Re-imagining India’s Public Sector Enterprises – both Central & State governments owned

It is a fact that history of post – Independence India cannot be complete without mentioning the Role of Public Sector Enterprises – the majority shareholding of these Enterprises being held by the Central / State Governments (mainly separately but in certain cases joint holdings of centre and states).

What was planned at the second five year Plan level to industrialize India and give a foundation of strong presence in heavy industry and requiring huge capital outlays or a specific industry relevant to the commercial and people needs of the Indian state, got hijacked into irrelevant thinking of who retains ‘control’ of the Indian economy.

Sadly, the public sector enterprises (PSEs) whether under Central or State Governments control did not function to their full potential – becoming units where inefficiency, laxity of operations was tolerated and worse where political influence could guide investment and commercial decisions.  In many important sectors (incl Defence), the performance was below par.

Something even worse happened – many public sector units ministries (centre & states) lost total control on these commercial undertakings and the units believed that it was their Right to demand Budgetary allocations for inefficient operations (funding operations losses).  Also, the dividends declarations from PSEs was insignificant from a Budget Revenue item – at Centre and states levels. 

A very classic example of this is given below – details are from Union Budget (central government) submissions for Year 2026/27 (Apr ’26 – Mar ’27). Similar situation must be at states levels.  See Table below:

Values in Rupees crores.

1. Revenue Receipts means Union Tax Revenues & Investments income revenues, after states share is deducted.  Does not include Capital Revenues like Borrowings.
2. Dividends from PSEs excludes Dividends / Surplus from Reserve Bank of India, nationalized Banks and Financial Institutions.

It is apparent that the Dividends Returns from PSEs is inadequate and hence the need to Re-Imagine the Public Sector Enterprises at both the Centre and States.  There are 2 other reasons besides Returns on Investments made in PSEs that require a re-imagination.  They are:

1. The Indian private sector has not stepped up it’s pace of investments.  It has not stepped into large green field projects investments, preferring to follow the public sector investments lead.
2. The international business facilitation environment is becoming very dark and unstable.  Seeing para (i) above, it would be foolish to depend on the private sector to take Risks.  They have shown that they are averse to Risk Taking, preferring mostly to be Followers than Leaders.  India has to seek growth within and focus also on Industry linked with Agriculture thru PSEs.  Something, the farm sector may be more comfortable with.

India has had successes and failures in the recent past on Re-imagining certain sectors that have strong public sector character.  They are Railways, Road Infrastructure construction, public sector banks recapitalization and improved efficiency and profits, India Post Office including India Post Bank.  However, we have some notable failures also like public sector general insurance companies, telecom sector where MTNL and BSNL are sinking.  The above illustrations are from the Centre.  There must be examples at state levels also.

Our successes above show that we need to re-imagine (whether at Central Government or state governments levels) why the entity was originally created?  How is the existing performance in terms of achieving setting up objectives and what is the financial performance?  If the original objective is meaningless now, we need to understand how to proceed further with the entity.  The re-imagining could be thru mergers also.  We have seen public sector banks mergers being very successful and executed well.

All public sector undertakings must be having some reporting Ministry.  It is the job of the Ministry to take a hard look at the entities and see what ‘juice’ can be extracted from the same.  It is the responsibility of the Executive wing of Government to lay down Performance and Financial parameters to be achieved in a span of 3-5 years.  The policy of drift and the policy of having employment generated from PSE units workings cannot sustain us.

The PSEs have to come back to the original objective of India’s industrial growth.  This can now be expanded to services and digital economies but words without actions serve no purpose.  Sadly, India has permitted it’s public sector to drift.  Clarity on PSE intent is step one.  Then, the Executive MUST FACILITATE and then DEMAND Performance, Profits and Returns on Investments already made.  

As a country, we need some sort of tabulation of the entire Public Sector universe at the Centre and States (per reporting ministries) giving details of:

1. Share Capital invested in the entity;
2. Accumulated reserves / losses;
3. Amounts advanced as working capital;
4. Turnover / Revenue of the entity (last 3 years);
5. Profit / (loss) before income tax (last 3 years);
6. Number of Employees on Payroll;
7. Record of dividend distribution (last 3 years);
8. Direct and Indirect tax payments (last 3 years);
9. Tax disputes with Revenue Authorities;
10. Level of Borrowings (last 3 years)
11. Have borrowings repayments schedules been missed (last 3 years)?

Every state government and the Government at the Centre needs to know about the investments value in the PSEs and the Returns received in terms of Dividends and Surplus retained for further expansion.  Then, the Central and State governments must compute the amounts invested in the PSEs (individual & collective) and judge whether Returns are adequate.

It is now for the Governments to make out plans so that Ministries can decide what to do to improve the performance of the PSEs under their control.  The real question is whether Ministries are fully aware of their PSEs performance.  This improvement action must be taken up very seriously. If the Central Government can show improvement in it’s Public Sector Enterprises performance, there will be a rub-off effect on the states.  

A profitable and efficient public sector would have many advantages:

1. It would give competition to private sector units in the same business segment.  Competition does bring out business efficiency;
2. A growing public sector would result in increased employment – in the units themselves and also in the ancillary / supplier units which do business with them. Also, this increase would be in formalized employment and not informal sectors;
3. Our corporate direct tax revenue collection is plateauing.  Reduction in corporate tax rate and inefficient public sector units performance diminishes both direct and indirect tax collections.  Our individual income tax revenue pillar is on a small base which is not expanding.

At a time when world supply chains are breaking and the private sector in India unwilling to commit additional funds for investments – India will need to focus on improving it’s public sector management.  

Divestment is facing strong cross currents and there is no notable process success in this endeavour.  A hit or two every year cannot improve matters. The results are not matching the hype.  This is a challenge but needs to be faced and resolved.  Change of PSE Management style and being aware of financial expectations will yield better Returns.

We have no option but to have strong public sector units, capable of standing on their own.  Adequate returns from PSEs would assist in Defence and social sector spendings at Centre and states. That needs to be the FOCUS for India – faster industrial, commercial and social sector development.  India ‘mixed’ economy needs a strong public sector which yields Returns on Investments and takes the lead in GDP growth.

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