Public Sector Undertakings in India

Ever wondered what is the concept/ideology or full form of PSU? Public Sector Undertakings (PSUs) are government-owned organizations. PSUs form a pivotal part of the nation's economic progress due to their provision of important services and commodities, including electricity, transportation, and healthcare. 

Let us read more about PSU, the history of PSU, the role of PSU, advantages, types of PSU, and more in detail. Keep reading! 

What is PSU?

Public Sector Undertakings (PSUs) are companies owned by the Central Government, State Government, or both. Depending on the ownership of central or state, it falls either under Central PSUs or State PSUs.

In these companies, the government owns at least 50% of the shares. This gives them the power to appoint most of the directors and control the management.

PSUs are also known as statutory corporations, nationalized corporations, or government-owned businesses.

Table of Contents

1. What is PSU?
2. History of Public Sector Undertakings (PSUs) in India
3. Role of Public Sector Undertakings In India
4. Advantages of Public Sector Companies
5. Types of Public Sector Undertakings Based on Ownership
6. Types of PSU in India Based on Autonomy
7. Challenges Faced by PSU Companies in India

History of Public Sector Undertakings (PSUs) in India

The origin of the Public Sector Undertakings of India can be traced to the post-independence era. The Government of India undertook the development of PSUs in the 1950s with the specific aim of economic self-reliance and industrial advancement. 

The most significant step in this direction was the establishment of the Planning Commission in 1950. This step underlined the importance of state undertakings in the development process. The Industrial Policy Resolution of 1956 further consolidated by declaring certain sectors to be reserved for public investment. Several PSUs were established in major industries like steel, coal, and heavy machinery.

PSUs have been instrumental in India's economic development, with significant contributions to GDP employment and infrastructural development. PSUs are still very much in play in India's economy, particularly in the defence, energy, and transportation sectors- enablers of social welfare and national development.

Role of Public Sector Undertakings In India

Public Sector Undertakings are important for the economic growth of developing countries. They work in different parts of the economy and focus on fulfilling people’s needs. Let us understand some of their key roles in economic development:

1. Economic Development: PSUs are significant contributors to the national economy through substantial investments in various sectors, including infrastructure, manufacturing, and services.
2. Infrastructure Development: PSUs are involved in building and maintaining critical infrastructure like railways, roads, power plants, and telecommunications, which are vital for economic growth.
3. Strategic Industries: PSUs are often involved in defense production and other strategic sectors, contributing to national security and self-reliance. They invest in research and development, fostering innovation and technology in critical areas.
4. Economic Stability: PSUs can stabilize markets in times of economic uncertainty by maintaining supply levels and controlling the prices of essential goods. They often collaborate with private firms, fostering public-private partnerships that enhance efficiency and innovation. 
5. Revenue Generation: PSUs contribute significantly to government revenues through dividends and taxes, which can be reinvested in public welfare programs.
6. Job Creation: Public Sector Undertakings (PSUs) in India create many jobs, focusing on people’s welfare rather than just making profits. They offer large-scale employment and look out for their employees' interests.
7. Social Welfare: PSUs provide goods and services at low prices. They sell subsidized items like fertilizer and food grains, help keep prices stable for essential goods, and support social welfare.

Advantages of Public Sector Companies

PSUs play a vital role in the betterment of the country. Let us understand the significance of their contribution in detail below:

• PSUs contribute to the overall economic stability by providing essential services and products, especially in sectors like energy, transportation, and infrastructure.
• They create significant job opportunities, helping to reduce unemployment and support livelihoods in various regions.
• PSUs often engage in activities that promote social welfare, such as providing affordable goods and services, supporting rural development, and investing in community projects. 
• They facilitate the optimal use of natural and human resources, often prioritizing national interests over profit. 
• Many PSUs invest in research and development, fostering innovation and technological 
  advancement that can benefit the economy as a whole. 

Types of Public Sector Undertakings Based on Ownership

Public Sector Undertakings (PSUs) can be classified into three main types:

• Central Public Sector Enterprises (CPSEs): These are companies where the Central Government owns 51% or more of the shares. CPSEs are further divided into two groups: strategic CPSEs, which are crucial for national security and economy, and non-strategic CPSEs, which are less critical.
• State-Level Public Enterprises (SLPEs): These are companies where the state government owns 51% or more of the shares.
• Public Sector Banks (PSBs): This includes banks that are owned by the Central Government or other PSBs, with 51% or more of the shares owned by the government.

Types of PSU in India Based on Autonomy

Below are the types of PSUs in India based on their autonomy:

• Maharatna

The list of PSUs in the Maharatna companies have a lot of flexibility in executing their operations and finances. They can make large investment decisions without needing the government’s approval. 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-level PSUs have more leverage than others. They can make significant investment decisions within certain limits and can also form joint ventures. Examples of Navratna companies include Hindustan Petroleum Corporation Limited (HPCL) and Bharat Electronics Limited (BEL).

• Miniratna

Miniratna have moderate independence and limited power to make investment decisions. They are further categorized into Category I and Category II based on their performance. Examples of Miniratna companies include the Mineral Exploration Corporation Limited (MECL) and the National Small Industries Corporation Limited (NSIC).

Challenges Faced by PSU Companies in India

PSUs encounter a lot of challenges during their everyday operations.  

• Bureaucratic Hurdles
  PSUs often face lengthy approval processes. It slows down decision-making and project execution.
• Financial Constraints
  While some PSUs have autonomy, many still need government approval for significant investments and operational changes. This affects their responsiveness to market dynamics. 
• Competition from the Private Sector
  Increasing competition from private companies can challenge PSUs in terms of efficiency, innovation, and service delivery.
• Workforce Issues
  Managing a large workforce can be challenging, with issues like labour disputes, employee productivity, and skill gaps.
• Technology Adoption
  Keeping up with technological advancements can be difficult, as PSUs may be slow to adopt new technologies compared to the private sector.
• Changing Regulatory Environment
  Frequent changes in government policies and regulations can create uncertainty and complicate operations for PSUs.
• Market Volatility
  Fluctuations in market conditions, such as changes in commodity prices or demand, can impact the performance of PSUs significantly.

Conclusion

Public Sector Undertakings (PSUs) are crucial for India's social and economic development. They help boost economic growth, provide essential services and infrastructure, create jobs, and more. Different types of PSUs serve various sectors and have different levels of independence, all of which greatly contribute to the country’s progress.