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1. Details of Module and its Structure

Module Detail

Subject Name Political Science

Paper Name Public Policy, Governance and Indian Administration

Module Name/Title Public Enterprise in India: Rationale and Role

Pre-requisites Awareness about Government, Organisation, Public Sector, Public

Enterprise

Objectives To study about concept and rationale of public enterprises in India and

their role in India’s socio-economic development

Keywords Public Sector Enterprise, Public Sector Undertaking, State-owned

enterprise, Departmental Undertaking, Public Corporation, Government

company

Structure of Module / Syllabus of a module

Public Enterprise in

India: Rationale and

Role

Public Enterprise – Meaning, Main Characteristics; Public

Sector Enterprises in India, Evolution, Rationale, Objectives of

setting up PSEs, Forms of PSEs; and Role of PSEs in India’s

socio-economic development

2.

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3. 2. Development Teams

Role Name Affiliation

Principal Investigator Prof.Ashutosh Kumar Department of Political Science,

Panjab University, Chandigarh

Paper Coordinator

Prof. Ramanjit Kaur

Johal,

Prof. Amit Prakash

Department of Public

Administration, Panjab

University, Chandigarh.

Centre for Law and Governance,

SSS, Jawahar Lal Nehru

University, New Delhi. Content Writer/Author (CW) Dr. Bhawna Gupta Assistant Professor, Department

of Public Administration, Panjab

University, Chandigarh

Content Reviewer (CR) Prof. B.S. Ghuman Department of Public

Administration, Panjab

University, Chandigarh

Language Editor (LE)

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Structure of the Module (CONTENTS AT A GLANCE)

Objectives of the study

Summary

1. Introduction

1.1 Public Enterprise - Meaning

1.2 Main Characteristics

1.2.1 Public Ownership

1.2.2 Public Accountability

1.2.3 Public Purpose

1.2.4 Wide Range of Activities

1.2.5 Public Welfare

1.2.6 Public Utility Services

1.2.7 Economic Enterprise

1.2.8 Autonomous Functioning

1.2.9 Excessive Formalities

2. Public Sector Enterprises in India

2.1 Evolution

2.2 Rationale

2.2.1 Planned Economy

2.2.2 Socialistic Development

2.2.3 Accelerated Industrial Growth

2.2.4 Infrastructural Development

2.2.5 Ability to make huge investments

2.2.6 Balanced Regional Growth

2.2.7 Checking private sector monopolies

2.2.8 Ploughing back of resources

2.2.9 Attaining Government Objectives.

2.3 Objectives of Public Enterprises

2.4 Forms of public enterprises

2.4.1 Departmental Undertaking

2.4.2 Public Corporation

2.4.3 Government Company

3. Role of PSEs in Socio-economic development

3.1 Economic Growth

3.2 Investment Growth and Share in the Country’s Economy

3.3 Role of Public Sector in Saving and Capital Formation

3.4 Share in the Production of the Gross national Product

3.5 Profitability

3.6 Number of CPSEs signing performance Memorandum of Understanding (MoU) with the

Government on the rise

3.7 Market Capitalisation

3.8 Increase in self reliance through decline in budgetary support from the Government

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3.9 Basic Industries

3.10 CPSEs continue to dominate domestic output of key sectors

3.11 Development of Infrastructure

3.12 National Champions

3.13 Reducing Economic Inequalities

3.14 Corporate Social Responsibility

3.15 Correcting Regional Imbalances

3.16 Producing Essential Supplies

3.17 Contribution to the National Exchequer and Generation of Internal Resources

3.18 Encouraging Ancillaries

3.19 Employment Generation

3.20 Model Employer

3.21 Import Substitution

3.22 Promotion of Exports

3.23 Research and Development

3.24 Human Resource Development

4. Conclusion

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Objectives of the Module

After studying this module, you will be able to:

state the meaning of public sector enterprises;

identify the chief characteristics of public sector organisations;

state the rationale of objectives of setting up PSEs in India;

discuss the different forms of PSEs in India;

and explain the role played by public sector enterprises in socio-economic development

Summary

In 1947, when India gained independence from the British rule, there was grave

underdevelopment in India along with disparities in income, unemployment, lack of trained manpower, a

weak industrial base and poor infrastructure. In order to make India self-reliant, the public sector

blueprint was developed under the overall umbrella of planned socio-economic development. Nehru

called them ‘temples of modern India’. The government started operating in the areas which were of basic

or strategic importance and also the areas that required huge investments beyond the scope of private

enterprises. Since then, the public enterprises in India have engaged themselves in a number of economic

activities like advancing loans, regulating trade and commerce, heavy machine manufacturing, chemical

drugs and fertilizers, oil drilling etc. The Government of India today boasts of sevenMaharatnas and

seventeenNavratnas (ratna meaning gems) public enterprises which are engaged in myriad economic and

developmental activities in the country, e.g. The Steel Authority of India, Hindustan Aeronautics Limited,

National Thermal Power Corporation etc. As many as 73 Central PSEs are placed in the miniratna

category.

In the evolutionary process, Public Sector has taken three distinct forms, namely Departmental

undertaking, Public Corporation and Government Company each with its own status and varying degrees

of autonomy.PSEs have laid a strong foundation for industrial development of the country and achieving

desired socio-economic objectives. Thus, public welfare, planned economic development of the country,

regional balance, import substitution and checking concentration of economic powers are the major goals

achieved through public enterprises.They have also played an important role in addressing problems like

unemployment, restructuring the economy, mobilizing accumulations and raising the level of efficiency,

exploiting mineral resources, reclamation and development of new lands, transport facilities etc.

However, after the declaration of liberalization and privatization policy of the Government of India, the

share of the public sector has been reducedconsiderably. A number of measures have been taken by PSEs

to compete in the global market including increasing disinvestments by the government, incorporating

guidelines around corporate governance, granting autonomy in operating and financial terms to CPSE’s

and introducing project based financial autonomy.

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1 Introduction

1.1 Public Enterprise - Meaning

A public sector enterprise may be defined as any commercial or industrial undertaking owned

and managed by the government with a view to maximise social welfare and uphold the public

interest. A public enterprise is a distinct legal entity that is owned by government; has an

accounting system separate from the government unit that controls or supervises it; and is

engaged in commercial, industrial or financial activities involving the production of economic

goods or services from which it is expected to earn a significant portion of its revenues.1

L.P. Jones: ‘A public enterprise is a productive activity which is owned and/or controlled by

public authorities and whose output is marketed.’2

V.V. Ramanadham : ‘The term “public enterprise” may be understood to signify an economic

activity of which the majority ownership or managerial control vests in the government and/or

other public agencies… we shall limit the term “enterprise” to signify an activity whose costs,

primarily, are expected to be financed from the sale proceeds – generally and in the long run.’3

United Nations: ‘Publicly owned and/or controlled enterprises… incorporated public

corporations, i.e. by virtue of company acts or other public acts… or large unincorporated units

(government enterprises) that sell most of the goods… they produce to the public.’4

Thus a public enterprise may be understood to be an activity in which the majority ownership

and / or control is non-private and which is intended to be viable through sales activity on the

basis of price-cost relationships.5 The genesis of public enterprises and the process through

which they have emerged (i.e. either through nationalization of an erstwhile private enterprise

or through fresh creation by the government or through governmental investment in a mixed

enterprise / joint venture) have a material impact on the nature of its performance. The

emergence of public enterprises in developing countries has coincided with initial stages of

industrialization and modern economic development. They have been assigned diverse

objectives. For instance, in India public enterprises consist of nationalised private sector

enterprises, such as, banks, textile mills etc. Others like Hindustan Machine Tools (HMT), Gas

Authority of India (GAIL), State Trading Corporation (STC) etc. were enterprises set up by the

government.

Text for Voice Narration Chunk Text

A public sector enterprise may be

defined as any commercial or industrial

undertaking owned and managed by the

government with a view to maximise

social welfare and uphold the public

Characteristics of Public Enterprises

Owned, managed and controlled by Government.

Funded by Government

Welfare oriented

1 Jeanne K. Laux and Maureen A. Molot (1988) State Capitalism: Public Enterprise in Canada, Ithaca,

NY: CornellUniversity Press, p. 65. 2L.P. Jones (1975) Public Enterprise and Economic Development: The Korean Case, Seoul, p. 23. 3V.V.Ramanadham (1977) The Role and Management of Public Enterprises, Commonwealth Secretariat,

London, p.29. 4United Nations (1968) A System of National Accounts, UN, E. 69, XVII3, p.78. 5V.V Ramanadham (1984)(Ed) The Nature of Public Enterprise, Croom Helm, London&Sydney, p.66

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interest. Economic Enterprise in public interest

Concentrate on public utility services

Responsible to parliament

Autonomous functioning

Observance of Government formality is necessary

1.2 Main Characteristics

1.2.1 Public Ownership:The public enterprises are owned and managed by the central or state

government, or by the local authority. The government may either wholly own the public

enterprises or the ownership may partly be with the government and partly with the private

industrialists and the public. In any case the control, management and ownership remains

primarily with the government. For example, National Thermal Power Corporation (NTPC) is

an industrial organisation established by the Central Government and part of its share capital

is provided by the public. So is the case with Oil and Natural Gas Corporation Ltd. (ONGC).

1.2.2 Public Accountability:Public enterprises are governed by public policies formulated by the

government and are accountable to the legislature. It becomes imperative that they should be

accountable to the public through Parliament, whose funds are invested to carry on the

activities of the enterprise.

1.2.3 Public Purpose:Unlike a private enterprise which is set up for business or profit, social

aspects can well precede, supersede and even completely engulf business considerations. The

public interest also provides an under-current for all its strategic decisions.

1.2.4 Wide Range of Activities:The public enterprises are not established for any one specific line

of activity but cover a wide range of activities like construction, marketing, agriculture,

finance, development, mining,etc.

1.2.5 Public Welfare:Public enterprises are not guided by profit motive. Their major focus is on

providing the service or commodity at reasonable prices. Take the case of Indian Oil

Corporation or Gas Authority of India Limited (GAIL). They provide petroleum and gas at

subsidised prices to the public.

1.2.6 Public Utility Services:Public sector enterprises concentrate on providing public utility

services like transport, electricity, telecommunication etc.

1.2.7 Economic Enterprise:In a public enterprise, the price charged for a good or service is

expected to cover the cost. The aim in the long run is that the enterprise as a whole should at

least break even. Hospitals, universities and public utilities such as railways charge a fee for

their service, but as it does not cover the cost, such undertakings function as departments and

not as PSEs.

1.2.8 Autonomous Functioning:In spite of the initial huge investment made by the government, the

PSEs are envisaged with a view to give them sufficient autonomy to manage their affairs in

their ownfashion. The government in principle, does not interfere in their day-to-day

activities. The finances of these enterprises are kept separate from the public exchequer.

Departmental Undertakings are an exception to this feature.

1.2.9 Excessive Formalities:The government rules and regulations force the public enterprises to

observe excessive formalities in their operations. This makes the task of management very

sensitive and cumbersome.

2. Public Sector Enterprises in India

2.1 Evolution

When India gained independence from the British in 1947, there were various socio-economic problems

confronting the country which needed to be dealt with in a planned and systematic manner. Then, it was

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economy primarily an agrarianwith a weak industrial base, low level of savings, inadequate investments

and lack of infrastructure facilities. There existed considerable inequalities in income and levels of

employment, glaring regional imbalances in economic development and lack of trained manpower.

As such, State’s intervention in all the sectors of the economy was inevitable since private sector neither

had necessary resources, the managerial and scientific skill, nor the will to undertake risks associated with

large long-gestation investments. Among the imperatives before the Government were the removal of

poverty, equitable distribution of income, generation of employment opportunities, removal of regional

imbalances, accelerated growth of agricultural and industrial production, better utilization of natural

resources and a wider ownership of economic power to prevent its concentration in a few hands.

Planned development in India, based on the ‘mixed economy model’, laid a lot of stress on public sector

enterprises. Over the years, the PSEs grew in magnitude and diversity. Industrial Policy Resolution 1948

reserved an area for the public sector which was enlarged by Industrial Policy Resolution 1956, which

declared that the management of government enterprises should be on ‘business lines’ so that they

should augment revenues of the state and provide resources for further development in fresh fields.

Therefore, public enterprises were set up as separate legal entities (companies or corporation form of

organisation). The core of public sector management is ‘autonomy’ which could lead to meaningful

accountability and performance and thereby keeping government bureaucracy at an arm’s length. Public

enterprises form the basis of economic growth of the country.

Apart from significant contribution in core and strategic areas, public enterprises have played a

dominant role in the development and management of telecommunications, the generation and

distribution of electricity, and the provision of railways and other modes of public transport. With such a

wide spectrum of activities of public enterprises, the need for coordination and evolving a uniform

approach to the common problems faced by them was felt particularly since administrative control of

these enterprises vests with the various ministries or departments. Based on the decisions of the

government, the Bureau of Public Enterprises (BPE) issued guidelines and instructions from time to time

on various aspects of management of public enterprises – General Management, Financial Management,

Construction Management, Production and Materials Management – for their efficient and optimal

management.

In the sixties and seventies, the public sector policy had been largely guided by the Industrial Policy

Resolution of 1956 which gave the public sector a strategic role in the economy. Massive investments

have been made over the last four decades to build a public sector, which had a commanding role in the

economy. Many key sectors of the economy are today dominated by the mature public enterprises that

have successfully expanded production, opened up new areas of technology and built up a reserve of

technical competence in a number of areas.

As a result, the country’s ranking in terms of industrialization with other developing countries is quite

high. India’s comparative advantages such as a large pool of well-trained work-force, technical skills in

manufacturing and chemical industries primarily stem from the public sector6.

However, after the initial exuberance of the public sector entering new areas of industrial and technical

competence, a number of problems began to manifest themselves in many enterprises. Problems were

observed in terms of low productivity, poor project management skills, over-manning, lack of

technological upgradation, inadequate attention to R & D and low priority to human resource

development (discussed in Module 2).

6Government of India (1997)Disinvestment Commission Report I, February.

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There were only five central public sector enterprises at the commencement of the First Five-Year Plan

with investment amounting to Rs 29 crores only. By 1980, there were 163 and in 2001, India had 234

public sector companies. Of the total investment in the PSUs in 2001, over 65 percent was in enterprises

producing and selling goods while about 30 percent was in services. In the former, the important sectors

are power, coal and lignite, petroleum and steel whereas in services, financial services are most

important. There were 260 CPSEs (excluding 7 Insurance Companies) with a total investment of ` 7,

29,228 crores as on 31.3.2012.

2.2 Rationale of Public Enterprises

The dominant consideration for the continued large investments in public sector enterprises was to

accelerate the growth of core sectors of economy; to serve the equipment needs of strategically

important sectors like Railways, Telecommunications, Nuclear Power, Defence etc. and to provide a

springboard for the economy to achieve a significant degree of self-sufficiency in the critical sectors.

The rationale for setting up public enterprises was to ensure easier availability of vital articles of mass

consumption, to introduce check on prices of important products, help promote emerging areas like

tourism, etc. A large number of enterprises were created out of "Sick Units" taken over from the private

sector, inter alia, to protect the interest of workers. A number of public enterprises were created to

operate in national and international trade, consultancy, contract and construction services, inland and

overseas communications

2.2.1 Planned Economy:The national responsibility of planning cannot be assumed or discharged by

any authority other than the government. The success of a planned economy is based on the

growth of public sector. However, in recent years, major changes have taken place on the

economic front causing the opening up of economies and set back to the public sector.

2.2.2 Socialistic Development:The State has laid upon itself, by the Directive Principles of State

Policy, the responsibility for the total socio-economic welfare of the people. Fulfilment of

specified aims of social and economic justice like employment generation, reducing

concentration of wealth, development of backward sections of society, labour welfare is

another reason.

2.2.3 Accelerated Industrial Growth:Public sector could help in achieving more rapid growth for

the industrial sector.

2.2.4 Infrastructural Development: Public sector could be used to develop infrastructural facilities

in the country. Major irrigation projects, steel plants, coal mining, petroleum refining etc.

could be established only by the public sector.

2.2.5 Ability to make huge investments:The private sector with a few exceptions is not in a position

to set up huge industries involving huge investments. Also it would not come forward to set

up industries which have long gestation periods. Thus, the government had to take upon its

shoulders the task of nation building and setting up key and basic industries.

2.2.6 Balanced Regional Growth: Private sector is guided by profit and sets up industrial activities

in those areas where they expect security of investment and high rate of profit often leading to

regional disparities. Thus, government is forced to intervene in the location of economic

activities to ensure balanced regional growth of the country by diverting funds to backward

regions.

2.2.7 Curb Monopolies and Prevent concentration of Economic Power: Public sector could offer

stiff competition to private sector in drugs, cement, steel, paper and so on. In this way, public

sector could check monopolies and undue concentration of economic power in the hands of

big private business houses. A welfare state is committed to removing inequalities of income

and wealth prevailing in society.

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2.2.8 Ploughing back of resources: The public sector surpluses can be profitably utilised for social

benefits. They contribute to the national exchequer towards further investment and growth of

the economy. Active participation of the State in the economic activity means that funds can

be accumulated for multifarious responsibilities.

2.2.9 Attaining Government Objectives:Public sector could help in achieving government objectives

such asincreasing employment opportunities, import substitution, national dividend, saving

scarce foreign exchange resources and other objectives are in the larger interest of the nation.

The private sector on the other hand may ignore social interest.

2.3 Objectives of Public Enterprises in India

Public sector enterprises (PSEs) have played an important part in the development of the Indian

economy. At the time of independence, it was felt that political independence without economic self-

reliance would be detrimental to the country’s sovereignty and autonomy in policy-making. In India,

PSEs have been assigned the task of realising the objectives laid down in the Directive Principles of

State Policy. Hence, the basic objectives assigned to the public sector are to:

build infrastructure for economic development and promote rapid economic growth and

industrialization of the country;

create employment opportunities;

promote balanced regional development;

create a self-reliant economy through the development of local industries for import

substitution and by encouraging and promoting exports; thus save and earn foreign

exchange for the economy;

generate investible resources for development by earning suitable returns;

prevent / reduce concentration of private economic power and promote redistribution of

income and wealth

promote import substitutions, save and earn foreign exchange for the economy.

Text for Voice Narration Chunk Text

The main objectives for setting up PSEs

were removal of poverty, equitable

distribution of income, generation of

employment opportunities, removal of

regional imbalances, accelerated growth

of agricultural and industrial production,

better utilization of natural resources and

a wider ownership of economic

manpower to prevent its concentration in

a few hands.

Objectives for setting PSEs

To build sound industrial base

To create the necessary infrastructure for economic

development

To help in rapid economic growth

To generate employment opportunities

To promote balanced regional development

To earn return on investment and generate resources

for development

To promote redistribution of income and wealth

To earn foreign exchange for the economy

To assist the development of small-scale industries

2.4 Forms of PSEs in India

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Given the type and range of problems faced by the country on the economic, social and strategic fronts,

it became a pragmatic compulsion to use the public sector as an instrument for self-reliant economic

growth. With the manifold increase in the functions of the State, various kinds of administrative units

have been set up to successfully carry out the wide and varied activities. Success of any task depends on

its organization and different countries have adopted different forms of organization depending upon the

nature of objective of setting up the enterprise.

There are mainly three different forms of organisation used for the public sector enterprises in India.

These are (1) Departmental Undertaking; (2) Statutory (or Public) Corporation, and (3) Government

Company.

2.4.1 Departmental Undertakingis the fundamental unit of administration immediately below the

Chief Executive in the administrative hierarchy and responsible for carrying out key

governmental operations like Railways, Defence, Posts and Telegraph and other public utility

services.Such organisations function under the overall control of a ministry of the

Government and are financed and controlled in the same way as any other government

department. This form is considered suitable for activities where the government desires to

have control over them in view of the public interest.

2.4.2 Statutory (or Public) Corporation is a publicly owned enterprise, a corporate body created by

the legislature (special law) with defined powers and functions and financially independent

having a clear cut jurisdiction over a specified area or over a particular type of commercial

activity.According to Frank D. Roosevelt, 'A corporation is clothed with the power of

government but possessed of the initiative and flexibility of private enterprise. It possesses

the features of autonomy and flexibility’. Its capital wholly comes from the government. e.g.

Life Insurance Corporation, Food Corporation of India, Reserve Bank of India, Damodar

Valley Corporation etc.

2.4.3 Government Company: Like Public Corporation, Government Company is set up for the

conduct of business and industrial functions. It is set up by registering under the Indian

Companies Actand enjoys financial and administrative autonomy. It enjoys a separate legal

status and the Board of Directors is appointed by the Government. In a Government

Company, the entire or more than 51% of share capital is invested by the Government.

Section 2 (45) of Companies Act 2013 defines a Government Company to mean – any

company in which not less than 51% of the paid up share capital is held by the Central

Government, or by any State Government or governments or partly by the Central

Government and partly by one or more state governments and includes a company which is a

subsidiary company of such Government Company.

Forms of Public Enterprises

Departmental Undertakings

Public / Statutory

Corporations

Government Companies

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Public enterprises combine both ‘public’ and ‘enterprise’ dimensions. Thus the autonomy granted to

public enterprises for meeting the commercial objectives is accompanied by accountability achieved

through various control mechanisms. In case of public enterprises, non-departmental form viz. statutory

corporation and government company form of organization is preferred over departmental form by virtue

of its insulation from political interference.

3 Role of PSEs in Socio-economic development of India

What does socio-economic development mean? In order to understand this concept, let us begin by

defining development. Generally, development is defined as a state in which things are improving. But it

is defined in different ways in various contexts, social, political, biological, science and technology,

language and literature. In the socio-economic context, development means the improvement of people’s

lifestyles through improved education, incomes, skills development and employment. It is the process of

economic and social transformation based on cultural and environmental factors.

The public sector enterprises have been assigned a pre-eminent role in economic development of India.

Under the scheme of IPR, 1956, the commanding heights of the economy were placed in the category of

public sector. Public sector till recently covered a wide spectrum of industrial activities starting from core

and strategic industries to consumer goods, trading and marketing activities, transportation activities,

contract and consultancy services, tourist services, financial services, development of small industries,

etc. Their contribution and role is discussed as under:

3.1 Economic Growth:The growth and performance of Central PSEs runs parallel with the

growth of the Indian economy. In fact, the PSEs have the potential for an even dominant

role to play on the back of several yet-to-be listed profitable Central PSUs that can go to

the market. The CPSEs have been serving the various macro-economic objectives

of higher economic growth, equilibrium in balance of payments, infrastructure

development and lower prices. In this respect, they are a distinct entity of

corporate India. Moreover the Maharatna and Navaratna CPSEs constitute the

elite companies of India in sectors like, coal, petroleum, steel, heavy engineering,

power supply, telecommunications and transportation services. 3.2 Investment Growth and Share in the Country’s Economy: Investment in public sector has

grown appreciably over the years.The CPSEs investment has a multiplier effect on the

economy. While there were only 5 CPSEs with a total investment of Rs. 29 crore at the

time of the First Five Year Plan, there were 320 CPSEs (including 7 insurance

companies) with a total investment of 11,71,844 crores as on 31st March, 2016.The

aggregate real investment in Central Public Sector Enterprises (CPSEs) measured

in terms of ‘gross block’ increased from `19,06,926 crore in 2014-15 to

`20,26,315 crore in 2015-16, showing an increase of `1,19,389 crore and a growth

of 6.26 per cent over the previous year. 3.3 Role of Public Sector in Saving and Capital Formation:Capital formation plays a

significant role in the economic development of an underdeveloped country. In

underdeveloped countries like India, savings rate is very low. Low savings lead to low

capital formation. This problem can be overcome through public enterprises.

3.4 Share in the Production of the Gross national Product:The share of India’s public sector

in the GNP has been significant. The turnover of petroleum (Refinery & Marketing),

Coal, Fertilizers, Electricity (Generation and Transmission), Heavy Engineering, and

Contract & Construction showed a significant increase over the years. During the year

2015-16 the number of profit making CPSEs have increased to 165 from 159

CPSEs in previous year and the number of loss making CPSEs have increased

from 76 to 78 during the same period

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3.5 Profitability:A perusal of different components of IR, moreover, shows that the share of

‘retained profit’ has been showing a big increase during this period. Significant gains in

terms of net profits were made by CPSEs in the Coal, Crude Oil, and Transportation

equipment, Power Generation, Contract & Construction and Consultancy Services.The

overall net profit of the 244 operating CPSEs went up by 12.54% to 1,15,767

crore in 2015-16 from 1,02,866 crore in 2014-15. 3.6 Number of CPSEs signing performance Memorandum of Understanding (MoU) with the

Government on the rise:The MoU, as applicable to CPSEs is a negotiated document

between the management of the company and the government, specifying clearly the

objectives of the agreement and the obligations of both the parties involved. Performance

evaluation is done based on the comparison between the actual achievements compared

with the targets agreed upon between the government and the CPSE. It constitutes of both

financial and non-financial parameters with different weights assigned to the different

parameters. The MoU system that was started with 4 CPSEs signing MoU in the

year 1986-87 increased its coverage to 200 CPSEs in 2014-15.

3.7 Market Capitalisation:Total Market Capitalization (M-Cap) of 46 CPSEs traded on

stock exchanges of India is `11,06,766 crore as on 31.03.2016 as compared to `

13,27,393 crore as on 31.03.2015 showing a reduction of 16.62%. 3.8 Increase in self reliance through decline in budgetary support from the

Government:During the initial years and even during the nineties, a large number of

CPSEs were dependent on budgetary support extended by the Central Government.

However, the number of CPSEs in this category has gradually decreased over the years.

3.9 Basic industries:It is only through public enterprises that we can lay strong foundation

for basic industries in India. Large-scale industries like iron and steel, heavy machines,

fertilizers, atomic energy, arms and ammunition, etc. Could be established only under

public sector. This sector has given new life to sick units of textile industry.

3.10 CPSEs continue to dominate domestic output of key sectors:CPSEs continue to hold

control across several industries, despite opening up of several sectors for private

investment. CPSEs continue to have complete monopoly in nuclear power generation.

Other leading areas of dominance are coal (over 80%), crude oil (over 70%), refineries

(over 55%) and wired lines (over 80%).

3.11 Development of Infrastructure:Development of infrastructure comprising of transport,

power, communication, etc. is a precondition of growth. Expenditure on the development

of infrastructure is known as social overhead costs. Their development requires huge

capital investment, which cannot be mobilised by the private sector. Moreover, these

projects do not promise high profits. The private entrepreneurs would therefore be

reluctant to undertake them. Their development is possible only in the public sector.

3.12 National Champions:The CPSEs operating in some industries/sectors are ‘monopolies’

such as nuclear power generation. The other industries where they have a major share in

domestic and national output (including imports) are coal, petroleum, telecommunication,

power generation and transmission. In comparison to 1998- 99, however, the share of

CPSEs in these industries has been significantly coming down over the years (except

power generation).

3.13 Reducing Economic Inequalities:Industrial Policy of India aims at establishing socialistic

pattern of society. Investment in PSEs are expected to generate the much needed surplus

for growth. The growth of public sector at a rapid pace has helped in reducing the

concentration of economic power in private hands. It has proved an effective instrument

in preventing inequalities in income and wealth.

3.14 Corporate Social Responsibility: In the context of public sector enterprises Corporate

Social Responsibility (CSR) should be viewed as a way of conducting business, which

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enables the creation and distribution of wealth for the betterment of its stakeholders,

through the implementation and integration of ethical systems and sustainable

management practices. CSR is the process by which managers of an organization think

about and evolve their relationships with stakeholders for the common good, and

demonstrate their commitment in this regard by adoption of appropriate business

processes and strategies. After coming into force of the provisions of CSR in Section 135

of the Companies Act, 2013, all profit making corporates including CPSEs have to

undertake CSR policy.During the year 2015-16, 106 CPSEs have spent `4028.04

crore on CSR activities out of the allocated amount of `3904.90 crore for the

purpose. However, 2% of PBT for these CPSEs stands `3248.62 crore. 3.15 Correcting Regional Imbalances:Notable regional disparities exist in India. While on one

hand, states like Punjab, Gujarat and Maharashtra are industrially developed, on the

other, Odisha, Bihar and Madhya Pradesh are equally backward. Expansion of the PSEs

has helped in this issue as many are set up in backward regions. Typical examples are

steel plants at Bhilai, Rourkela and Bokaro. However, rather than acting as growth

centres they have become black holes sucking into them with little help to nearby villages

and minimal growth of ancillary and feeder industries.

3.16 Producing Essential Supplies:Another objective of the public sector was to provide a

stabilising force for maintaining essential supplies to the consumer. Enterprises such as

Food Corporation of India, Cotton Corporation, State Trading Corporation, Minerals and

Metals Trading Corporation among many others have played an important role in

maintaining prices and supplies.

3.17 Contribution to the National Exchequer and Generation of Internal Resources: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.

The CPSEs have been making a substantial contribution to the Central

Government through payment of dividend, interest, corporate taxes, excise duties

etc. The contribution by the CPSEs through these avenues increased by 38.63% to

`2, 78,075 crore in 2015-16. 3.18 Encouraging Ancillaries:Public enterprises are very large in size. These enterprises

purchase various intermediate products from small and ancillary units. Public enterprises

have helped in growth of ancillary industries in the country, offering more and more

employment opportunities. Continuous efforts are being made for further development.

3.19 Employment Generation:The total employee strength in CPSEs stood at 12.34 lakh

(excluding contractual workers) in 2015- 16 as compared to 12.91 lakh in 2014-

15. The total strength of employees in CPSEs has gone down by 57,560 persons

due to superannuation, voluntary retirement etc. Moreover, several Central PSUs

face high attrition with employees looking out for higher salaries elsewhere.

3.20 Model Employer:The state initiated an era of model employer by laying down guidelines

for employer-employee relations and passing legislation for fair wages, conditions of

working, etc.It has set an example in matters of better condition of service, housing

facilities, social services, better management-worker relationship.

3.21 Import Substitution:For favourable balance of trade, it is essential that goods imported

from other countries are produced with in the country or their indigenous substitutes are

developed. Public enterprises are playing an appreciable role in the field of import

substitution. This sector is producing various kinds of medicines, electronic goods,

watches, petroleum products, and railway equipment. Thus public enterprises save

sizeable amount of foreign exchange.

3.22 Promotion of Exports:Many goods and articles manufacturing by the PSEs are finding

foreign markets.CPSEs have contributed significantly to the overall foreign exchange

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earnings of the country through exports of goods (railway engines, steel, machinery, etc.)

and services (royalty, know-how, professional and consultancy fees) with average

contribution being around 10% in the last five years. The CPSEs are increasingly into

'international trade' in goods and services, which has a bearing on the Balance of

Payments of the country. The turnover of all 244 operating CPSEs during 2015-16

stood at `18,54,667 crore as compared to `19,95,176 crore in the previous year.

The share of earnings through export/deemed export amounted to 4.16 per cent of

total turnover during the year, and the CPSEs earned foreign exchange equal to

`77,216 crore in 2015-16 as compared to `1,03,071 crore in 2014-15. 3.23 Research and Development:For improvement of quality, reduction in cost and a constant

search of new techniques of production, the PSEs are concentrating upon Research and

Development (R & D).In 2011, Department of Public Enterprises (DPE) issued

guidelines on R&D prescribing therein that Maharatna and Navratna companies

should invest at least 1 per cent of their profits after tax (PAT) in R&D and that

Miniratnas and others should similarly earmark 0.5 per cent of their PAT for

R&D operations. While a number of CPSEs have in-house R&D facilities, the others

have gone for sponsored research through collaboration with Universities and reputed

R&D institutions. Sponsored research is cost effective and is suited to CPSEs who cannot

afford to incur expenditure on in-house research. There is also a greater awareness of

Intellectual Property Rights (IPR) and ‘patenting’ of new knowledge gained and

discoveries made in the process of R&D. The National Research Development

Corporation (NRDC), a CPSE, is actively engaged in promoting, developing and

commercializing technologies, knowhow, patent and processes generated through

national R&D institutions, thus helping individual enterprises and institutions acquire

IPR/ Patents for commercial use. Technological collaboration with leading companies of

the world has been another approach adopted by CPSEs for upgrading their technological

know-how.

3.24 Human Resource Development: Public enterprises have been playing an important role in

the development of human resources, particularly the trained manpower which is very

essential for the economic prosperity and industrial growth of a developing country. In

addition to Board level managers, lakhs of technical, managerial and supervisory

personnel help in the execution of management policies and different functions.

4. CONCLUSION

Central public sector enterprises have undoubtedly played a crucial role in modern India economy. In a

mixed economy, role of both the sectors – public and private enjoy equal importance. Indian central

public sector enterprises are going through exciting changes in the environment. The government has

taken several measures to bring CPSEs at par with the private competitors. PSEs have played an

important role in removing the problems like unemployment, restructuring the economy, mobilizing

accumulations and raising the level of efficiency, exploiting mineral resources, reclamation and

development of new lands, transport facilities etc. However, after the declaration of liberalization and

privatization policy of the Government of India, the share of the public sector has considerably been

reduced. A number of measures have been taken by PSEs to compete in the global market including

increasing in disinvestments by the government, incorporating guidelines around corporate governance,

granting autonomy in operating and financial terms to CPSE’s and introducing project based financial

autonomy.

Key actions have been taken by the public sector enterprises in India towards sustainable growth:

adoption of upcoming technologies in ICT, human resource development, infrastructure development and

green initiatives. But there is a need to address key challenges or concerns faced by PSEs in India in terms

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of multiple principals which are often conflicting, operational inefficiencies, rigid human resource

management procedures, compensation concerns, lack of autonomy in decision making and an overly

centralized organizational structure, and the degeneration of accountability due to inadequate

implementation of such quantitative performance measures (addressed in Module 27).

Going forward, CPSEs will continue to play a vital role in the development of the Indian economy.

During the recession period many CPSEs showed resilience due to their conservative approach and strict

management practices. With increasing competition, these CPSEs are undertaking several expansion

projects and carrying out operational reforms. They are also increasingly tapping unexplored territories

and expanding their presence globally. Their ability to continuously reform and further build upon these

will hold the key to their sustained development.