Spotlight

Public Sector Undertakings in India

Public Sector Undertakings in India

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.

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.





  Evolution of Public Sector Undertakings
Evolution of PSUs  

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. 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.

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.

In 1969, the government nationalized 14 major banks.

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.

In 1973, the definition of large industrial houses was adopted in conformity with that of the Monopolies and Restrictive Trade Practices Act (MRTP) 1969 - External website that opens in a new window and included companies whose assets exceeded Rs 200 mn.

The Statement on Industrial Policy in July 1991 was also significant. It brought in fundamental changes in the MRTP Act as well. The statement revised the priority of the public sector.



Classification of Public Sector Undertakings

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. For detailed information on the classification and categorization of CPSEs, click here - File referring to external site opens in a new window .

Schedule-Wise List of Central Public Sector Enterprises - File referring to external site opens in a new window



  Section 25 Companies
Section 25 Companies  

Public Sector Enterprises having objects to promote commerce, art, science, religion, charity or any other useful purpose and not having any profit motive can be registered as non-profit company under section 25 of the Companies Act, 1956.

This section empowers the Central Government to grant a licence directing that such an association may be registered as a company with limited liability, without the addition of the words `Limited' or `Private Limited' to its name.

Such companies are also called as the Non-profit or 'No Profit - No Loss' companies.



Maharatna/Navratna/Miniratna Status for Public Sector Undertakings

The status of Maharatna, Navratna, Miniratna to CPSEs is conferred by the Department of Public Enterprises - External website that opens in a new window to various Public Sector Undertakings. These prestigious titles provide them greater autonomy to compete in the global market.

Maharatna

A company qualifying for the Maharatna - External website that opens in a new window status should have an average annual turnover of Rs 20,000 crore during the last three years against Rs 25,000 crore prescribed earlier. The average annual net worth of the company should be Rs 10,000 crore.

The Maharatna status empowers mega CPSEs to expand their operations and emerge as global giants. The coveted status empowers the boards of firms to take investment decisions up to Rs 5,000 crore as against the present Rs 1,000 crore limit without seeking government approval. The Maharatna firms would now be free to decide on investments up to 15% of their net worth in a project, limited to an absolute ceiling of Rs 5,000 crore.

Navratna

The Central Public Sector Enterprises (CPSEs) fulfilling the following criteria are eligible to be considered for grant of Navaratna - External website that opens in a new window status:

  • Having Schedule 'A' and Miniratna Category-1 status.
  • Having at least three 'Excellent' or 'Very Good' Memorandum of Understanding (MoU) ratings during the last five years.

For detailed information on criteria for Navratna status click here - External website that opens in a new window.

The Navratna status empowers PSEs to invest up to Rs. 1000 crore or 15% of their net worth on a single project without seeking government approval. In a year, these companies can spend up to 30% of their net worth not exceeding Rs. 1000 cr. They also enjoy the freedom to enter joint ventures, form alliances and float subsidiaries abroad.

Miniratna Category

For Miniratna category I status, the CPSE should have made profit in the last three years continuously, the pre-tax profit should have been Rs. 30 crores or more in at least one of the three years and should have a positive net worth. For category II, the CPSE should have made profit for the last three years continuously and should have a positive net worth.

Miniratnas can enter into joint ventures, set subsidiary companies and overseas offices but with certain conditions. This designation applies to PSEs that have made profits continuously for the last three years or earned a net profit of Rs. 30 crore or more in one of the three years.

Miniratna Category-II CPSEs
Category II miniratnas have autonomy to incurring the capital expenditure without government approval up to Rs. 300 crore or up to 50% of their net worth whichever is lower.



  Role of Public Sector Undertakings
Role of PSUS  

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.

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.

As agriculture is the backbone of Indian economy, Public Sector Banks (PSBs) play a crucial role in pushing the agricultural economy on to the progressive pathway and helping develop rural India. Moreover, PSUs play a substantial role in the rural development by providing basic infrastructural services to citizens.



Empowerment of Public Sector Undertakings

The Government provides Public Sector Enterprises (PSEs/PSUs) the necessary flexibility and autonomy to operate effectively in a competitive environment. The Boards of Navratna and Miniratna companies - External website that opens in a new window are entrusted with more powers in order to facilitate further improvement in their performance.

The government has also implemented revised salaries for executives of PSEs/PSUs. Moreover, some innovative measures such as Performance Related Pay have been introduced to make them more efficient. These incentives for the employees have been linked to individual, group as well as company performance.

For further strengthening, the government is also encouraging the listing of Public Sector Enterprises on the stock markets.



  Corporate Governance of Public Sector Undertakings
Corporate Governance of PSUs  

Good corporate governance practices are essential for sustainable business. It generates long term value to all its shareholders and other stakeholders. The Ministry of Corporate Affairs has been working towards strengthening of the corporate governance.

The ministry encourages the use of better practices through voluntary adoption. For this purpose, a set of voluntary guidelines has been drafted. The Corporate Governance Voluntary Guidelines serve as a benchmark for the corporate sector and also help them in achieving the highest standard of corporate governance.



Corporate Social Responsibility of Public Sector Undertakings

Social Obligations of Central Public Enterprises

PSUs serve the interest of society by taking responsibility for the impact of their activities on customers, employees, shareholders, communities and the environment in all aspects of their operations.

The Government has issued the guidelines on Corporate Social Responsibility for Central Public Sector Enterprises (CPSEs) following the Committee on Public Undertakings (1993-94) recommended a number of measures in its 24th Report on 'Social Responsibilities and Public Accountability of Public Undertakings'.

Although the Government believes in making PSEs growth oriented and technically dynamic, its policy is to give greater powers to the boards so that PSEs could function professionally. While the focus is on generating surpluses for self-sustaining growth, the PSEs generally undertake certain amount of non-commercial responsibilities, in furtherance of their commercial objectives. All PSEs cannot be treated on an equal footing for undertaking various types of social activities. It is for the individual PSE to identify and implement social responsibilities keeping in view its financial ability to sustain such activities, operating environment and provisions in its MOA/Statute.

It is likely that some social responsibilities may be assigned to PSEs through the issuance of Presidential Directives/guidelines by the concerned administrative Ministries/Departments. While implementation of Presidential Directives is mandatory; the guidelines are also generally to be followed except when the boards of directors of PSEs decide not to adopt them for reasons to be recorded in writing. It is desirable that boards of PSEs have full flexibility in identification and implementation of social responsibilities because as per the Articles of Association they enjoy full autonomy in this regard. PSEs are free to avail the help of State Governments, District Administration and peoples' representatives, wherever necessary.



  Jobs & Career
Jobs & Career  

The Public Sector Undertakings (PSUs) have their own recruitment procedures. This sector provides job opportunities to both technical and non-technical personnel.

The Public Enterprises Selection Board - External website that opens in a new window is responsible for selection and placement of personnel in the posts of Chairman, Managing Director or Chairman-cum-Managing Director (Level-I), and Functional Director (Level-II) in PSEs as well as in posts at any other level as may be specified by the Government.



Governance of Public Sector Undertakings

The Department of Public Enterprises - External website that opens in a new window acts as a nodal agency for all Public Sector Enterprises (PSEs).

The important roles and tasks of the Department are:





Disclaimer:

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