Financial Management in Public Sector Undertakings

Topics: Net present value, Generally Accepted Accounting Principles, Finance Pages: 30 (8291 words) Published: March 12, 2011
Project report
Highlights of 'Financial Management' In Public Sector Undertakings

1. Introduction
2. Highlights of financial management in public sector undertakings - Budgets in Public Sector
- Revised Budget
- Sources of Funds in Public Sector
- Role of Financial Advisor
- Capital Budgeting
- Working Capital Management
- Financial Delegation
- Financial Reporting
- Profitability of Central Public Sector Undertakings

3. Role of financial management in the reforming of psu’s
- Performance Evaluation in PSU's
- Valuation of Public Sector Undertaking
- Valuation Techniques
- Pricing in Acquisitions
- Disinvestment

4. SWOT analysis of financial management in psu’s
5. Conclusion


A public sector undertaking may be defined as a business undertaking, which is owned managed and controlled by the State, on behalf of public at large. These undertakings have come to enjoy a unique position in the Indian economy in the post independence era. They have been responsible for forming a strong industrial base and providing the basic infrastructure for development in the country. From an investment in 5 enterprises of Rs. 29 crores in 1950-51. Investment in 242 Central PSUs has gone up to a staggering Rs. 2.04.054 crores, the net profit they made was just Rs. 13.725 crores -a return of 6.7 per cent only.

The implicit assumption in the growth of PSU at the early stages was that public sector would perform the role of a pathfinder and create necessary infrastructural facilities and not be over- concerned about profits or surpluses. This however, subsequently, gave way to the view that even as externalities are important in the same way, profitability was also a useful guide and self- disciplinary measure.

In respect of the area and nature of job contained in Financial Management, there is primarily no significant difference in a private sector or a public sector organisation. However, since the public sector deals with and substantially relies on taxpayer’s money, the rules, procedures and checks for accountability of this money are comparatively more rigid than that in the private sector.



The budget exercise in public sector is carried out in a similar manner as in the private sector. The Budget Section of the Accounts & Finance Department is generally responsible for coordinating the budget exercise, collecting data from all departments/divisions concerned and finalizing the budget for presentation to the Board of Directors.

The budget is prepared on the basis of 'Zero based budgeting' concept. In other words, every year the revenue and expenditure, including capital expenditure, are estimated without any reference to the past event or amount. To put it differently, under 'Zero based budget' concept revenue and expenditure are estimated from scratch or afresh based only on targets set to be achieved during the ensuing year as broadly determined by the Board of Directors or the Management Committee.

The budget approved by the Board of Directors forms the basis for all expenditure and yardstick for revenue earning. No expenditure can be incurred unless it is included in the budget. Similarly, the revenue target set in the budget needs to be achieved, which, at times, and in many public- sector units, are not met. This happens primarily because the production and revenue targets are not estimated realistically.

Under such a situation, Financial Management in a public sector unit attains a significant dimension. It is observed that there is a general tendency of expenditure following the budgeted pattern (except expenses directly varying with production or sales such as consumption of raw material, overtime of workers, selling commission, etc.) whereas revenue declines from the budgeted target. Thus, mismatching of inflow and outflow is a paramount issue for a public sector...
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