Public Sector Undertakings(PSUs) in India

By BYJU'S Exam Prep

Updated on: September 13th, 2023

Public sector undertaking (PSU) are those organizations that are financed, controlled and owned by the Government of India or the State Government. These organizations (PSUs) are controlled either by the Central Government or State Government or Local Authorities. These organizations (PSUs) play a very important role in the economic development of the nation. After the independence in 1947 itself, the public sector undertakings (PSUs) were given the huge responsibility to formulate the infrastructure for other sectors of the economy and provide essential goods and services for the economy.

 Public Sector Undertakings(PSUs) in India: Evolution of PSUs; Public Sector Reforms; Role of PSUs; Problems/ issues associated with PSEs

Evolution of PSUs in India

  • After independence in 1947, Indian industries were in a dilapidated state. It was not able to compete with the existing industries of the time.   
  • Industries in India were in need of a policy thrust for rejuvenation and starring a fresh. 
  • In this direction, the Industrial Policy Resolution of 1956 of the Second Five year Plan (1956-61) provided the required framework for public sector undertakings/enterprises.
  • With this, the PSUs were expected to play a leading role in the economic development of the country, preventing the concentration of economic power and reducing regional disparities for the common good.
  • Initially, through Schedule A of the 1956 Resolution, a total of 17 industrial sectors were reserved for the public sector with a clause that no new units in the private sector would be permitted in these categories. 
  • In Schedule B, another list of industries was included where the Government actively encouraged public ownership. In this, the various sub-national Government, along with the Union Government made a considerable investment for setting up and functioning of public sector enterprises/undertakings.
  • In the initial phase, the public sector undertakings were confined to core and strategic industries such as irrigation projects (e.g. the Damodar Valley Corporation), Communication Infrastructure (e.g. Indian Telephone Industries), Fertilizers and Chemicals (e.g. Fertilizers and Chemicals, Travancore Limited), Heavy Industries (e.g. Bhilai Steel Plant, Bharat Heavy Electricals, Hindustan Machine Tools, Oil and Natural Gas Commission etc.). 
  • Subsequently, the Government started nationalizing several banks (in 1955 the Imperial Bank of India was nationalized and renamed as State Bank of India) and foreign companies (Jessop & Co, Burn & Co, Braithwaite & Co etc.).
  • Later Public Sector companies started manufacturing various consumer goods (e.g. National Textile Corporation, Modern Foods, etc.) and providing contracting, consultancy and transportation services.
  • With time, many public enterprises started getting loss even after a lot of investment and support from the Government due to less experience and mismanagement. Due to huge debt, certain public enterprises had to be settled/ written off from time to time by the Government.
  • In 1991, the role of the public sector was reviewed due to liberalization, privatization and globalization and the public sector were reduced to only six areas like atomic energy, coal, defence, railway, mineral oils and transport.
  • After this, every effort was made to increase participation of the private sector in the public sector for making it profitable and enable them to compete with the private sector companies worldwide.  

Public Sector Reforms in India, 1991

  • The Statement on Industrial Policy, of 1991, reviewed the public sector in India and recognized many problems associated with the public enterprises and suggested ways to rectify these problems.
  • It clearly stated that many public enterprises have become a burden to the Government rather than an asset and proposed the Government to adopt a new approach for the 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 for 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. 
  • The decision of disinvestment of equity of the public sector enterprises was also proposed.

Role of PSUs in India:

  • The share of public sector enterprises has increased from 8% in 1960-61 to 25% in 2011-12, which a huge increase in terms of economic growth.
  • The presence of Public Sector Enterprises in the area of mineral and metal extraction, steel, power, coal and petroleum has been remarkable even today. 
  • Some sectors like coal and mining are still with the Government with a larger share and control. 
  • Public sector Enterprises has helped in shaping the diversification of Indian industries at the time of need and has been successful. 
  • In the sectors of steel and fertilizer, also the Public Sector Enterprises has played a leading role and has still held the sector for the overall economic growth. 
  • Public sector Enterprises have helped in channelization of savings in the country and their investment at a later stage. 
  • Public Sector Enterprises have helped in reducing economic and regional disparities. 
  • Public sector Enterprises provided the required infrastructure needed for the economic growth of the country.  
  • Public Sector Enterprises have given a path for many sectors and strengthened the economic structure of the country.    

Problems/ issues associated with PSEs

  • In Public Sector Enterprises, the level of profit is low as compared to the private sector. 
  • In many cases, the actual cost of the planned project exceeds the original cost due to mismanagement and Bureaucratic hurdles. 
  • Excessive political interference has been one the issue of non-performance of the Public Sector Enterprises. 
  • For the completion of any project, the Public Sector Enterprises normally takes much more time than expected. 
  • Lack of research and development in Public Sector Enterprises is also one of the big issues which need to be looked upon.
  • Lake of skilled manpower in the Public Sector Enterprises is also one the important issue due the which the production and efficiency have decreased. 
  • The Public Sector Enterprises in most of the cases not able to utilize its full potential. 
  • Lack of management and planning in Public Sector Enterprises is creating may issues and challenges.  

Way Forward

  • The management of the Public Sector Enterprises needs to be made good, so enhancing its efficiency.
  • The Government needs to enhance the skills in Public Sector Enterprises, which will boost growth and production.
  • Public Sector Enterprises needs to be free from political interference. 
  • Research and development activities in the Public Sector Enterprisesneeds to be promoted.
  • Bureaucratic hurdles need to be resolved through one window clearance and making every process digital and transparent. 
  • The government should give policy thrust for loss-making PSUs.
  • Strategic disinvestment of the Public Sector Enterprises needs to be considered for its growth and development.  
  • All effort needs to be made for utilization of its full potential. 

Public Sector Undertakings(PSUs) in India

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