PSUs – PERFORMANCE AND OBJECTIVES

Public Sector Undertakings (PSUs) are government-owned corporations or entities in which the central or state government holds a significant stake (typically more than 51%). PSUs play a critical role in the economic development of a country, providing essential goods and services, fostering industrialization, and generating employment.

PSUs are categorized into three main types:

1. Central Public Sector Enterprises (CPSEs): These are PSUs where the central government holds a majority stake.
2. State Public Sector Enterprises (SPSEs): These are PSUs owned and controlled by state governments.
3. Public Sector Banks (PSBs): These are banks where the government holds a majority stake and are categorized as PSUs due to their strategic importance.

Objectives of PSUs

1. Promote Economic Growth: PSUs are often established in key sectors to promote industrial development and drive economic growth. They contribute to GDP, employment, and infrastructure development.
   • Example: Oil and Natural Gas Corporation (ONGC) is a PSU that plays a vital role in India’s energy sector, contributing to the exploration and production of oil and gas, thereby ensuring energy security.
2. Create Employment Opportunities: PSUs generate significant employment, both directly and indirectly, especially in labor-intensive sectors. They also play a role in skill development and training for workers.
   • Example: Bharat Heavy Electricals Limited (BHEL) provides employment to thousands of workers and helps develop a skilled workforce in the engineering and manufacturing sectors.
3. Promote Infrastructure Development: PSUs contribute to building infrastructure such as transportation networks, energy grids, water supply, and telecommunications systems, which are critical for the overall development of the country.
   • Example: NTPC Limited, a leading power-generating PSU in India, contributes to infrastructure development by ensuring a stable supply of electricity across the country.
4. Prevent Monopolies and Ensure Fair Competition: PSUs are established in sectors where private players may not initially invest due to high risks or lower profitability. They prevent the formation of monopolies in critical sectors and ensure that essential services are provided to the public at affordable rates.
   • Example: Indian Oil Corporation (IOC), a major PSU in the petroleum sector, ensures fair pricing and distribution of oil and gas across India, preventing monopolistic pricing in the energy sector.
5. Encourage Regional Development: Many PSUs are set up in less developed regions to promote balanced regional growth and reduce income disparities across the country.
   • Example: Steel Authority of India Limited (SAIL) has steel plants in various remote and economically backward areas of India, contributing to the economic development of those regions.
6. Generate Revenue for the Government: PSUs contribute significantly to government revenues through dividends, taxes, and disinvestment. Successful PSUs provide a steady stream of income to the government, which can be used for public welfare projects.
   • Example: Coal India Limited (CIL), a PSU engaged in coal mining, is one of the largest contributors to government revenue through taxes and dividends.
7. Promote Social Welfare: Many PSUs have social objectives and are involved in Corporate Social Responsibility (CSR) activities, such as education, healthcare, and environmental protection, benefiting society at large.
   • Example: GAIL (India) Limited, a gas distribution company, undertakes several CSR initiatives, including projects in healthcare, education, and rural development.
8. Control Strategic Sectors: PSUs are often created in strategically important sectors like defense, energy, and heavy industries to maintain national security and self-reliance.
   • Example: Hindustan Aeronautics Limited (HAL), a defense PSU, plays a crucial role in the development and production of military aircraft, contributing to India’s defense capabilities.

Performance of PSUs

The performance of PSUs is typically measured based on their profitability, efficiency, and contribution to the economy. However, the performance of PSUs can vary widely depending on the sector in which they operate and the specific challenges they face.

Key Performance Indicators (KPIs) for PSUs:

1. Financial Performance: Profitability, revenue growth, return on capital employed (ROCE), and dividends paid to the government are key indicators of financial performance. Successful PSUs contribute significant revenue to the exchequer through dividends and taxes.
   • Example: Oil and Natural Gas Corporation (ONGC) is one of the most profitable PSUs in India, consistently generating high revenues and contributing significant dividends to the government.
2. Operational Efficiency: Efficiency is measured through output, capacity utilization, and productivity levels. PSUs that operate efficiently tend to generate higher profits and better returns for stakeholders.
   • Example: Bharat Electronics Limited (BEL), a PSU in the defense sector, is known for its operational efficiency, providing cutting-edge technology and delivering high-quality defense products.
3. Market Share: Many PSUs hold significant market share in sectors such as energy, mining, transportation, and banking. Their dominance often ensures that they can influence prices and provide services to a broad customer base.
   • Example: Coal India Limited (CIL) is the largest coal-producing company globally, holding a substantial market share in the coal industry and ensuring India’s energy security.
4. Employment Generation: A PSU’s role in generating employment, especially in rural or underdeveloped regions, is a crucial performance indicator. PSUs help create jobs in various sectors, from heavy industries to banking and services.
   • Example: Indian Railways, one of the largest PSUs in India, employs more than 1.3 million people, making it one of the largest employers in the world.
5. Corporate Social Responsibility (CSR): PSUs contribute to social welfare through CSR activities. Their performance in these areas can be seen in their contributions to healthcare, education, environment, and rural development.
   • Example: NTPC Limited invests in CSR activities such as rural electrification, clean water access, and healthcare initiatives for communities near its plants.
6. Innovation and R&D: PSUs that invest in research and development (R&D) and technological innovation tend to perform better in competitive markets and contribute to national technological advancements.
   • Example: Bharat Heavy Electricals Limited (BHEL) invests significantly in R&D to stay competitive in the energy and engineering sectors, developing state-of-the-art machinery and power generation equipment.
7. Global Presence: Some PSUs have expanded their operations internationally, enhancing their performance by entering new markets and increasing their revenue streams.
   • Example: ONGC Videsh, the international arm of ONGC, has investments in oil and gas exploration in countries such as Russia, Sudan, and Vietnam, contributing to India’s energy security.

Challenges Faced by PSUs

1. Bureaucratic Delays: PSUs often face bureaucratic hurdles in decision-making due to government control. This can result in inefficiencies and delays in critical processes like procurement, project approvals, and recruitment.
   • Example: PSUs such as Air India have struggled with inefficiencies due to bureaucratic procedures, which affected their profitability and competitiveness.
2. Political Interference: Government ownership of PSUs sometimes leads to political interference in their operations, resulting in non-commercial decisions that may negatively impact their performance.
   • Example: Air India, once a profitable PSU, faced issues due to politically motivated decisions, such as excessive expansion and fleet purchases, which contributed to its financial decline.
3. Lack of Autonomy: Many PSUs lack the autonomy to make independent business decisions, limiting their ability to respond quickly to market conditions or adopt modern business practices.
   • Example: BSNL (Bharat Sanchar Nigam Limited), the state-owned telecommunications company, has struggled to compete with private telecom operators due to slow decision-making processes and lack of flexibility.
4. Low Productivity and Inefficiency: Some PSUs have low productivity levels due to outdated technology, underutilization of resources, or excessive staffing, leading to poor financial performance.
   • Example: Steel Authority of India Limited (SAIL) has faced challenges in maintaining profitability due to outdated plants and equipment and high production costs.
5. Competition from Private Sector: With the liberalization of the economy, PSUs face stiff competition from private sector companies that are often more agile, innovative, and efficient.
   • Example: Air India lost market share to private airlines such as IndiGo and SpiceJet, which offered better services and more efficient operations.
6. Disinvestment and Privatization: In recent years, the government has been disinvesting in some PSUs to improve their efficiency and reduce fiscal pressure. While this can lead to better performance, it is also a contentious issue.
   • Example: The privatization of Air India in 2021 was a major step in the government’s disinvestment plan, as the airline had been incurring losses for several years.

Examples of Successful PSUs

1. Oil and Natural Gas Corporation (ONGC):
   • ONGC is one of the most profitable PSUs in India, involved in the exploration, production, and transportation of oil and gas. It contributes significantly to India’s energy needs and government revenue.
2. Bharat Heavy Electricals Limited (BHEL):
   • BHEL is one of India’s largest engineering and manufacturing companies, specializing in power generation equipment. It is known for its technological innovation and plays a vital role in India’s infrastructure development.
3. Indian Oil Corporation (IOC):
   • IOC is a major player in India’s petroleum sector, involved in refining, marketing, and distribution of petroleum products. It ensures the availability of energy resources across India and is a major contributor to government revenues.

Conclusion

Public Sector Undertakings (PSUs) are a cornerstone of India’s industrial and economic growth. They play a critical role in providing essential services, generating employment, and contributing to social welfare. However, PSUs also face challenges such as political interference, inefficiencies, and competition from the private sector. While some PSUs have shown remarkable performance and profitability, others struggle with inefficiency and require reforms to remain competitive in the rapidly evolving global economy.