CHAPTER 1

INTRODUCTION OF THE STUDY

INTRODUCTION

Public enterprises have played a pivotal role in overcoming not only the socio-economic

problems but also in the development of Indian economy after independence. The rationale for

setting up public enterprises, inter-alia, was to ensure easier availability of vital articles for mass

consumption, to introduce check on prices of important/essential products and to promote

emerging areas like tourism etc. (Public Enterprises Survey, 2002-03). Hence, it became

pragmatic compulsion to use public sector enterprises (PSEs) as an instrument for achieving self-

reliant economic growth heterogeneously, in the areas of, basic and infrastructure industries,

consumer goods industries and industries engaged in trade and services etc. PSEs have attained

commanding heights in many crucial areas and the vanguard of the country’s variegated

development (Kumar, 1994). Their contribution to the national income, capital formation,

industrialization and provision of economic and social infrastructure has been impressive

(Ghuman, 1998). Accordingly, Industrial Policy Resolution (IPR) 1956 was formulated with

certain policies to ensure that public sector played a strategic role in Indian economy.

PSEs, as per their charter, perform certain social obligations which are poorly defined and

hard to quantify. This has led to a heavy burden of borrowings; which, in turn, has entailed heavy

interest burden. This further compounded their increased losses (Kaur and Singh, 2005).

Evidently, this was a precarious situation. Thus, a need has been felt to ascertain how much of

the loss is attributable for subserving social obligations. Liberalization and globalization have

caused competition and lowered the profit margin. At the same time, government has reduced

subsidies and budgetary support for PSEs. This has entailed financial crunch, causing/forcing the

1
government to bring strategic and economic reforms in the Indian PSEs. It became necessary for

the government to turn from the command economy to the market friendly economy. This

constitutes the genesis of the ‘statement of Industrial Policy’ (announced on July 24, 1991)

which, inter-alia, includes statement on public sector reforms. Major policies recommendations

in this respect are to review their portfolios, to revive/ rehabilitate/ turn-around sick enterprises,

to raise resources through disinvestment of government equity, signing of memorandum of

understanding, assigning high accountability and responsibility to the top executives by

extending greater autonomy in decision making, to introduce variegated professional practices

etc. These recommendations primarily have aimed at making PSEs commercially profitable,

besides meeting social commitments, such that further developmental policy can be financed and

they become economically justified. Two major recommendations of economic reforms, namely,

disinvestment and signing of Memorandum of Understanding (MoU) have been analyzed

critically in the study.

Mounting interest burden of external economic community and unbridled non-planned

expenditure have landed Indian economy almost on the verge of financial disaster; it forced

government to raise resources in terms of encouraging wider public participation in government

equity through disinvestment, being suggested by economic reforms policy of 1991.

Disinvestment has larger implications rather than just selling the government equity; it

contributes to the growth of Indian economy and encourages private participation which, in turn,

brings in operational efficiency, professional competency, control over unplanned expenditure,

cost reduction and induction of global as well as domestic capital. Disinvestment of PSE

shareholdings is an economic necessity (Sankar and Mishra, 1994) which is desirable to finance

the further economic development besides meeting social responsibilities. Therefore,

2
management of available resources profitably constitutes an important element of operational

efficiency (Jain and Yadav, 2005).

Yet, earning profit is not the sole criteria of setting up PSEs. Hence, there is an imperative

need for an instrument which quantifies both social and commercial objectives into measurable

terms. To overcome this, Arjun Sengupta Committee (in its report submitted in 1986) has

suggested the concept of Memorandum of Understanding (MoU)/ Self Obligation. The efficacy

of MoU depends on how well it removes internal and external constrains. MoU policy consists of

comprehensive set of criteria for the evaluation of public enterprise’s performance which brings

back to life the two salient features laid in IPR 1956, i.e., to manage public enterprises on

commercial lines and their performance should be judged by their total performance. Another

innovative feature of assigning weights has also been included in it. Privatization involves

privatization of public assets and MoU implies privatization of public style of management

(Trivedi, 1991b).

SIGNIFICANCE AND MOTIVATION OF THE STUDY

PSEs have made their vital contribution in developing the Indian economy holistically since their

nascent stage. Yet, to overcome the associated economic and social problems in public

enterprises, several committees, appointed by government, have made several recommendations

and suggested polices with a view to reform them. Inter-alia, disinvestment and self obligation

are the two prominent suggestive measures which help in overcoming financial crunch as well as

bringing the PSEs in tune with commercial lines.

There is no comprehensive study which has elaborately measured the impact of

disinvestment and MoU on the performance of PSEs in India. Second, probably no single study

has covered the time span of two decades (i.e., 1991-92 to 2010-11) for assessing the

3
performance of PSEs by using both the dimensions. Third, rarely any study has empirically used

all the measures such as profitability, efficiency, liquidity, leverage and productivity collectively

in determining the performance of PSEs. There does not seem to be any study, as far as

academic enquiry in depth is concerned, to the best of my knowledge on the subject. Hence, this

study has been carried out to fill all the above mentioned gaps.

The study would be found useful from several angles; therefore, its justification is derived

from wider considerations, both academic and practical in terms of national relevance. The

proposed study covers the early and later stages of post-liberalization phases as well as the

period of recession. The study would also be helpful to the government regulatory bodies,

government agencies in policy formulation, investment community and corporate firms, in

general.

OBJECTIVES OF THE STUDY

The main objectives of the study are as follows:

i) To examine the financial performance of the public sector enterprises (PSEs) during the

post-liberalization period in terms of major ratios, namely, profitability, efficiency,

liquidity, leverage and productivity.

ii) To study the financial performance of disinvested PSEs on the basis of before-and-after

the disinvestment.

iii) To compare the financial performance of the disinvested and non-disinvested PSEs.

iv) To determine the financial performance of MoU PSEs over the period of time.

v) To carry out the comparative study on the financial performance of MoU PSEs and non-

MoU PSEs.

vi) To study the impact of MoU and disinvestment on the performance of PSEs.

4
SCOPE OF THE STUDY

i) The study is restricted to the non-financial central public sector enterprises in India; state

PSEs are excluded.

ii) The period of the study is limited to 1991-92 to 2010-11.

METHODOLOGY OF THE STUDY

The study has opted comprehensive framework to ascertain the financial performance of the

central public sector enterprises (PSEs) in India. The study has used secondary data available in

the several volumes of Public Enterprises Survey. Primary data has been collected through

questionnaire survey among the PSEs to synthesize the findings of secondary data.

Supplementary information has been sought through personal interviews with the executives of

the PSEs.

The ratio analysis, a well accepted tool to measure the financial performance, has been

employed to analyze the data. Moreover, the derived results of ratio analysis have been presented

in the form of descriptive and positional values. Statistical tools such as paired t-test,

independent t-test are also used for testing the various hypotheses and drawing the inferences.

The whole data set has been analyzed through Statistical Package of Social Science (SPSS)

software.

ORGANIZATION OF THE STUDY

The study has been divided into eight chapters. The present chapter one relates to background.

While Chapter two is an attempt to provide an overview of public sector enterprises in India.

Chapter three covers the review of literature in the areas of transition phase of PSEs,

5
disinvestment, MoU and the related dimensions of financial performance. A detailed discussion

on data and methodology used is presented in chapter four.

A detailed study of financial performance of public sector enterprises has been presented in

chapter five. Chapter six presents a comparison of disinvested and non-disinvested PSEs.

Chapter seven contains a comparative analysis on MoU and non-MoU PSEs as well as consists

of a detailed study related to MoU PSEs in India. Chapter eight presents concluding

observations.

CONCLUDING OBSERVATIONS

This chapter is aimed at providing brief outline of the study. It has described the importance of

public enterprises, disinvestment and MoU in India. The chapter has discussed the objectives,

scope, need and significance of the study as well as summarized the brief methodology and

chapter plan of the proposed research.

6
 CHAPTER 2

PUBLIC SECTOR ENTERPRISES IN INDIA: AN OVERVIEW

INTRODUCTION

Central public sector enterprises (henceforth, referred as PSEs) have been established, managed

and controlled by the Government of India as government companies (under the Company Act or

Statutory Corporations under the specific statues of Parliament). In these enterprises, the central

government holding in paid up share capital is more than 50 per cent. Government has used these

public enterprises as an instrument for attaining self-reliant economic growth and in fact, they

have played an eminent role in the sustainable growth of Indian economy.

Importance of public sector in the Indian economy has been recognized since 1948. The

public sector in India, since then, has experienced a phenomenal growth both in terms of number

and volume of investment. The Government has made sustained efforts to break the vicious

circle of poverty and underdevelopment by setting up public sector enterprises or by

nationalizing certain key industries.

Since inception, PSEs have been the mainstay of the Indian economy and were set up with

the mandate to

i) Serve the broad macro-economic objectives of higher economic growth,

ii) Achieve self-sufficiency in production of goods/ services,

iii) Facilitate long term equilibrium in balance of payments,

iv) Ensure stability in prices and create benchmarks for prices of essential items,

v) Promote redistribution of income/ wealth and balanced regional development and

vi) Create employment opportunities.

7
 Historically, PSEs assume significant importance to India‘s economy, both in pre and

post independence period. In the pre-independence era, the PSEs were confined primarily to

select sectors including Railways, Posts & Telegraphs, Port Trust, Ordnance Factories, etc. Post

independence era was characterized by an agrarian economy with a weak industrial base,

regional imbalance in economic development, low level of savings, inadequate infrastructure

facilities and considerable inequality in income and levels of employment; thus, the development

of public sector enterprises was identified as a key driver for self-reliant economic growth in the

absence of significant private capital. Consequently, the Industrial Policy Resolution, 1948 and

1956 laid emphasis on constituting public enterprises by the Central Government for industrial

development in the core sectors.

As a result of the initiatives taken during the Five Year Plans, the role of PSEs in terms of

contribution to the Indian economy has increased manifold. The number of PSEs as on 31

March, 2009, was 246, with a total capital employed of nearly Rs. 5.3 lakh crore 1, raised to 260

on 31 March 2012, with a total capital employed 13.43 lakh crore* as against 5 CPSEs having a

total investment of Rs. 29 crores on the eve of the first Five year plan (i.e., 1.04.1951).

With the onset of economic reforms in 1991, the Government initiated a systemic shift to a

more open economy with greater reliance on market forces and a larger role of the private sector

including foreign investment. Accordingly, the PSEs were exposed to competition from domestic

private sector companies as well as large multi-national corporations. Given the competitive

environment, the PSEs undertook significant initiatives for upscaling technologies and capacities

in order to operate at par with the private counterparts in the liberalized economy. The continued

focused efforts towards achieving excellence, have helped several of the PSEs to become self

reliant and are playing a critical role in building the Indian economy.
1
1crore=10 million.

8
 It may not be out of context to mention that many of today‘s success stories in the

developing world began life as state owned enterprises (SOEs). In France, for instance, Renault,

Alcatel, EdF, Thomson and Elf were SOEs for a long time, as were Rolls Royce and British

Aerospace in the UK. In the Indian context also consequent to the initiatives taken during the

Five Year Plans, the role of Central PSEs in terms of contribution to the Indian economy has

increased manifold.

Given the unique features of PSEs, the underlying heads describe the role of PSEs in India,

changes in PSEs since 1990, key sectors of their operations, initiatives adopted for operational

excellence and key contribution to the economy.

ROLE OF PUBLIC SECTOR ENTERPRISES IN INDIA

It may be mentioned here that despite criticism of Public sector on account of inefficiency,

government controls, lack of professionalism; following arguments may be put forth in support

of the public sector in India:

1. Catalyst of Acceleration of the Rate of Economic Growth:

Originally, activities of the public sector enterprises were limited to a definite field of basic and

key industries of strategic importance. There were certain fields where the private enterprises

were shy to operate as they involved huge investment and risk. It was the public sector alone

which could build the capital intensive infrastructure (economic overheads) such as power,

transport, etc. Since then the ideological objective of capturing the "commanding heights" by the

public-sector appears to be fulfilled. It has not only succeeded in creating the necessary

infrastructural base for sustained industrial growth but also has tremendously boosted the

technological capabilities.

9
 The public sector enterprises have firmly established the foundation for the construction of a

self-generating, industrial economy. During the planned era, the public sector has diversified its

activities to cover a wide spectrum of industries. Today, the public sector in India has entered

into the production of consumer goods such as bread, paper, watches, scooters, T.V., cement,

drugs, as well. Some of the researchers are of the view that the public sector should now enter

the fields of distribution and rural development as well.

2. Development of Capital Intensive Sector:

Industrial development of a country necessitates a strong infrastructural base. This foundation is

provided by the development of capital-intensive industries and the basic infrastructure.

Historically, in India, the private sector neither had the zeal nor the capacity to invest in such

infrastructural activities. From this point of view, the public sector in India has earned a

magnificent record. The State has successfully implemented various schemes of multi-purpose

river projects, hydroelectric projects, transport and communication, atomic power, steel etc. It

has significantly contributed in the fields like nuclear power or steel technology, aeronautics,

defense materials, ship-building etc.

3. Development of Agriculture:

The public sector has played an important role in the field of agriculture as well. It has assisted in

the manufacture of fertilizers, pesticides, insecticides and mechanical implements used in

agriculture. Through the various research institutes, the public sector has augmented agricultural

productivity by introducing new high-yielding variety of seeds, preventing crop diseases and

innovating new agricultural practices.

10
4. Balanced Regional Development:

In the pre-independence period a major problem was regional economic disparities. There were

certain areas with heavy concentration of industrial activity. On the other hand, there were

certain backward areas which went without industries. Industrial development was highly

lopsided. States such as Maharashtra, West Bengal, Gujarat and Tamil Nadu, were industrially

developed, while, states like Orissa, Assam, Bihar, Madhya Pradesh were highly backward.

Besides, industries used to be gravitated towards the metropolitan areas, rather than the smaller

towns. In any case imbalanced economic development is as bad as underdevelopment.

Through the extension of PSEs, the Government desired to remove such regional

imbalances. The State, consequently, participated in the industrial growth of the less developed

areas by setting up public enterprises in those areas. While locating new public enterprises the

claims of the relatively backward areas have been given due consideration. The policy of

dispersal of Industries aims at removing regional disparities. A conscious attempt has been made

in the successive five-year plans to accelerate the development of relatively backward areas.

5. Increasing Employment Opportunities:

The growth of the public sector has led to the expression of gainful employment opportunities. In

addition to the primary effect in creating employment opportunities, public sector investments

also have a multiplier effect on other sectors of the economy. This has a beneficial effect on the

total employment position. In 1960-61, the number of people employed in public enterprises was

only 1.82 lakh2. This figure rose to 7.01 lakh in 1971-72 (excluding casual workers) involving an

increase of 385 per cent. In 2011-12 the number of working population in these industries stands

at 13.98 lakh (Public Enterprises Survey, 2004-05 and 2011-12).

2
Lakh=100, 000

11
6. Model Employer:

Researchers have observed that in India "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”. The public sector has been

the pacesetter in the field of labour welfare and social security.

The State aims at establishing an industrial democracy in order to provide a fair deal to the

workers. The public enterprises have been investing liberally on matters pertaining to labour

welfare and social security. Not only the wages have been substantially increased, conditions of

service have also been improved. For instance, wages in the coal industry have nearly trebled

since nationalization.

7. Preventing Concentration of Economic Power:

Preventing private monopolies and concentration of economic power is the avowed objective of

economic policy (in India). Nationalization is considered as an antidote for the concentration of

economic power in private hands. Today, the public sector not only occupies the commanding

heights in the economy, it has also penetrated into the production of essential consumer goods.

The share of the public sector in the overall industrial production has substantially gone up. This

has effectively curbed the concentration of economic power. It has created a countervailing force

against the growth of larger industrial houses.

8. Export Promotion and Import Substitution:

The public sector enterprises are substantially contributing to the country's export earnings. The

public sector has built up a reputation abroad in selling plants, heavy equipment, machine-tools

12
and other industrial products. They have created goodwill in the third world countries for their

consultancy services and technical know-how. Now Public sector exports also include consumer

goods and export of merchandise.

They have also-succeeded in their efforts in import substitution. Today many commodities-

starting from basic drugs to highly advanced equipments- are manufactured in public sector,

which previously used to be imported from abroad. In-certain fields, public enterprises were

specially started to achieve self-sufficiency and to reduce imports from abroad. This has resulted

in saving of precious foreign exchange. Today there is a special drive in the public enterprises to

utilize indigenous materials and domestic skill.

9. Research and Development:

Today no country can industrially prosper without research and development. Such research is

not only essential for the introduction of new goods and new technologies of production, but also

for lowering the cost of production and improving the quality of the product. In this respect also,

the public sector is playing a crucial role. A lot of research activities are being carried on in the

laboratories of the public sector organizations.

10. Mobilization of Resources:

The public sector enterprises have played an important role in financing the planned

development of the country. They have significantly contributed to the Central Exchequer in the

form of interest and various taxes (Table 2.1). Besides this, an increasing trend in the generation

of internal resources has been witnessed in these enterprises. As per some estimates in the total

capital formation of the country more than 50 per cent is contributed by the public sector.

Table 2.1: Summary of Taxes and Duties of Central PSEs, 2007-08 to 2011-12 (Amount in Rs

13
 crore)

S.no Particulars 2011-12 2010-11 2009-10 2008-09 2007-08

I Excise Duty 61165.14 57755.25 52641.5 63261.89 68932.2
Ii Custom Duty 11518.43 19958.12 6903.19 8704.53 13385.59
Iii Corporate Tax 44358.47 40324.23 38155.49 35338.55 40670.64
iv dividend Tax 6093.33 7477.39 9524.65 4211.67 4434.41
v Sales Tax 2234.09 2294.71 2664.62 2546.79 2640.84
vi Other Duties & Taxes 3394.57 3980.27 9642.41 17533.62 15757.59
Total 128764 131790 119531.9 131597.1 145821.3
Source: Public Enterprises Survey 2011-12 and 2008-09 on pages 15 and 12 respectively.

CHANGES SINCE 1990s:

With the economy embarking on the process of liberalization, privatization and globalization

since the early 1990s, the role of the Indian Public Sector has subsequently undergone a rapid

change. Integration of the domestic economy with global markets has thrown up a plethora of

opportunities and challenges. Some of the public sector enterprises with strategic vision are

actively exploring new avenues and have increased their activities to go in for mergers,

acquisitions, amalgamations, takeovers and for creating new joint ventures.

Of late, disinvestment (evolved in 1991-92) of select Central PSEs has also gathered

attention to meet the government‘s massive social spending and bridge the economy‘s growing

fiscal deficit. Today, both the public and private sectors have become an integral part of the

economy, with both the sectors complimenting each other in strengthening the nation‘s industrial

landscape. However, the recent economic meltdown has initiated a debate about the way

business and operations are being handled by the PSEs, especially against the backdrop where

globally several corporates have either gone bankrupt or have marginally survived owing to

state-sponsored bail-outs. In this context, it is worth noting that the Indian PSEs have emerged

relatively unscathed to register reasonable growth rates.

In addition to significant contribution towards the growth of the Indian economy, most of

the PSEs have been able to ensure viable operations on a self sustainable basis which is evident

14
from the decline in budgetary support in terms of loans and equity from the Government over the

years.

Government of India has accepted the recommendations of Arjun Sengupta committee

(introduced memorandum of understanding (MoU)/ self-obligations) to quantify ambiguous and

unaccountable socio-economic objectives of PSEs; MoU is a negotiable instrument between

government (act as owner) and specific PSEs, meant to bring proper coordination between

accountability and autonomy; it takes into account the complexity of fusing socio and financial

objectives into measurable terms. MoU is used as a document that clearly specifies the

intentions, obligations and mutual responsibilities of both the parties; as a result, enhances

operational efficiency of an organization to face the competition and forthcoming challenges. It

is aimed at to convert management from control and procedures to results and objectives (details

are described in chapter 7). Performance of PSEs in this regard is presented in Table 2.2

Table 2.2: Summary of Grading the Performance of MoU signing CPSEs 2005-06 to 2011-12

Rating 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Excellent 49 46 55 47 74 67 76
Very good 32 37 34 34 30 44 39
Good 15 13 15 25 20 24 33
Fair 6 6 8 17 20 24 25
Poor 0 1 1 2 0
Total 102 102 112 124 145 161 175
Source: Public Enterprises Survey 2011-12 and 2008-09 on pages 19 and 17 respectively.

KEY SECTORS FOR PSE OPERATIONS

Based on the Public Enterprises (PE) Surveys, more than 80 per cent PSEs operate in five

sectors/ cognate groups, namely, i) Agriculture, ii) Mining, iii) Manufacturing, iv) Electricity and

v) Services (Public Enterprises Survey 2011-12).

Analysis of the market share of the PSEs further shows that, within these sectors, the key

industries where PSEs have significant/ dominant share include i) Coal and Crude Oil in the

15
mining sector, ii) Steel, Petroleum (Refinery and Marketing), Fertilizers and Heavy engineering

in the manufacturing / processing sector, iii) Power Generation in the electricity sector and iv)

Telecommunications, Transport, and Contract and Construction in the services sector. The

following brief discussion on each of these key sectors is self explanatory:

i. Coal:

With a view to enable investment of public funds to enhance growth in the coal industry and to

optimize available coal resources, improve mining standards and working conditions, the

industry was nationalized in the early 1970s. Consequently, the coal industry has been dominated

by the PSEs under the Central and State Government. Nine public enterprises belong to the coal

and lignite group, the prominent are Coal India Ltd, Central Coalfields Ltd., Eastern Coalfields

Ltd. etc. (please refer to Annexure 4A.1 for the list of these enterprises).

ii. Oil and Natural Gas:

Crude oil and natural gas is another industry within the mining sector characterized by

significant presence of PSEs. However, with the introduction of New Exploration Licensing

Policy in 1999, the industry has witnessed significant change with private players gradually

gaining foothold in the industry. There are 13 PSEs in this domain (please refer to Annexure

4A.1 for the list of these enterprises).

iii. Power Generation:

With the National Electricity Policy aiming at accelerated development of power sector in India,

power generation has witnessed significant growth with total generation being 723.8 BU in

financial year 2009, registering a CAGR of 5.5 per cent during financial years 2005-09. While

there has been an increased emphasis laid on diversifying the energy sources like biomass, solar,

wind etc, in recent years, thermal power generation continues to dominate with over 80 per cent

16
contribution to the power generation in India, the list includes National Hydro-Electric Power

Corp. Ltd., National Thermal Power Corp. Ltd., North Eastern Electric Power Corp. Ltd. and

Nuclear Power Corp. of India Ltd.

iv. Telecommunications:

Telecommunication services in India, encompassing both wireline and wireless connectivity,

have witnessed unparalleled growth by global standards in the last decade with the country

emerging as the second largest market in the world in wireless connectivity. According to

Telecom Regulatory Authority of India, the total subscriber base currently (2011-12) is over 650

million with wireless connectivity accounting for around 94per cent of the total subscriber

base. While wireless connectivity is primarily dominated by the private players, the PSEs have a

strong foothold in wireless connectivity; they are Bharat Sanchar Nigam Ltd., Mahanagar

Telephone Nigam Ltd., Millennium Telecom Ltd. and Railtel Corporation of India Ltd.

REPRESENTATIVE OPERATIONAL EXCELLENCE INITIATIVES ADOPTED BY PSES

As highlighted earlier, the PSEs continue to have a dominant/ significant share in several sectors/

industries on account of their continued efforts towards achieving competitiveness and

excellence to operate at par vis-à-vis their private sector counterpart. Some of the key operational

best practices embraced by PSEs in their quest towards maintaining market share as well as

being corporate citizens may be categorized as follows (seminar by Indian Chamber of

Commerce, 2010).

1. Corporate Governance,
2. Organizational Development / Human Resource Management,
3. Streamlining business processes and practices,
4. Environment Excellence,
5. Corporate Social Responsibility and

17
6. Empowerment with due accountability.
Corporate Governance:

Most established codes of Corporate Governance for Public Sector enterprises, including the OECD

Guidelines on Corporate Governance to envisage a proactive role of the PSEs include: (a) Ensuring

equitable treatment of shareholders, (b) Recognizing, respecting and reporting on relations with all key

stakeholders, (c) Maintaining high standards of transparency and disclosure and (d) Having requisite

systems and practices for its Board of Directors to discharge effectively its role of guiding and monitoring

the PSEs.

Most PSEs in India would compare favorably when it comes to adoption of the above

measures, as they have:

a) An active policy for communication with all shareholders for ensuring

dissemination of information on key business decisions.
b) Having internal code of business conduct and ethics for ensuring ethical and transparent
process in managing the affairs of the enterprise.
c) Ensure representation of minority shareholder’s on the Board of Directors for assuring
them that their interests are taken into consideration.
Organization Development / Human Resources Management:

There is an increasing realization that deployment of quality human resources is critical for

sustainable performance of the PSEs. Accordingly, in pursuance of attracting and retaining

quality talent, the Government/ most of the PSEs have taken requisite initiatives like having a

succession planning policy aimed at identifying employees with leadership potential and

accordingly grooming them to fit into the envisaged leadership roles.

Streamlining Business Processes and Practices:

In order to ensure competitiveness vis-à-vis private sector players in terms of productivity,

technological capability, cost effective operations, most of the PSEs have taken initiatives

towards streamlining the business processes and practices with focus on the following:

18
a) Investing in state of the art technology with the objective of i) improving product quality, ii)
enhancing productivity through streamlining manufacturing processes and iii) achieving cost
reduction.
b) Adopting Integrated IT system, including ERP packages to support reengineered business
processes and enhance efficiency in decision making, through real time information
availability besides capturing transaction level data for MIS purposes.
c) Increased level of outsourcing, particularly non-core activities/ support functions, with
a view to increase focus and enhance productivity in core operations together with reduction
in overhead costs of the enterprises.
d) Increased focus on entering Public-Private Partnership (PPP) primarily with the objective of
attracting funds in sectors like infrastructure, requiring significant investments, along with
requisite expertise of the private player.

Environment Excellence:

The concept of environment and ecological balance has assumed a new dimension in the wake of
increasing levels of deforestation, waste generation and environmental pollution. Most of the key
PSEs have taken a lead role towards achieving environment excellence with initiates such as:
a. Having a dedicated environment department/ cell focusing on environment related initiatives.
b. Preventing use of or generation of toxic/ hazardous materials which may have an adverse
impact on the health of the workforce, customers and overall community.
c. Conserving use of scarce and non-renewable resources such as usage of recycled water etc
d. Ensuring adequate treatment of hazardous liquid waste/ solid etc through Effluent Treatment
Plant.
e. Preventing wasteful use and promoting conservation of resources, especially scarce
and non- renewable resources.

Corporate Social Responsibility (CSR):

The public sector in India was set up with the objective of achieving inclusive growth aimed at

ensuring equity and justice to the overall community/ society. Consequently, PSEs have been

pioneers in implementing Corporate Social Responsibility (CSR) initiatives towards community

19
growth and development while achieving their commercial mandate. Over the years, most of the

PSEs have consciously and extensively promoted corporate social activities including:

1. Providing employment to the weaker and under-privileged sections of the society on a more
equitable basis.
2. Providing all inclusive social facilities to the employees and their families, especially in the
areas of education, healthcare and entertainment.
3. Providing assistance to social and cultural activities beneficial to employees and associated
sections of the community.
4. Participating in or contributing to the causes and activities dealing with natural disasters
initiatives by PSEs.

Empowering PSEs with Due Accountability:

In the era of economic liberalization and globalization, PSEs have continued to contribute

significantly in building Indian economy and have demonstrated competiveness in all aspects

viz. productivity, technological capability, product quality etc vis-à-vis their counterparts i.e.

private sector players in the respective industries/ sectors. Post liberalization in 1991, the PSEs

have continuously focused their efforts in keeping pace with the competitive environment to

ensure economically viable operations and long term sustainability. In the process, several PSEs

have become self reliant and have transformed into world class organizations. The stellar

performance of prominent PSEs is borne out by the fact that “Out of the seven Indian companies

selected in the Global Fortune500 list for 2009, five were PSEs”.

Needless to say, such a transformation would never have been achieved by these PSEs

without the support of relevant interventions by the Government. In pursuance of competing with

the external environment, the Government realized the need for empowering these enterprises

with a view to delegate higher financial and operational powers to provide a level playing field

20
with the private sector players (who had the competitive advantage of taking business decisions

on their own).

Accordingly, the Department of Public Enterprises, Government of India, which has been

the coordinating entity has adopted a categorization framework for grouping these

enterprises into i) Navratna, ii) Miniratna I and iii) Miniratna II, in order to facilitate delegation

of powers in line with their categorization. Taking a step forward in this direction, the

Department of Public Enterprises, has recently introduced a new category of Maharatna’s

classification for empowering select PSEs listed on stock exchanges to facilitate expansion of

their operations to enable them to emerge as global giants. While the Government has

empowered the PSEs with the objective of providing a level playing field with the private

sector entities, it has also instituted a mechanism in terms of adherence to Corporate

Governance guidelines to ensure due accountability by these enterprises for discharging their

functions.

CONTRIBUTION TO INDIAN ECONOMY

PSEs undoubtedly, since inception have extended their eminent contribution in bringing up the

industrial base for the holistic development of Indian economy. For ensuring that the Indian

economy continues to scale new heights and emerges as an economic superpower, it is

imperative for the PSEs to continue to demonstrate global competitiveness and achieve market

leadership. As highlighted earlier, the empowerment of these enterprises by the Government has

been a key enabler which has helped them in overcoming some of the operational constraints,

critical for successful functioning of these organizations. PSEs, in turn, have also given their

contribution to the government under the various heads (as per Public Enterprises Surveys, 2011-

21
12, 2007-08) besides complying with social responsibilities assigned to them; the list includes

the following:

1. PSEs share in India’s Gross Domestic Product (GDP).

2. Contribution to the Central Exchequer.
3. Contribution to Foreign exchange earnings.
4. Contribution towards employment generation in the Organized Sector.
5. Growth in Market capital is Capitalization Outbound Investment.
While the principles underlying some of the above interventions are already reflected in the

existing guidelines for managing PSEs in India, there is an urgent need for implementing them in

a time bound manner so that Indian PSEs can be key beneficiaries from emerging economic

opportunities both in India and globally.

SUMMARY

The public sector enterprises in the Indian economy are to play an important role needs to

emphasis. They account for over 22 per cent of the country‘s GDP, around 6 per cent of the total

employment in the organized sector and over 20 per cent of direct and indirect tax collections

(2011-12). A number of PSEs also serve critical functions of furthering the socio-economic

objectives of the Government and ensuring stability in prices of key products and commodities.

The Indian public sector has always played a dominant role in shaping the path of the

country‘s economic development. Visionary leaders of independent India drew up a roadmap for

the development of public sector as an instrument for self-reliant economic growth.

The public sector has provided the much-required thrust and has been instrumental in setting up

a strong and diversified industrial base in the country. Keeping pace with the global changes

over a period of time, the PSEs in India also have adopted the policies like disinvestment, self

obligation/ MoU, restructuring etc.

22