Public sector enterprises Role of PSEs Importance of PSEs Challenges with PSEs Disinvestment importance and issue.

1. ECONOMIC ASSIGNMENT
ECONOMIC DEVELOPMENT AND POLICY IN
INDIA – II
B.A PROGRAMME (ECONOMIC AND
POLITICAL SCIENCE)
YEAR-3 SEMESTER-6
SUBMITTED BY: SUBMITTED TO:
RAJ KUNWAR JAISWAL KOKILA MEENA MA’AM
ROLL NUMBER- 313
SECTION- C

2. QUESTION-Critically examine the performance of public
sector enterprises in India. Would you recommend
disinvestment of public sector units?
ANSWER-
Public Sector Enterprises (PSEs) are organizations that are owned and operated by the
government. These enterprises can be either central or state government-owned, and they
serve various sectors of the economy, including energy, telecommunications,
manufacturing, banking, and insurance. In India, PSEs play a crucial role in the country's
economic development, and they have been a key feature of the country's economic
policies since its independence in 1947.
PSEs in India have been established with the objective of achieving social and economic
goals, such as the promotion of domestic industries, the provision of essential services to
citizens, and the creation of employment opportunities and other welfare programs. The
public sector has also been tasked with the responsibility of addressing regional imbalances
in development, particularly in the country's rural and backward regions.
The Public Sector Enterprises in India can be categorized into three types
based on the organizational levels are as follows:
1. DEPARTMENTAL UNDERTAKING:
- They function under the overall control of the ministries.
- Their finances and management are regulated just like any other
government departments.
Examples: Broadcasting, Postal Services, Railways etc.
2. STATUTORY CORPORATIONS:
- They are created by the act of the parliament or the state
legislature.
- The act determines the powers, functions, management, structure
and relationship with the ministries.
Examples: LIC, ONGC, GAIL, State Trading Corporation etc.

3. 3. GOVERNMENT COMPANY:
- It refers to those companies where government is the majority
shareholder and is registered under the company law.
- They are governed as per the provisions of company acts and
therefore, enjoy more autonomy as compare to previous one.
Examples: Steel Authority of India Limited, Hindustan Shipyard
Limited etc.
The Government of India introduced another classification system for
Public Sector Enterprises based on the amount of revenue that these
businesses bring annually & how much they contribute to the economy of
the country.
Based on this classification, PSUs can further be divided into three
categories:
• Maha-Ratnas (Net Worth – 10,000 Cr)
• Nav-Ratans (Best performing PSUs)
• Mini-Ratans (Should be profitable for at least three consecutive
years)
Role of the Public Sector Enterprises:
• Capital Generation – 14% of the country’s GDP can be attributed to
the public sector in India. It encourages investment and generates
capital by supporting the country’s economy through the creation
and expansion of infrastructure and creating other opportunities.
• Building opportunities for employment – Another significant
contribution of the Public Sector has been in generating enough
employment for the youth. Dealing with various public enterprises
and industries, the PSEs contribute to creating new avenues in
various government sectors.

4. • Advocating of R&D – A major chunk of the investments made by
the public sector lately has been into research and development for
finding new and innovative technologies & industrial pieces of
equipment.
• Regional Development – The public sector has also been
contributing to the development of various regions of the country
by promoting the formation of industrial plants and factories. The
development of the industrial sector in these regions leads to
increased basic facilities such as water supply, electricity, township,
etc.
Importance of Public Sector Enterprises:
• In case of a direct need for production, the Government can initiate
it on a large scale, unlike the private sector.
• The Government can get heavy funds and can take heavy loans
easily.
• Profit is the core motive of the private sector. The profits in the
private sector are related to personal gains and lead to the
exploitation of the workers. While the profit gained in the public
sector leads to the upliftment of the services.
• The public sector undertakings do not run primarily in pursuit of
profits. The PSEs do not seek profit but focused on welfare.
• The resources are easily accessible. The regulation of the sources is
dependent on the states, so it becomes easier for them to avail the
raw materials easily.
• The presence of PSEs is important in strategic areas such as
defence, atomic energy, arms and ammunitions etc.

5. Problems of the Public Sector Enterprises:
• Excessive political interference has been one of the major reasons
behind the non-performance of Public Sector Enterprises.
• Public Sector Enterprises normally take more time than expected.
• The investment decisions are at times very ill-suited.
• Lack of skilled manpower in Public Sector Undertakings in India is
also one the important issues leading to decreased production and
efficiency.
• The Public Sector Enterprises in most cases are not able to utilize
their full potential.
• Lack of management and planning in Public Sector Enterprises has
been creating many issues and challenges.
Public Sector Reforms Enterprises:
• The Statement on Industrial Policy, of 1991, reviewed the public
sector in India and recognized many problems associated with
public enterprises. It also suggested ways to rectify these problems.
• The policy stated that many public enterprises have become a
burden to the Government rather than an asset and proposed the
Government adopt a new approach to public enterprises.
• Accordingly, the public sector was reduced in many areas from the
initial 17 to 6 areas. In manufacturing, the areas which continue to
be reserved for the public sector are those related to strategic
concerns, defence, and petroleum.
• Apart from that, the Government made no bar or restriction on
the participation of the private sector.
• All effort was made through the change of management and
financial help for reviving the public sector and making it
competitive.

6. • The decision of disinvestment of equity of the public sector
enterprises was also proposed.
• Mini Ratans and Maharatnas Policy were also introduced around
the 2000s.
• The Navratnas Policy was also introduced under which the PSUs
that displayed the best performances were given the status of
Navratnas along with an autonomous authority.
DISINVESTMENT:
Disinvestment means sale or liquidation of assets by the government,
usually Central and state public sector enterprises, projects, or other fixed
assets. Disinvesting is an exit strategy that means taking out an existing
investment. Disinvestment policies are commonly followed by
governments to allocate resources more efficiently.
• MINORITY SALES where the government shareholding remains
more than 75% even after disinvestment.
• STRATEGIC MINORITY SALE where the government shareholding
remains above 50% but remain less than 75%.

7. - In this case government gives away certain decision-making
power as some of the decision has to be taken with more than
75% of the majority.
- The larger ownership and management control lies with the
government.
• STRATEGIC DISINVESTMENT/PRIVATIZATION where government
shareholding falls below 50% and the management and ownership
control shifts to the private hands.
• STRATEGIC SALE when the government completely sales off the
PSEs to the private players is referred toas the strategic sale.
IMPORTANCE OF DISINVESTMENT:
• The core functions of the government are Providing low and order,
education, Health case etc and therefore, Resources Should be
utilised for these purposes.
• Reduce the burden on the government by raising valuable resources
for the government, which could be used to bridge the fiscal deficit
and also can be used for various social infrastructure projects or invest
towards profit-making PSEs.
• The government can focus more on core activities such as
infrastructure, defence, education, healthcare, and law and order.
• Dis investment can provide funds that can be used for improving
the functioning of PSEs or any other productive purposes.
• Dis-investment enforces market discipline as listing on the stock
exchange. implies more transparency and accountability for all the
stakeholders.
• It results in broader shareholding of PSUs, thereby giving chance to
retail investor to generate wealth along with the growth of the
PSEs.

8. • It can be used as a policy tool to signal the market regarding the
future decisions of the government.
ISSUES WITH DISINVESTMENT IN INDIA:
• The choice of PSU and the extent of I disinvestment is not backed
by a concrete plan.
• The Valuation of the PSUs remains a cause of Concern as under
valuation can lead to losses for the government and over valuation
means poor subscription.
• The proceeds of disinvestment are used to meet the fiscal deficit
target for the government, and not for the productive activity.
• Privatization of the PSU might lead to job loss, loss of social security
and Dilution of Social Welfare policies of the government
(Reservation Policies).
• Strategic sale of a PSEs provide opportunity to the dominant
player to consolidate market power which might lead to
exploitation of the consumer.
The question of whether to disinvest public sector units in India is a
complex one. On one hand, disinvestment can help to address some of
the issues faced by these enterprises by bringing in private sector
expertise, technology, and capital. This can potentially improve
efficiency, reduce bureaucratic interference, and increase accountability.
On the other hand, it is important to consider the social implications of
disinvestment. Many public sector enterprises provide essential goods and
services, such as healthcare, education, and energy, to large sections of
the population. Disinvestment could potentially result in a loss of jobs,
reduced access to essential services, and increased inequality.

9. The Indian government has been pursuing a policy of disinvestment in
PSEs since the 1990s. The objective of this policy has been to reduce the
fiscal burden on the government, raise resources for development, and
improve the efficiency and competitiveness of PSEs. The government has
disinvested its stake in various PSEs over the years, including companies
such as Bharat Petroleum Corporation Limited (BPCL), Air India, and
Bharat Heavy Electricals Limited (BHEL).
However, the disinvestment policy in India has been a subject but it can
be done with keeping aside the personal interest and biases by the policy
maker and should be more focused on the welfare and social
development of the citizens while disinvestment.