Page 132 - DECO405_MANAGERIAL_ECONOMICS

Unit 8: Cost Analysis

"So what?" comrades Surjeet and Yechuri would say. After all, PSEs were set up to augment Notes
the capital stock of the nation, promote balanced economic growth, foster employment
and create centres of technical and managerial excellence. These involve social benefits,
and only a benighted, Western-trained economist to the right Genghis Khan could use
private profit calculus to evaluate the contribution of our PSEs. Fair enough. Let us not
look at profitability, that base capitalist concept. Instead, let us look at costs, which even
Enver Hoxha would have desired to minimise.

10

8

6

4

2

0
91-92 92-93 93-94 94-95
PSE PSE without petroleum Private Sector
Chart B: Net Profit as % of Sales
Fact Number 3
PSEs as a whole are worse off even in terms of cost per rupee of sales. Chart C shows that
PSEs suffer from an almost eight-point disadvantage in terms of fixed costs as a percentage
of sales; the non-petroleum PSEs are worse off to the tune of almost 20 points.

45
40
35
30

25
20
15

10
5
0
91-92 92-93 93-94 94-95
PSE PSE without petroleum Private Sector
Chart C: Fixed Cost as % of Sales
Thanks to higher fixed costs (over-staffing, greater interest costs, etc.), PSEs fare poorly in
average total costs. They are at least 5 points off compared to the private sector companies

Contd...

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