Financial Performance of Public Enterprises in India: A Case Study of Rashtriya Chemicals & Fertilizers Limited

The failure of public enterprises to generate the targeted resources is a major factor responsible for the rising public sector deficit in India – a problem which in turn may create the following problems: crowding out of private sector from financial markets, inflation, and balance of payments pressure. The Government is beginning to worry about the emerging scenario. The Government urgently needs to develop a strategy to deal with the worsening public finance situation. Obviously, improvement in the financial performance of public enterprises will have to be a major component of this strategy. This paper looks at the financial performance of the largest public enterprise in the fertilizer sector – Rashtriya Chemicals and Fertilizers Limited (RCFL) – with a view to understand what ails it. The paper stresses that RCFL has done poorly: its reported pretax profits as per cent of average net worth have ranged between 2.5 and 10.2 sine its incorporation in 1978, which is substantially lower than the profitability norms set up by Government of India’s Fertilizer Industry Coordination Committee. The paper asserts that a major factor responsible for this is RCFL’s inefficiency in the use of various inputs (e.g., feedstock, power). Why is RCFL not being able to achieve the Fertilizer Industry Coordination Committee’s input consumption norms, especially when these norms are not only achievable but can also be improved upon” This needs to be urgently investigated.