+ Public Sector Enterprises – the Tree of Life for the Indian Economy – CII Blog

Public Sector Enterprises (PSEs), better known as state-owned enterprises, have been an integral part of the Indian economy since Indian independence in 1947. The objective of setting these up was to ensure self-reliance in industries of national strategic importance, as also promote production within India, especially in industries where the private sector was hesitant or unable to enter due to prohibitively high cost of investment and risk involved, such as coal mining and railways.   

Since then, the PSEs have come a long way, and are present in many major sectors of the economy, contributing to economic growth and the nation building process. They are owned either by the Central or the State Governments.

In 2017-18, the total number of Central Public Sector Enterprises (CPSEs) stood at 255, spread over sectors such as Infrastructure (road, rail, port, air), Power, Oil & Gas, Atomic Energy, Space and Defense, Steel, Mining (Excluding Oil & Gas), Chemicals & Fertilisers and Pharmaceuticals.

PSEs are classified according to Schedules depending on their importance to the economy with respect to investments, capital employed, net sales, profits, number of employees, number of units and other qualitative factors. They are further classified as Maharatnas, Navaratnas, Mini Ratna 1 and Mini Ratna 2, with regards to comparative advantage and potential to become global players.

Role of CPSEs in the Present Economy

  • Contribution of CPSEs to the National Exchequer

CPSEs have contributed positively to the exchequer, generating around Rs 593,000 crore over the last five years.  

  • Employment Creation

CPSEs were regarded as one of the key generators of remunerative employment in the formal sector, providing safe and secure jobs, while tending to the overall welfare of an employee. However, with changes in the socio-economic context, this perception has significantly altered.

Employment in CPSEs, over the last 10 years (2008-09 to 2017-18), shows a declining trend. During this period, the employment per CPSE declined from 7,197 people in 2008-09 to 4,267 in 2017-18.  

This trend should be read keeping in mind a convergence of various factors including the shrinking of organisations in addition to evolution of technology and/or business models requiring a smaller workforce.

  • Creation of Assets

The contribution of CPSEs towards creation of national assets in the initial decades following Independence is particularly noteworthy, especially in sectors that are regarded as high risk and low return on investments by the private sector. The CPSEs were responsible for nurturing both human and physical assets.

The growth in average gross fixed assets per CPSE slowed down from 8.1% (CAGR) during the period 2008-09 to 2012-13 to 0.8% from 2013-14 to 2017-18.

  • Corporate Social Responsibility

CPSEs have consistently contributed to Corporate Social Responsibility, even before the CSR rules were implemented. Data reveals a decline in CSR contribution over the last three years. That said, CPSEs have, on a consolidated basis, contributed more than the mandated 2.0% of profits.

Relevance of CPSEs in the Present Economy

Popular discourse asserts that in today’s dynamic private sector environment, India no longer requires CPSEs. However, the CII Research report – The Rise of the Elephant: Enhancing Competitiveness of Central Public Sector Enterprises – establishes the need for CPSEs in select sectors and under specific circumstances.

Given this, it is imperative to make Indian CPSEs globally competitive. ‘The Rise of the Elephant’ recommends adopting a Competitiveness Model for transforming CPSEs into efficient and globally competitive entities. The key elements of the model are:

1.Clarity in Roadmap and Objective

2. Role Demarcation

3.Operational Independence

4.Independent and Empowered Board

5. Level Playing Field

6. Future Ready

PSEs have played a huge role in the promotion of exports and earning foreign exchange in India. In 2017-18, the total foreign exchange earnings of PSEs through exports of goods and services was around Rs. 86,980 crores. India exported steel products, aluminum products, petrochemical products and lubricants including consultancy related services on construction and exploration, and others.

Indian PSEs are already present across the globe in regions such as the Middle East, Africa, Europe, Asia, Latin America and North America and there is tremendous potential for Indian CPSEs and PSEs to expand their global footprint further by enhancing their competitiveness. CII works towards improving and strengthening the PSE ecosystem, aiming to unlock the value of Public Sector Enterprises.