PSUs: Return to commanding heights



  • The Government has cleared the air over the issue of privatization of  public sector undertakings (PSUs), it has reaffirmed its faith in the importance of PSUs in the developing country and it has given signals that  recalibration of PSUs is underway so that it can return to the commanding heights.

What are Public Sector Undertakings (PSUs)?

  • The government-owned corporations are termed as Public Sector Undertakings (PSUs) in India.
  • In a PSU majority (51% or more) of the paid up share capital is held by central government or by any state government or partly by the central governments and partly by one or more state governments.


1. Post Independence, India was grappling with grave socio-economic problems, such as:

  • inequalities in income and low levels of employment
  • regional imbalances in economic development and lack of trained manpower
  • weak industrial base
  • inadequate investments and infrastructure facilities, etc.

Hence, the roadmap for Public Sector was developed as an instrument for self-reliant economic growth. The country adopted the planned economic development polices, which envisaged the development of PSUs.

Initially, the public sector was confined to core and strategic industries.

2. The second phase witnessed nationalization of industries, takeover of sick units from the private sector, and entry of the public sector into new fields like manufacturing consumer goods, consultancy, contracting and transportation etc.

  • The Industrial Policy Resolution 1948 outlined the importance of the economy and its continuous growth in production and equitable distribution.
  • In this process, the policy envisaged active engagement of the State in development of industries.

3. The Industrial Policy Resolution 1956 classified industries into three categories with respect to the role played by the State –

  • The first category (Schedule A) included industries whose future development would be the exclusive responsibility of the State
  • The second (Schedule B) category included Enterprises whose initiatives of development would principally be driven by the State but private participation would also be allowed to supplement the efforts of the State
  • And, the third category included the remaining industries, which were left to the private sector.

4. In 1969, the government nationalized 14 major banks.

5. The Industrial Licensing Policy 1970 placed certain restrictions on undertakings belonging to large industrial houses, defined on the basis of assets exceeding Rs 350 mn.

6. In 1973, the definition of large industrial houses was adopted in conformity with that of the 7. Monopolies and Restrictive Trade Practices Act (MRTP) 1969 and included companies whose assets exceeded Rs 200 mn.

8.The Statement on Industrial Policy in July 1991 was also significant.

9. It brought in fundamental changes in the MRTP Act as well. The statement revised the priority of the public sector.


  • Public Sector Undertakings (PSUs) can be classified as Public Sector Enterprises (PSEs), Central Public Sector Enterprises (CPSEs) and Public Sector Banks (PSBs).
  • The Central Public Sector Enterprises (CPSEs) are also classified into ‘strategic’ and ‘non-strategic’. Areas of strategic CPSEs are:
  • Arms & Ammunition and the allied items of defence equipments, defence air-crafts and warships
  • Atomic Energy (except in the areas related to the operation of nuclear power and applications of radiation and radio-isotopes to agriculture, medicine and non-strategic industries)
  • Railways transport.

All other CPSEs are considered as non-strategic.


Role of Public Sector enterprises in India

  1. Maximizing the rate of economic growth
  2. Development of capital-intensive sector
  3. Development of agriculture
  4. Balanced regional development
  5. Development of ancillary industries
  6. Increasing employment opportunities
  7. Model employer
  • The State has inaugurated the era of the model employer in contrast to the employer with a feudal outlook.
  • It has laid down guidelines for emp­loyer-employee relations and for developing good and efficient personnel.
  1. Preventing concentration of economic power
  2. Export promotion
  3. Import substitution
  4. Production and sales
  5. Mobilization of resource
  6. Research and development
  7. Establishment of a socialist pattern
  • Public Sector Undertakings (PSUs) have laid a strong foundation for the industrial development of the country.
  • The public sector is less concerned with making profits. Hence, they play a key role in nation building activities, which take the economy in the right direction.


Problems in Public Sector:

Even though the public sector is going in a correct path, some problems and short comings are there. The main short comings are as follows:

(1) Heavy losses.

(2) Influence of political factors.

(3) Work delays.

(4) Over-capitalisation.

(5) Pricing policy.

(6) Use of Manpower Resources.

(7) Control over employees.

(8) Inefficient Management.

(9) Higher capital intensity leading to lower-employment generation.

(10) Capacity utilisation.

Suggestions to Improve the Performance of Public Sector Enterprises (PSEs):

(i) Controlling the cost at every level of public sector enterprises.

(ii) Increase the production,

(iii) Reforms in capital base.

(iv) Increase the standard of public sector enterprises to manage the competition from both domestic and foreign competitors.

(v) Identifying redundant manpower and dealing with it through means a retraining, redeployment and encouraging self-employment etc.