Public sector enterprises in India(PSEs)

Meaning of PSE
A public sector enterprise may be defined as any commercial or industrial undertaking
owned and managed by government with view to maximise social welfare and uphold the
public interest.public sector enterprises of nationalised private sector enterprises such as
banks ,life insurance Corporation of India and the new enterprises by the government such as
Hindustan Machine Tools (HMT),Gas Authority of India (GAIL),State Trading Corporation
(STC) etc.

Structure of PSEs in India

The PSEs in India are basically categorised under four broad types based on their ownership
structure. Theseinclude: departmental undertakings, statutory corporations, government-
owned companies and autonomousbodies set up as registered societies.

• Departmental undertakings: Departmental undertakings are primarily meant to

provide essentialservices such as railways. They function under the control of the respective
ministries of Government of India (GoI). A departmental undertaking structure is considered
suitable for activities the government aims to keep in its control in view of the public
interest.Ex: railways ,postal, All India radio etc.

• Statutory corporations: Statutory corporations are public enterprises that came into
existence by a Special Act of the Parliament. The Act defines the powers and functions, rules
and regulations governing the employees and the relationship of the corporation with
government departments. Ex: Airport Authority of India, National Highway Authority of
India, IFCI etc.

• Government-owned companies: Government-owned or controlled companies refer to

companiesin which 51% or more of the paid up capital is held by the central or any state
government (partly orwholly by both). It is registered under the Indian Companies Act and is
fully governed by the provisionsof this Act. Ex: Steel Authority of India Ltd, Coal India Ltd,
SBI etc.

• Autonomous bodies: Autonomous bodies are set up whenever it is felt that certain
functions need to be discharged outside the governmental set up with some amount of
independence and flexibility without day-to-day interference from the governmental
machinery. These bodies are set up by theconcerned ministries or their departments and are
funded through grants-in-aid, either fully or partially,depending on the extent which such
institutes generate internal resources of their own. These grantsare regulated by the Ministry
of Finance (MoF) through their instructions. They are mostly registered associeties under the
‘Societies Registration Act’ and in certain cases they have been set up as statutoryinstitutions
under the provisions contained in various Acts. Ex: Indian Council of Agriculture Research,
Council of Scientific & industrial research etc.
BACKGROUND OF PSEs
 In order to avoid the problems like unemployment, disparities of rural urban
and inter regional and inter class, technological backwardness the government of India set up
a socialistic pattern of society in the country establishment of PSEs have been conceived.

At the time of independence, India was basically an agricultural economy with

weak industrial base. The Indian government made sustained effort to bring about balanced
development by setting up PSEs.the industrial policy resolution 1948 laid down that

1. Manufactures of arms and ammunition

2. Production and control of atomic energy

3. Ownership and management of railway transport should be in exclusive monopoly of the

central government.by doing so it has sown the seeds for the growth of PSEs.

PUBLIC SECTOR ENTERPRISES UNDER FIVE YEAR PLANS

1. FIRST FIVE YEAR PLAN (1951-1956)

The first plan did not make any big provision for PSEs development. The public
sector outlay on power, transport and communication were Rs.260 crores, 520 crores, 120
croresetc. for expanding the PSEs at the end of the first plan the India govt. nationalized the
imperial bank of India name it as state bank of India (SBI) in 1955.it went for the
nationalization of Life insurance created he LIC of India in 1956.

2. SECOND FIVE YER PLAN (1956-61)

This plan was based on the policy resolution 1956.the major changes made by this plan was

 A base of heavy industry was sought to be created.

 The actual investment for PSEs was Rs.870 crores.

Before the second plan the major industries were constructed in the major
cities like Kolkata, Mumbai, Chennai.so in order to avoid these kinds of regional
inequalities the govt.constucted the 3PSEs in the backward regions.that major 3 steel plants
are

 Rourkela in Orissa
 Bhilai in Madyapradesh
 Durgapur in West Bengal.

3. THIRD FIVE YEAR PLAN (1961-66)

These plans emphasized on the rapid devt.of the PSEs.it serve a 2 fold
objectives. They are
 1. Removing certain base deficiencies in the economic infrastructure.
2. Reduce the scope for accumulation of wealth and growth of monopolistic
tendencies in private hands.

4. FOURTH FIVE YEAR PLAN (1969-74)

During this plan period the govt. decided to take over coal mines and created coal India
Ltd. While PSEs continued to be the primary vehicle for industrial growth during the
periods of 60’s, 70’s and 80’s.

The fifth plan did not give any priority to the PSEs

5. SIXTH PLAN (1980-85)

The role of the PSEs also clearly stated in the industrial policy resolution of 1980 with a
major stress on the optimum utilization of installed industrial capacity, reduction in
production, devt. Of the export orientation and import substitution industries and also to
establish the reduce in the regional imbalance.

The fields like tele communication, oil exploration, oil refinery and civil
aviation which were included under PSEs.

6. SEVENTH PLAN (1985-1990)

This plan has re-emphasized the need for reconstructing the PSEs and
stressed on their consolidation, improvement and modernization rather than on large scale
expansion of capacity except when it is imperative.

Growth of investment in central Govt. Enterprises

YEAR NO.OF ENTERPRISES TOTAL
OPERATING INVESTMENT(CRORES)
1951 5 29
1961 47 950
1980 179 18,150
1990 233 99,330
2001 234 2,74,178
2007 216 4,21,089
2008 214 4,55,367
2009 213 5,13,532
2010 217 5,79,920
2011 220 6,66,848

The Investment is in the form of equity capital and long term loans. The number of PSEs
increased from 5 in (1950-51) to 234 in 2001 and the capital investment had increased from
29 crores to 2, 74,198 crores.
 Pattern of Gross Block Investment in PSE
SECTOR INVESTMENT INTERMS % SHARE IN TOTAL
GROSS BLOCK REAL INVESTMENT
Agriculture 119 0.01
Mining 2,90,600 23.00
Manufacturing 3,51,634 27.83
Electricity 3,17,908 25.15
Services 2,93,167 23.20
Under construction 10,237 0.81
Enterprises
TOTAL 12,63,665 100.00

Bulk of the Investment is in the manufacturing sector. Even here basic Industries like
steel,coal,power,petroleum,fertilizer etc.

Role of CPSEs in economy

 CPSEs investment have a multiplier effect on the economy: during the first five year
plan were only five CPSE with total investment of Rs.29 crore , where as in the year
2011 , there were 248 CPSEs with total financial investment of Rs.6668 crore.
 CPSEs continue to dominate domestic output of key sectors: the CPSE have complete
monopoly in nuclear power generation and other leading area coal (over 80%) ,crude
oil (70%),refineries(55%),wiredline (80%).
 The contribution to central exchequer:Over the years, CPSEs have contributed
significantly to the Central exchequer by way of payment of taxes (direct and
indirect), duties, dividend payment and interest on Government loans. As evident
from the chart alongside, the total contribution by the CPSEs has increased from Rs.
1.1 lakh crores in FY 2005 to an estimated Rs. 1.5 lakh crores in FY 2009 registering
a CAGR of 8% during the FY 2005-09 periods.However, there has been a YoY
decline in contribution by 8.5% in FY 2009 primarily on account of reduction in
contribution towards customs and excise duty

 The CPSE have contributed significantly to the overall foreign exchange earning of
the country through export of goods and services. it is average 10% for last five years.
However the foreign exchange expenditure is higher during these periods.
 CPSEs play a crucial role in employment generation:CPSEs have been playing a
positive role in creating employment opportunities. Over the past several years, they
have not only created several job opportunities but have also helped in addressing the
unemployment problem in the country. As per government estimates CPSEs account
for around 6% of the total employment in the organized sector of India. They have
assisted in the upliftment of the poor and in promoting equality and offering welfare
facilities.
Policy towards PSEs since 1991

The new industrial policy announced by the government in july 1991. It emphasised major
measures to reform the PSEs. The new policy marked a significant departure from the
concept of command economy towards a market driven economy in which liberal market
based economic were considered as the major stimuli likely to boost the Indian economy.
Besides the new policy also marked significant departure from traditional command approach
to public sector policy and redefined the objective of PSEs which will induce greater
efficiency , productivity and competitiveness in the public sector .

Major measures after reform

1) The restructuring of PSEs ; strengthening of those PSE which fall in the reserved area
of operation or giving high priority to area generating good reasonable profit will
provide greater degree of management autonomy through the system of
memorandum of understanding.
2) Reduction in the no. Of reserved area of operation in industries from 17 to 8 . they
are arms and ammunition , atomic energy , coal and lignite ,mineral oils , rail
transport , mining of iron ore, gypsum ,sulphur, copper etc.
3) The disinvestment of shares of a selected set of PSEs in order to raise resources and
to encourage wider participation of general public workers in the ownership of PSEs.
Disinvestment is a process where government sells its equity holding to private
sectors. In other ways it is a privatisation process where private parties are given share
holding in government undertakings either wholly or partially.
4) The policy towards sick PSEs to be same as that of private sector.In pursuance of
competing with the external environment, the Government realized the need for
empowering these enterprises with a view to delegate higher financial and operational
powers to provide a level playing field with the private sector players.

5) Accordingly, the Department of Public Enterprises, Government of India, which has

been the co-coordinating entity has adopted a categorization framework for grouping
these enterprises into i) Navratna, ii) Miniratna I and iii) Miniratna II, in order to
facilitate delegation of powers in line with their categorization. Taking a step forward
in this direction, the Department of Public Enterprises, has recently introduced a new
category of ‘Maharatna’ classification for empowering select CPSEs listed on stock
exchanges to facilitate expansion of their operations to enable them to emerge as
global giants.Miniratnas have made profit continuously for the last three years and
have earned a net profit of Rs. 30 crore or more in one three years with positive net
worth are categorised as miniratnas.

Disinvestment

Disinvestment of a percentage of shares owned by the government in public

undertakings emerged as a policy option in the wake of economic liberalisation and
structural reform launched in 1991. Initially it was not conceived as privatisation of
existing undertakings , but as limited sales of equity with the objective of raising
some resources to reduce budgetary gaps providing market discipline to the
performance of public sector enterprises in general. The steps adumbrated included a
review of public sector investment to focus on strategic and essential infrastructure
enterprises and new procedure to tackle chronically sick and loss making units.

The ambit of disinvestment was gradually widened in the later half of 1990s by the
subsequent coalitiongovernments to make a clear distinction between strategic and
non strategic enterprises so as to bring down government share holding to 26% in non
core undertakings through gradual disinvestment or strategic scale while retaining
majority holding 51% in strategic undertakings. A disinvestment commission was set
up in 1996 to carefully examine withdrawal of public sector from non strategic areas
with assurance to workers of job security of opportunity for retraining and re-
employment. The commission in its three year term ,gave its recommendations on 58
enterprises referred to it and proposed instead of public offerings as in the past
strategic trade sales involving change in ownership management for 29 and 8
undertakings respectively.