Diagnosis of Public Sector Units in India

What is PSU?

Public sector Unit (PSU) or Central Public Sector Enterprise (CPSE) is the company that is owned by
the government of India and the government holds 51% of the stake or more in them.

In 1969, the banks were nationalised because firstly, the private sector banks were biased and
worked with a sole intention of generating profits giving least attention to the social sectors of the
nation. Secondly, nationalisation of banks was done with an intention to bring rural lending and
reach out to the rural areas to increase credit availability to poor by banks. Thirdly, the purpose to
set up PSU’s was to strengthen the core sectors of the economy like rural, agriculture, small and
medium enterprises, generate employment and income for the people of India. There are 300 PSU’s
in India as on March 2019 and gives employment to 15 lakh employees. PSU’s in India hold key
position in sectors like Power, Petroleum, Railways, Coal, Mines, Telecom, Civil Aviation, banks.

Bruised PSU:

PSU’s had been facing problems in India:

 Poor policy making and execution

 Over constrained due to government restrictions
 Lack of flexibility in the market
 Over staffing adding more costs
 Lack of vision and motivation for self-improvement
 Wastage / under- utilisation of resources
 Abnormal surge in Non-performing Assets of Public sector banks.

Resolution:

According to the announcement made in Tranche 5 of stimulus package in 2020, the government of
India is framing a new public sector enterprise (PSE) policy in which it will categorise strategic and
non-strategic sectors on the basis of industrial policy, 1991 (under which 90% of the companies were
inclined towards private sector and rest 10% into PSU). Under strategic sector like defence, railways,
medicine, at least, 1 and maximum of 4 should be PSU and also there would be private sector
allowed. While, in non-strategic sector like insurance, mining, discoms and power distribution
companies, PSU’s will be privatised based on feasibility and are open to consolidation. Gradually, the
government is reducing its ownership below 51% and allowing the PSU’s to go private and gain more
competitiveness. Privatisation is aimed at improving the foreign direct investment (FDI) or
investment in sectors that require technological advancements thereby providing a boost to the
economy.

Key strategic disinvestment steps taken:

 The government approves strategic disinvestment of 5 PSU’s along with management

control namely, Bharat Petroleum Corporation Limited (BPCL), Shipping Corporation of India
(SCI), Container Corporation of India (CONCOR), North Eastern Electric Power Corporation
(NEEPCO) and Tehri Hydro Development Corporation in India (THDCIL).
 Government stake of 53.2% in BPCL along with the management control will be sold to a
strategic buyer.
 Government stake of 63.75% in SCI along with management control will be sold to a
strategic buyer.
  Government stake of 30.8% in CONCOR with management control will be sold to a strategic
buyer.
 The government has 74.32 % stake in THDICL and 100% stake in NEEPCO will be sold to NTPC
along with the management control.

However, the sale of the stake in BPCL, SCI and CONCOR will fetch around 78,400 crore to the
government, moving closer to their disinvestment target for the year. This will give a boost to their
disinvestment programme for CPSE’s and the resources that will unlock from such strategic
disinvestment/privatisation would be used to finance the developmental programmes of
government benefiting the public.

Mixed opinion of experts:

 The government officials and market experts suggest that the government must distance
itself from PSU governance in order to give PSU’s a better perception of more flexibility in
the market and make them independent of any government restrictions so that PSU
management can take decisions with more ease and no political interference.
 The government must transfer its stake to a holding company and professional board
amendments to ensure effective governance.
 Dual regulation of government and Ministry of Finance (MoF) should stop micromanaging
PSU’s and set them free of constraints like lending, management compensation and
recruitment.
 They also assert that if PSU’s are privatised, the private players eventually would think only
about profits and least about the development of core sectors of the economy.

Concluding Thoughts:

Privatisation of PSU’s have its good and bad points. Therefore, the government must adopt a
balanced approach wherein they can retain their stake in the PSU’s and also do not let them
completely go in to the hands of private players. Their retained stake and intact management
control helps the government to monitor and keep a tight vigilance in case of any manipulative and
unlawful activities occur within the institutions.