PUBLIC SECTOR ENTERPRISES IN INDIA In the early of third five year plan, it has been commenced to emphasise on internal resources generation in Indian Central Public Sector Enterprises (CPSEs). The CPSEs have been reflected to develop these resources consistently and use actively too. In third five plan ( ), it has been generated gross internal resources of 287 crore by nondepartmental CPSEs. Concerning internal resources consisted of crore in terms of depreciation and 69.2 crore in form of retained earnings. It was negative retained earnings (- 7.5 crore) in three annual plans ( ), but due to amount of depreciation ( crore), it has been generated to internal resources of crore. In fourth five year plan ( ), it had been significant improvement in the status of financing to internal resources and in this duration, it has been generated total internal resources of 1260 crore comprising the amount of 890 crore and 370 crore in terms of depreciation and in form of retained earnings consecutively. In fifth five year plan ( ), there has been overall internal financing of 3462 crore. Since and thereafter, it has been given more and more emphasis for internal financing consistently. There had been the total amount of 13,768 crore of internal resources in sixth five year plan, having 7582 crore and 6136 crore in terms of depreciation and in form of retained earnings consecutively. In seventh five year plan, it had been generated internal resources of crore. It was the remarkable feature of this plan that it had been improved the comparative amount of retained earnings. In the eighth five year plan ( ), the higher investment in the Mining & Quarrying and Communications sectors is due almost entirely to the higher internal resource generation of the oil and telecommunications sectors respectively. In the plan concerned, internal resources generation was of crore, while in ninth five year plan ( ),tenth five year plan( ),eleventh five year plan( ) and first 19

5 three years of twelfth five year plan, gross internal resources were generated of crore, crore, crore, and crore, consecutively. In brief, the status of internal financing of CPSEs may reflect in following Table 2 as follows: TABLE 2 GROSS TREND OF INTERNAL FINANCING IN CPSES IN INDIA ( Crore ) Period No. Of CPSEs Depreciation 2 Retained Total Profits Third Five year Plan( ) 27 to Three Annual Plans ( ) 31to Fourth Five year Plan( ) 47 to Fifth Five year Plan( ) 91 to Annual Plan( ) Sixth Five year Plan( ) 102 to Seventh Five year Plan( ) Annual Plans( ) Eighth Five year Plan( ) Ninth Five year Plan( ) Tenth Five year Plan ( ) Eleventh Five year Plan(

6 2012) * Twelfth Five year Plan( ) Source: Data compiled and computed from Public Enterprises Survey, Vol.I, various Annual reports on working of Industrial and Commercial Enterprises of the Central Government, Minister of Heavy Industries & Public Enterprises, Government of India, New Delhi. Note: 1.The figure of number of CPSEs not comprise to those enterprises which are loss-making or could not exert internal financing. 2. The data of depreciation comprises the written off amount of deferred revenue expenditure. 3. * This is inclusive of capital- work -in- progress (including intangible assets). 4. It is clear that the eighth plan was postponed by two years( and ) because of political uncertainty at the Centre.Worsening Balance of Payment position and inflation during were the key issues during the launch of the plan. Table2 presents the number of internal resources generating CPSEs, depreciation (including impairment of assets and deferred tax liability), retained profits as well as total internal resources. Due to analysis of corresponding Table, following facts are clear: i. It has been long-term trend to grow in the internal finance generating enterprises. ii. Years In gross internal resources with few exceptions continued to increase, but in this amount of depreciation is increased more in comparison with retained profits. Reasons of increase in the amount of depreciation are huge investment in plants, etc. In CPSEs generating IR (No.) d Lossincurring/No P&L making CPSEs TABLE 3 INTERNAL RESOURCES OF CPSES IN INDIA Operating Enterprise (No.) iii. these enterprises. Due to low profitability, retained profits are raising with low pace. There has been significant increase in the amount of retained profits in absolute terms since the year 1993/94 of crore to crore in 2014/15. COMPONENTS OF INTERNAL RESOURCES GENERATION IN CPSEs Several components of the gross internal resources earned in each enterprise is utilised for repayment of loans, additional working capital requirements, meeting non-plan capital expenditure necessities, etc. Thus, The total internal resources earned are not always available for financing the plan schemes. The amount of internal resources available for financing the plan schemes of public enterprises have been presented in the annual budget documents. A perusal of different components of internal resources depict that the share of retained profit has been reflecting an increase excepting the year and during to period in absolute terms.. It went up from crore in FY to crore in FY Whereas the share of depreciation in internal resources increased from per cent in to per cent in , the share of retained profit in internal resources declined from per cent in FY to per cent in FY Table 3 below: (%) c Tax Depreciation Impairment Deferred Retained Profit ( in Crore) Total Internal Resources (28%) (40.36) (0.93) (58.71) (29%) (33.28) (6.69) (61.03) (25%)

7 08 (35.51 (5.65) (58.84) (26%) (31.08) (6.78) (62.14) (28%) (26.52) (8.84) (64.64) (26%) a (37.27) (0.15) (3.25) (60.33) (26%) (46.22) (31%) (42.34) (30%) (39.96) (31%) (46.03) (0.12) (0.28) (0.56) (0.39) (1.10) (3.70) (4.55) (3.26) (52.56) (53.68) (54.93) (50.32) ource: Public Enterprises Survey , Minister of Heavy Industries & Public Enterprises, Government of India. Notes : a)this is inclusive of capital- work -in- progress (including intangible assets)., b) Figures in parentheses indicate percent share in total internal resources., c) Percent is calculated of IR generating CPSEs over total operating enterprises, d)in the data of loss-incurring CPSEs, there has been comprised the number of not profit & loss making CPSEs in the year , , and Each financial year having one enterprise. FIGURE 1 IR GENERATING CPSES IN OPERATING CPSES, FIGURE2-SHARE OF DEPRECIATION AND RETAINED PROFITS IN TOTAL INTERNAL RESOURCES,

8 Table 3, Figure 1, and Figure 2 present the various components of internal resources, viz., retained profits, depreciation, impairment, and deferred tax impairment since the year to is financed through budgetary support provided by the Central Government, which is a part of total plan outlay and Gross Budgetary Support (GBS), and IEBR raised by CPSEs on their own. IEBR comprises of Internal Resources, and Extra Budgetary Resources (EBR). Internal Resources comprise retained profits net of dividend paid to government, depreciation provision, and carried forward reserves and surpluses. EBR consist of receipts from the issue of bonds, debentures, ECB, suppliers credit, deposit receipts, and term loans from financial institutions. A good deal of investment in CPSEs in recent years has been made from internal resources. Internal resources showed a continuous increase for plan investment in absolute terms from till , marginally declined by 13.6 percent in and 36.4 percent over the previous year. The share of IR has decreased from percent in plan outlay in to percent in , while the share of Budgetary Support and extra budgetary resources have Internal resources in terms of depreciation, shown increasing trend since the year to the end of study period due to increase in the number of CPSEs to generating internal resources and increase in their fixed assets, while in the same period, it has been reflected downward trend by retained profits on account of payments to more dividend for equity shareholders. It is worth mentioning here that to harmonise the diverse accounting policies and practices in India presently, ICAI constituted a board, viz., ASB which formulate the Accounting Standards and these were established by ICAI. AS 6(revised) and AS 28 provide the guidelines pertain to depreciation accounting and impairment of assets are mandatory nature since April 1, 1995 and April 1, 2004 respectively. In addition, at international level, IAS 4, and IAS 36 respectively, provide guidelines for the same purpose. It is observed that since the year to , on an average more than 71 percent operating CPSEs generated internal resources. Remaining 29 percent are those operating CPSEs which incurring either losses or operating on break even point. It can be said that almost profit making CPSEs contribute in internal resources generation. SHARE OF INTERNAL RESOURCES IN PLAN OUTLAY Internal resources (IR) of CPSEs are the major source of financing of these enterprises. The investment by CPSEs increase in the same period. The share of extra budgetary resources and Budgetary Support have increase by 21.3 percent and 0.5 percent respectively in the year in comparison to previous year. Data concern to share of internal resources in plan investment in absolute terms and relative terms are given in Table 4 as follows: 23

9 TABLE 4 FINANCING OF PLAN SCHEMES THROUGH INTERNAL RESOURCES OF CPSES ( in Crore) Years IR in Plan Investment Total Internal Total Plan Outlay Share of IRPI in TIR Share of IR in Resources (%) TPO(%) Note : in above Table, IRPI, TIR and TPO are internal resources in plan investment, total internal resources and total plan outlay, respectively. Source : As the same Table 3. FIGURE 3 SHARE OF IR IN TIR AND IN T O P, Table4 and Figure 3 depict the internal resources in plan investment, total internal resources, total plan outlay, internal resources in plan investment (IRPI) in relation to total internal resources (TIR) in terms of percentage and internal resources in plan investment (IRPI) in relation to total plan outlay in form of percentage too. It is clear to analyze the above Table that in the study span of ten years since to , share of internal resources in plan investment (IRPI) in relation to total internal resources was on an average more than 73 percent and in the range of 49 percent to 100 percent, while the share of internal resources in plan investment (IRPI) in relation to total plan outlay was on an average 58 percent and in range of 51 percent to 71 percent in same period. Thus, we can say that internal resources are used significantly in financing of plan outlay in CPSEs. CONCLUSION It is obvious that this point of view has been emerged both in practice and Government policy that CPSEs should not be depended on central exchequer completely for its financing. These enterprises should exert to arrange the financing by way of generating surpluses itself for development and expansion. During the span 2005/06 to 2014/15, net profit to net worth ratio continuing on an average 14.3% in the CPSEs and in the range of 10.7% to 17.85%, is a noticeable return on proprietor s fund. The average interest payments in same period are made 21.93%, which can say more than one-fifth of PBIEET(i.e. gross profit). Reasons behind to increase the 24

10 interest burden sharply are the consistently change in financial structure of CPSEs. As on 31 st March, 2003, share of long term loans was percent of total financial investment, whereas it reach to 80.6 percent as on March ending In absolute terms, total Internal resources went up from crore in FY 2005/06 to crore (1.6 times greater) in FY 2014/15. In the year 2005/06 to 2014/15, on an average more than 71 percent operating CPSEs generated internal resources. Remaining 29 percent are those operating CPSEs which incurring either losses or operating on break even- point. It can be said that almost profit-making CPSEs contribute in internal resources generation. Improved earnings performance of CPSEs was responsible for the generation of internal resources at this position. The imbalance in financial structure cause by heavy doses of debt capital created interest burden on these enterprises and accounted in its own way for the poor but financial performance is improving. Internal resources comprised mainly provision for depreciation but other provisions, taxation provision are fewer and bonus issues are negligible. In retained profits having major part of development rebate reserve, but capital reserve and other reserves are negligible. SUGGESTIONS The following suggestions are presented to improve the position of internal resources of CPSEs in India. 1. It should be divided the CPSEs in two categories. Firstly, it should be comprised industrial and commercial enterprises. In these enterprises, emphasis for internal resources generation should be given on the basis of profit-making policy.secondly, it should consist to promotional and developmental enterprises in which to achieve service motive is more desirable in comparison to profit-making. 2. There is a close correlation between internal financing and pricing policy. Thus considering the need and targets of internal resources, it should be adopted pricing policy and techniques. 3. In the approval of expansion plans of industrial and commercial enterprises, present and future internal resources generation should be a significant determining factor in pertaining enterprise. 4. As far as possible, the usage of retained profits should be collecting financial resources for the expansion and development of enterprises. These should not be spent in form of general revenue expenses. IRACST International Journal of Commerce, Business and Management (IJCBM), ISSN: on replacement cost method is of much more significance for CPSEs, especially in their price determination. 6. With a view to improving profitability position, these enterprises should focus on key issues and initiatives to better capacity utilisation, establishing effective and cordial industrial relations, efficient use of working capital and improving the marketing efforts. To focus on these areas would improve the profitability conditions of the CPSEs in forthcoming period and that will strengthen the base of internal resources of CPSEs. 7. It has been negative impact of imbalanced financial structure on financial profitability and also improving the financial soundness of CPSEs in India. 8. To the point of view for establishing uniform policy for internal resources generation in several enterprises, it is desirable that Government should issue guidelines to CPSEs in which percent of internal resources be ascertained. In this determination, there should be kept in consideration the nature, profit-making capacity and expansion requirements of CPSEs. REFERENCES (1) A Hand Book of Information on Public Enterprises, 1970, p ix. (2) Bhalla, Financing of Public Enterprises in India, Lok udyog, Vol.V, No.4, July 1971, pp (3) Braj Kishore, Corporate Private Sector Financing: An Analysis of Capital in India to ,Decision, July (4) Braj Kishore, Corporate Internal Finance: A study of Overall Trends and Retentions, Vikalpa, vol. V,No. 3, July (5) Bureau of Public Enterprises, Public Enterprises Survey, Vol. I, , Ministry of Finance, New Delhi, p CPSEs rethinking on depreciation policy. To this point of view, provision of depreciation allowance should be determined to keeping in view of persistent inflation in the economy. The depreciation calculated (6) Chakraborthy, A.M., Is Depreciation a Source of Fund?, Company News and Notes, vol. IV,No. 11, March

11 (21) Government of India, Planning Commission, Eleventh Five-Year Plan, New Delhi, p.42. (7) Chatterjee,P., Working Capital Financing in Public Sector, Financial Express, August 18, (8) Chattopadhyaya,P., Financial Mnagement in Public Sector, Lok UDYOG, Vol. X,No. 2, May (9) Chopra, R.N., Public sector in India : Its Performance Profitability and Industrial Relations (New Delhi : Intellectual Publishing House ), 1984, pp (10) Committee on Public Undertakings, Fifth Lok Sabha, 40 th Report, p.135. (22) Kulkarni, P.V., Financial Management (Bombay : Himalaya Publishing House, 1981),p.433. (23) P.R. Brahmananda et. (Editor), Indian Economic Development and Policy, by V.K.R.V. rao, New Delhi : Vikas Publishing House, pp (24) Ramanadham, V.V., The Finances of Public enterprises ; Bombay: Asia Publishing House, 1963, p.24 (11) Dobrovolsky, S.P., Economics of Corporate Internal and External Financing, Journal of Finance, vol. XXIII, No. 1, March (12) Dutt, P.K., Financial Performance of Central Government Public Enterprises, Economic Times, December 2, (13) Government of India, Planning Commission, First Five-Year Plan, New Delhi, p.422.; Government of India, Planning Commission, Second Five-Year Plan, New Delhi, p.49. (14) Government of India, Planning Commission, Third Five-Year Plan, New Delhi, p.116. (15) Government of India, Planning Commission, Fourth Five-Year Plan, New Delhi, p.84. (16) Government of India, Planning Commission, Sixth Five-Year Plan, New Delhi, p.63. (17) Government of India, Planning Commission, Seventh Five-Year Plan -Approach Paper, New Delhi, Part -II, Para 7.2, p.21. (25) Mathur, B.P, Financing of Public Enterprises in India and the Question of Private Equity Participation, Indian Journal of Economics, July 1969,pp (26) Mishra, R.K., Self-financing in Public Enterprises, Eastern Economist, May (27) Minister of Heavy Industries & Public Enterprises, Government of India, Public Enterprises Survey from to , Government of India, New Delhi. (28) Ministry of Finance, Department of Economic Affairs, Economic Division, Economic Survey to , Government of India. (29) Sharma, B.S., Financial Planning in Indian Public Sector, (New Delhi: Vikas Publishing House, 1974). (30) Sarkar, J.B., Depreciation and Working Capital Financing in Central Government Companies, An Overview, Lok Udyog, Vol.XV,No.11,Feb (18) Government of India, Planning Commission, Eighth Five-Year Plan, New Delhi, p.86. (19) Government of India, Planning Commission, Ninth Five-Year Plan, New Delhi, p.18. (20) Government of India, Planning Commission, Tenth Five-Year Plan, Vol.I, New Delhi, pp