What are Public Sector Undertaking (PSU) Companies?
Let’s begin with the acronym itself. PSU stands for Public Sector Undertakings. It means a business undertaking, a corporation, an enterprise owned by the government that is indirectly by people of India. In some cases, its called PSEs too, which is Public Sector Enterprises, given the undertaking word is regarded a bit old fashioned. So in order to frame it into a definition, we may say that “An enterprise owned by the government is called a PSU and in a PSU majority, that is 51% or more, paid-up share capital is held by the government of India, or by state governments, or a mix of both.” If it is a central government’s PSU it will be called CPSE and if governed by the state, it will be called SPSE.
There are a total of 339 CPSEs in India according to a list provided by the Department of Public Enterprises (DPE). A total of 97 of these CPSEs and SPSEs are listed with BSE. (Read more: List of total PSUs in India)
Now, the next question that may prop up in your mind can be “Why do we need PSUs”, Ummm, perfect to ask. The growth and availability of services, facilities, the industrial revolution, products that we see around today was not there at the time of independence. Soon as the country got independence from English rule, she woke up to hustle with serious economic problems all around. Social and economic inequalities, weak industrial base, unemployment, inadequate investments, minimal infrastructure, and lack of education and skill in general. India was already late to catch the train of the industrial revolution as the English used colonised India only to grow raw material and later as consumers for their products readied in England.
In order to counter these problems and put India on development track a plan for Public Sector Undertakings was prepared. India adopted the planned economic development policies, which envisaged the development of PSUs. India’s fir Prime Minister Pt. Nehru believed that the establishment of basic and heavy industry was fundamental to the development and modernisation of the Indian economy.
“An enterprise owned by the government is called a PSU and in a PSU majority, that is 51% or more, paid-up share capital is held by the government of India, or by state governments, or a mix of both.”
India's second five-year plan (1956–60) and the Industrial Policy Resolution of 1956 emphasised the development of public sector enterprises to meet Pt. Nehru's national industrialisation policy. His vision was carried forward by Dr V. Krishnamurthy known as the "Father of Public sector undertakings in India". Thus govt decided to create core industries in strategic sectors like Oil and Gas to Steel, Power production in the first phase. Thus PSUs like ONGC, EIL, Indian Oil, BHEL were founded.
Later in the second phase when the current government started nationalization of industries, Banks, the takeover of private sick units, Public Sector Undertakings expanded from core to other various sectors of manufacturing like consumer goods (from bread to watches to cars & scooters) to consultancy, contracting and transportation etc.
Audit of PSUs
The Comptroller and Auditor General of India (CAG) audits government companies. In respect of government companies, CAG has the power to appoint the Auditor and to direct the manner in which the Auditor shall audit the company's accounts. (Read more: How many PSUs are profit-making in India)
According to the Industrial Policy Resolution 1956, Government has primarily 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. While 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. MRTP act in 1969 brought in certain restrictions to this third category which was further tightened in 1973.
However, in 1991 liberalisation has redefined the role of PSUs in India. The Statement on Industrial Policy in July 1991 brought about fundamental changes. It brought in significant changes in the MRTP (Monopoly and restricted Trade Practices) Act as well. The statement revised the priority of the public sector.
Type of PSUs
Depending upon their annual turnover and Profit PSUs have 3 categories: Maharatna, Navratna, Miniratna-1 and Miniratna-2. (Read more here: How is it decided whether a PSU is Maharatna, Navratna, Miniratna or No’ratna)
Role of PSUs in India
Public Sector Undertakings (PSUs) have laid a strong foundation for the industrial development of the country and they still are the biggest source of employment generation for the government. Since PSUs are less concerned with making profits, they play a key role in nation building activities, which take the economy in the right direction. PSUs provide leverage to the Government (their controlling shareholder) to intervene in the economy directly or indirectly to achieve the desired socio-economic objectives and maximize long-term goals. For example, the government earned around 80,000 Crore from divestment of the PSUs in the FY 2018-19.
In the neoliberal world and an increasingly challenging atmosphere, the business environment for PSUs too has changed significantly. The Maharatnas, Navratnas and some of the Miniratnas are making their presence felt on the international stage and competing with global giants. This competition has brought about a radical change in the way PSUs were thought of in terms of their roles and responsibilities, their ownership and management and their autonomy and character.
(PSU Watch– India's Business News centre that places the spotlight on PSUs, Bureaucracy, Defence and Public Policy is now on Telegram. Join PSU Watch Channel in your Telegram and stay updated)