Everything About Public Sector Undertakings (PSUs) in India

07 June 2024
6 min read
Everything About Public Sector Undertakings (PSUs) in India
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Public Sector Undertakings, or PSUs, are government-owned corporations vital to India's economic and social development. PSUs operate across sectors like energy, telecommunications, manufacturing and finance.

With their significant contributions to GDP, PSUs play a crucial role in driving infrastructure growth, providing employment opportunities and promoting socio-economic welfare. 

What is Public Sector Undertaking Definition

Public Sector Undertakings are companies owned by either the Central Government, any State Government, or both. The government classifies these companies as Central PSUs or State PSUs, depending on ownership.

In these companies, the government holds at least 50% of the paid-up share capital. They have the power to appoint most of the directors and, thus, control the management.

PSUs are also known as statutory corporations, nationalised corporations, and government-owned businesses.

History of PSUs in India - The Origin

After gaining independence, India faced significant socio-economic and financial challenges due to prolonged colonial rule. These challenges included income disparity, uneven regional development, and widespread unemployment. Additionally, the weak foundation, limited infrastructure, lack of investments, and shortage of skilled labourers hampered India's basic framework.

During this period, the Industrial Policy Resolution of the Second Five-Year Plan laid the groundwork for Public Sector Undertakings in India, which were considered crucial for sustainable economic growth.

Initially, PSUs were limited to core industries like irrigation, fertilisers, communication, and heavy industries. Later, banks and foreign companies were nationalised, and PSUs expanded into manufacturing consumer goods and providing services.

However, poor management and a lack of innovation led many PSUs to incur losses, prompting the government to review their role. The Industrial Policy Resolution of 1991 reduced PSUs to six strategic areas, namely atomic, defence, energy, railway transport, oil, and coal. Additionally, steps were taken to divest non-strategic public sector industries and encourage private participation in profitable PSU ventures.

Role of Public Sector Undertakings

Public enterprises play a crucial role in the economic development of developing countries. They operate in various sectors of the economy and actively work to meet the needs of the people.

The following highlights some of the roles of public sector undertakings:

  • Economic Growth

PSUs drive economic growth by developing infrastructure, operating public utilities, and using modern technologies in production. Their activities help accelerate the country's economic progress.

  • Development of Infrastructure 

Public Sector Undertakings build essential infrastructure like communication, transport, buildings, power, irrigation, and drinking water. They take on projects requiring huge investments and long completion times, which the private sector often avoids.

  • Basic and Heavy Industries Development

PSUs are essential for setting up industries such as iron and steel, cement, electricity, petroleum, fertiliser, etc. These industries are critical for industrialisation, and PSUs fill the gap where private sector investment is lacking.

  • Public Utilities

It provides vital public utilities like electricity, water supply, public transport, airlines, railways, telecommunications, oil and gas, etc. They ensure these services are available at reasonable prices for public welfare.

  • Employment Creation

PSUs in India generate significant employment opportunities, countering the private sector's focus on profit over job creation. They provide large-scale employment and protect employee interests.

  • Government Revenue

PSUs contribute to government revenue through taxes such as customs duties, income tax, and excise duty. Profits from PSUs help fund development programs.

  • Social Welfare

It provides essential goods and services at affordable prices. They offer subsidised commodities like fertiliser and food grains, help control the prices of essential goods, and promote social welfare.

  • Balanced Development

PSUs promote industrial growth in less developed regions, which private enterprises often overlook due to lower economic gains. They help achieve balanced regional development.

Advantages of Public Sector Undertakings

The following highlights some of the advantages of Public Sector Undertakings in India:

  • In times of urgent need for production, the government can quickly start large-scale initiatives, unlike the private sector.
  • PSUs do not focus primarily on making quick profits. They aim for long-term benefits rather than immediate financial gains.
  • In the private sector, profit is the main goal, often leading to personal gains and worker exploitation. In contrast, profits from the public sector in India are used to improve services.
  • With PSUs, the Government can secure substantial funds and obtain large loans with ease.
  • Since the states regulate PSUs, they can easily access resources and acquire raw materials.

Different Types of PSUs Based on Ownership

On the basis of ownership, you can classify PSUs into the following types:

  • Central Public Sector Enterprises (CPSEs)

These are companies where the Central Government directly controls 51% or more of the capital share ownership. The government further divides CPSEs into two categories: strategic CPSEs and non-strategic CPSEs.

  • State Level Public Enterprises (SLPEs)

These are companies where the State Government owns 51% or more of the capital shares.

  • Public Sector Banks (PSBs)

This category comprises banks under the direct control of the Central Government or other PSBs, with 51% or more of capital share ownership.

Types of PSU in India Based on Their Level of Autonomy

India categorises PSUs on the basis of their level of autonomy into three types:

  • Maharatna

These top-tier PSUs have significant operational and financial autonomy. They can make substantial investment decisions without needing government approval.

Some examples of Maharatna companies include Indian Oil Corporation Limited (IOCL), Oil and Natural Gas Corporation Limited (ONGC), and Bharat Petroleum Corporation Limited (BPCL).

  • Navratna 

These second-tier PSUs enjoy more autonomy than other PSUs. They can make substantial investment decisions within certain limits and form joint ventures. Some examples of Navratna companies include Hindustan Petroleum Corporation Limited (HPCL) and Bharat Electronics Limited (BEL).

  • Miniratna

These third-tier PSUs have moderate autonomy and limited investment decision-making powers. They further divide Public Sector Undertakings into Category I and Category II based on performance.

For example, Miniratna companies include Mineral Exploration Corporation Limited (MECL) and National Small Industries Corporation Limited (NSIC).

Which is the Biggest Public Sector Undertaking in India?

Indian Railways is the biggest public sector undertaking in India, covering an extensive network throughout the country.

It is a crucial transportation lifeline, enabling trade, connecting people, and promoting economic growth. Indian Railways boasts vast infrastructure, including thousands of kilometres of tracks, numerous stations, and a diverse range of trains for various needs.

It reliably transports millions of passengers daily and carries a large portion of the nation’s freight, moving goods across different regions. With a rich history and ongoing modernisation, Indian Railways significantly contribute to India’s socio-economic development by enhancing connectivity, generating employment, and facilitating the mobility of people and goods.

The Bottomline

Public Sector Undertakings play a pivotal role in India's socio-economic development by driving economic growth, providing essential infrastructure and services, generating employment, and more.

With various types of PSUs catering to different sectors and levels of autonomy, they contribute significantly to the country's progress.

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