Overdues: Is supplying to govt or PSUs a big risk?

The finance ministry says dues are getting cleared, but what is needed is a mechanism that doesn’t need FM’s intervention

Last week, a colleague, Prasanta Sahu, did a news story on how the overdues of the Centre and PSUs—both central and state—as well as other government undertakings were around Rs 7 lakh crore. The story, provocatively titled “Forget the stimulus, just clear your dues” talked of how state electricity boards (SEBs) had overdues of Rs 91,860 crore, NHAI had dues of Rs 104,553 crore (including Rs 78,653 crore of arbitration claims), Rs 27,000 crore was owed to state-run oil retailers, Rs 9,400 crore was owed to sugar mills, etc (bit.ly/35uCaFZ).

Not surprisingly, there were two types of reactions to the story. One from private industry as well as analysts, one of whom evocatively tweeted the story with the comment that the government was the biggest “counterparty risk” for corporates today. The government, for its part, was quick to rebut some parts of the story (bit.ly/33fJgeV); indeed, since the FM had promised to clear dues as part of the stimulus package, the ministry was proactively monitoring the clearing of dues. On the SEB dues, for instance, it said that the power ministry had “proactively conceptualised” a Rs 90,000 crore support to the SEBs and while Rs 24,000 crore of this had already been disbursed and another Rs21,000 crore would be released within a fortnight.

While that is undoubtedly good news, can power producers tell banks not to levy penalties on them, nor declare their loans as NPAs because the government owes them money? In January 2020, the Praapti website tells us, the SEBs had overdues of Rs 106,432 crore (there was no dispute over Rs 93,191 crore of the dues), and this rose to Rs 131,993 crore (Rs 116,863 crore was undisputed) by July 2020; in which case, the Rs 90,000 crore is clearly inadequate.

And how do we ensure the dues don’t pile up again since, till the SEBs start charging the right price for electricity, the problem will remain. The Uday scheme was supposed to fix this but, while it gave a lot of relief to SEBs, it wasn’t able to get them to reform; it is not clear Uday-2 will fare any better, so the dues may start mounting all over again.

The finance ministry denied the bit about Rs 25,900 crore being owed by NHAI to road developers; as for the money owed for arbitration claims, it said Rs 52,945 crore was claimed by “4 contractors, who are not participating now in the highways sector”. It is not clear whether the ministry felt this was good or bad, or whether the contractors stopped participating as they were not getting their dues. It added that arbitration claims were exaggerated since the “majority of claims are usually settled at 20-25% of the claimed amount”.

Once again, can firms which are fighting arbitration claims against NHAI tell banks not to proceed against their firms for non-payment of dues as they are owed money by the government, even if what they will finally get is a fourth of what they claimed? Ajit Gulabchand of HCC’s experience tells you this is not possible; indeed, he lost his Lavasa city project despite his dues to banks on Lavasa being a lot less than what NHAI owed him against arbitration claims he had raised/won.

The finance ministry didn’t have any comment to make on the sugar dues; indeed, the food secretary wrote to the economic affairs secretary in July saying Rs 8,129 crore “is further required to settle the pending claims of farmers/sugar mills under various schemes”. Hopefully, the next time banks take action against sugar mills or FIRs are filed against them, this letter can be used as a get-out-of-jail-free card.

In the case of the oil PSUs that the story said were owed Rs 27,000 crore at the end of March 2020, the finance ministry said that a budgetary provision of Rs 40,914 crore had been made for in FY21 and, of this, Rs 19,659 crore had already been released to the PSUs. But what about the rest, and even this payment was late by several months; and what happens when there is another build-up of dues?

The bigger problem here is that, with the exception of Praapti that puts out information regularly, there is really no way to get authentic information on the dues. NITI Aayog CEO Amitabh Kant had, in a presentation to CII some months ago, talked of the central government — including its PSUs and undertakings — dues to industry being Rs 5 lakh crore, but there are few specifics. It is not clear, for instance, how much central—and state—PSUs owe private contractors or, indeed, whether even PSUs are also being paid on time by the government; of the Rs 116,863 crore owed by SEBs at the end of July 2020, Praapti tells us, Rs 41,698 crore is owed to central PSUs and another `25,397 crore to state-government power generating firms.

One solution suggested by Feedback Infra chairman Vinayak Chatterjee—he also chairs the CII council on infrastructure—is to get information from the GSTN portal. The portal can, for instance, easily add up the bills presented to various government departments and PSUs; the portal can, just as easily, track when the payment is made by the government entities. Apart from the issue of very old dues, this exercise can be done from the time the government started implementing GST, and the advantage this has is that such dues can be tracked on a weekly or monthly schedule.

Indeed, to make sure that government departments/PSUs make payments on time, a mandatory 2% per month penalty can be imposed. The current system where the finance minister is personally monitoring dues and their clearance is an inefficient one, what is needed instead is an automatic mechanism like the one just suggested. It is not clear what mechanism can be put in place to ensure banks don’t act against promoters—like HCC’s Gulabchand—who are owed money by the government, but, without doubt, this is equally important in a situation where there are no big penalties on government for delaying payments; while there is a lot of talk of taking action against ‘wilful defaulters’, some of the biggest ones, like the SEBs, are to be found within the government system.