A recent analysis of the annual results for 1996-97 has apparently shown that the public sector companies are better run than the private sector. Why? Simply because the public sector companies have shown a marginal fall in net profits while the private sector has shown a dip in net earnings several times worse than that.

But weighing private sector and public sector companies only on the basis of growth in revenues, interest costs and net profits is in correct. These parameters are in no way comparable as most public sector companies are either monopolies in the respective areas of operation or are fed a major portion of their business from government agencies or companies.

Several PSEs have little or no competition to worry about, being engaged in mainly refining, transportation and utilities. But PSEs engaged in sectors like steel, telecommunication equipment and the hospitality sector have fared much worse than their private sector counterparts during the last year.

And third, interest cost which proved to be very detrimental to private sector companies, could not matter much to non-oil PSEs as they have been able to leverage their status as government companies and raise cheaper funds (even SAIL has been able to raise funds through bonds at a cheaper cost than Reliance, even though the latter is a better run private sector company).

But the approach of the two groups to taxation is what really differentiated their average fall in net profits for the last year. The private sector companies have been hit very badly by the minimum alternate tax (MAT).

Public sector companies on the other hand have traditionally paid tax at the maximum rate.

Hence, while the profits of many private sector companies were badly hit these monopoly players actually benefited for 1996-97 from the reduction in corporate tax surcharge from 15 per cent to 7.5 per cent.

For all these reasons, comparing private and public sector earnings is fraught with danger.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.