DEST Practice 8

Public Sector Undertakings, commonly referred to as PSUs or Central Public Sector Enterprises, are companies in which the central government holds a majority ownership stake and exercises control over management and strategic decisions, playing a significant role in the Indian economy across sectors including energy, steel, coal, telecommunications, insurance, banking, defence manufacturing, heavy engineering, chemicals, fertilisers, shipping, and civil aviation. The PSU sector was built up over the decades following independence as a means of promoting rapid industrialisation, establishing a commanding heights presence in strategic sectors, developing infrastructure in areas where private capital was unwilling or unable to invest at adequate scale, generating employment, and building indigenous technological capabilities that the private sector of that era lacked the resources and expertise to develop. The categorisation of Central Public Sector Enterprises into Maharatna, Navratna, and Miniratna categories is a governance framework that grants varying levels of financial and operational autonomy to well-performing enterprises, allowing their boards and management to make investment decisions, enter joint ventures, and undertake strategic initiatives up to specified financial limits without seeking prior approval from the administrative ministry or the Department of Public Enterprises. The Maharatna status, currently held by a select group of the very largest and most profitable public enterprises including ONGC, NTPC, Coal India, SAIL, BHEL, and Indian Oil Corporation, confers the highest level of autonomy, with the board empowered to approve projects worth up to fifteen thousand crore rupees without government approval, enabling these enterprises to respond more nimbly to business opportunities and competitive challenges. The Navratna category, comprising enterprises of smaller scale but proven commercial performance, enjoys autonomy for projects up to one thousand crore rupees, while Miniratna companies are granted differentiated levels of autonomy depending on whether they belong to Category I or Category II. The divestment programme, implemented through the Department of Investment and Public Asset Management, is the mechanism through which the government progressively reduces its ownership stake in PSUs either through strategic sale to a new private owner who assumes management control or through offers for sale of minority stakes in listed companies through the capital market, with the proceeds credited to the National Investment Fund for use in social sector spending and capital investment. The strategic disinvestment of Air India, completed in January 2022 with the transfer of management and ownership to the Tata Sons group, was a landmark transaction that demonstrated the government's commitment to exiting commercially unviable businesses and focusing state resources on areas where public ownership serves a genuine public purpose. BPCL, Container Corporation of India, and several other large public enterprises have been identified for strategic disinvestment in successive budget announcements, though the complex process of share valuation, regulatory approvals, employee negotiations, and market conditions has slowed the pace of completion. The listing of central public sector enterprises on stock exchanges and the progressive increase in public shareholding have introduced market discipline and investor scrutiny that complement the internal governance reforms aimed at improving the commercial performance and accountability of PSU management. The performance evaluation of PSUs through the Memorandum of Understanding system, under which each enterprise agrees with its administrative ministry on a set of quantitative targets for the year across financial, operational, and social dimensions, provides a structured framework for measuring and comparing PSU performance. PSUs in sectors such as defence manufacturing, space, nuclear energy, and strategic communications continue to operate as vertically integrated national champions, combining commercial operations with strategic national security functions that justify their insulation from competitive market forces.