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Indian PSEs: Temples of the Digital Age

• From just five enterprises in the public sector in India in 1950, the number of PSEs has increased to 339 Central Public Sector Enterprises (CPSE) in 2017-18, as per the Public Enterprises Survey.
• PSEs have established their presence in critical sectors such as infrastructure  (road, rail, port, air), power, oil & gas, atomic energy, space and defense, steel, mining (excluding oil & gas), chemicals & fertilisers and pharmaceuticals.
• Despite the impressive performance of PSEs in India, there are a number of challenges that need to be addressed, if the country aims to make its PSEs globally competitive.
• PSEs should actively in international events and market development initiatives and bid for international projects as a consortium. For this they not only need to maintain a stronghold in their traditional markets but also expand their presence in new ones.

Back when the country was in the nascent stages of its journey as a sovereign republic, India’s first Prime Minister Pandit Jawaharlal Nehru had described public sector enterprises (PSEs) as ‘temples of modern India’. Ever since, these PSEs have been an integral part of the country’s growth trajectory. In course of time, their role transformed from being catalysts of social change to harbingers of growth & progress.

From creating infrastructure, enhancing technology, encouraging innovation, and generating employment to being engaged in commercial activities, India’s PSEs have come a long way. Thus, from just five enterprises in the public sector in India in 1950, the number of PSEs has increased to 339 Central Public Sector Enterprises (CPSE) in 2017-18 (out of which 257 were in operation; the remaining 82 CPSEs were under construction), as per the Public Enterprises Survey, 2017-18.

Performance of Central Public Sector Enterprises during FY 2017-18

2017-18 2016-17
Overall net profit of 257 operating CPSEs is Rs. 1,28,374 crore for FY 2017-18 Overall net profit of 257 operating CPSEs is Rs. 1,25,498 crore for FY 2016-17
184 Operating CPSEs posted net profit of Rs.1,59,635 crore for FY 2017-18 175 Operating CPSEs posted net profit of Rs.1,52,978 crore for FY 2016-17
71 Operating CPSEs posted net loss of Rs. 31,261 crore for FY 2017-18 81 Operating CPSEs posted net loss of Rs. 27,480 crore for FY 2016-17
Total investment in all CPSEs (339) stood at Rs.13,73,412 crore as on 31.03.2018 Total investment in all CPSEs (331) stood at Rs.12,45,819 crore as on 31.03.2017
Dividend declared/paid by CPSEs during the FY 2017-18 is Rs.76,578 crore Dividend declared/paid by CPSEs during the FY 2016-17 is Rs.78,129 crore

Source: Press Information Bureau

Over the years, PSEs have established their presence in critical sectors such as infrastructure (road, rail, port, air), power, oil & gas, atomic energy, space and defense, steel, mining (excluding oil & gas), chemicals & fertilisers and pharmaceuticals. These PSUs have been classified by the Government of India as 10 Maharatnas, 14 Navaratnas, 62 Mini Ratnas 1 and 11 Mini Ratna 2, depending on their comparative advantage and potential to become global players.

They have also contributed immensely to the economy. The total income of all CPSEs during 2017-18 was at Rs 20,33,732 crore compared to Rs 18,22,184 crore registered in 2016-17, thereby growing y-o-y at 11.61%. Indian CPSEs have also contributed significantly in terms of employment generation: as many as 10,88,140 people were employed by CPSEs during this period. Further, they have also laid robust industrial and infrastructural foundations, and helped in adding momentum to India’s technological prowess, thereby placing India among the fastest growing global economies.

CPSEs have also been an integral part of government’s flagship programmes including Make in India. For instance, when the Ministry of Coal allotted two Coking Coal mines, Rohne and Rabodih, to the Steel Central Public Sector Enterprises (CPSE’s) in December’19, it was stipulated that this would add about more than 10 MT per annum and boost the coking coal production in the country. These mines will also create about Rs 7,000 crore revenue for the state government, besides royalties and other applicable taxes.

Despite the impressive performance of PSEs in India, there are a number of challenges to be addressed, if the country aims to make its PSEs globally competitive. A recent report by CII also identifies some of the hurdles that Indian PSEs face: lack of autonomy, multiple procedures and management gaps. Another issue faced by these organisations is the heterogeneous regulatory mechanisms to which they have to succumb to – CAG, CVC and under MOU System, RTI Act and mechanisms required in Companies Act. In addition, they also have to comply with various government rules.

The issues pertaining to ownership and management of these PSEs need to be clearly established to ensure their efficient operation. This could be achieved by having a single regulatory paradigm for all these PSEs. China’s experience has some insight to offer in this regard.

Since the 1950s, China’s growth has been largely led by state-owned enterprises (SOEs). However, by the 1990s, the government initiated a string of reforms: financial infusion, huge layoffs, debt reduction and ownership reforms that included public listings and non-government buyouts. The next decade saw the beginning of China’s tryst with the WTO and SOEs became a pillar of its growth. A major initiative undertaken by the Chinese government was the establishment of the SASAC (State-owned Assets Supervision and Administration Commission) to manage SOEs. After this, there was an increase in the contribution of SOEs to the country’s GDP.

The government is rightly taking an objective view of the performance of CPSEs for divestiture/disinvestment where deemed prudent. According to a Lok Sabha discussion: “Closure of sick / loss making CPSEs and disinvestment of CPSEs in non-strategic sectors will reduce distortions in the market place and will substantially increase efficiency, making Indian production more competitive globally, thereby increasing exports, reducing imports and creating significant new drivers for employment”. 

At present, the most widely publicised disinvestment story is Air India. The airline has been unable to turn a corner despite having a strong presence in one of the world’s fastest growing aviation markets with a 13% domestic market share and a 19% international market share along with membership of the Star Alliance. While the first attempt to divest did not succeed, the government has now expressed readiness to give up control and also take all possible measures to make it an attractive asset for a potential bidder.

Last, but not the least, PSEs should strive for global competitiveness in their strategic outlook. To achieve this, they need to actively participate in international events and market development initiatives and bid for international projects as a consortium. For this they not only need to maintain a strong hold in their traditional markets but also expand their presence in new ones. Furthermore, digital transformation is a must for PSEs in the present milieu, so that they can scale up operations effectively be it in terms of procurement, recruitment, complaint resolution, market outreach and e-governance. 

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