Public enterprises

1. Meaning

A public enterprise (public sector undertaking, PSU) is an undertaking owned wholly or mainly by the Central Government, a State Government or a local authority, managed by the State or an agency of the State, and run as a business that sells goods or services. A.H. Hanson describes public enterprise as State ownership and operation of industrial, agricultural, financial and commercial undertakings.

2. Objectives

1. Rapid economic development and building of infrastructure (steel, power, railways) where private capital was inadequate after Independence.
2. Control over the “commanding heights” of the economy (strategic and defence industries).
3. Balanced regional development by locating plants in backward areas (Bhilai, Rourkela).
4. Prevention of concentration of economic power, as required by Article 39(b) and (c) of the Constitution.
5. Employment generation and model employment practices.
6. Self-reliance and import substitution.
7. Generating surplus for further development.

3. Forms of public enterprise

(a) Departmental undertaking

Run as a department of a ministry, financed through the budget, staffed by civil servants and subject to government audit and parliamentary control. Example: Indian Railways (Ministry of Railways), the Department of Posts. Suited to strategic and public utility services. Its weakness is red tape and lack of commercial flexibility.

(b) Statutory (public) corporation

Created by a special Act of Parliament or a State legislature which defines its powers, duties and relations with government. It is a body corporate with its own funds and staff, financially autonomous, and accountable to the legislature. Examples: Life Insurance Corporation of India (LIC Act, 1956), Airports Authority of India (1994), Reserve Bank of India (1934), Food Corporation of India (1964). It combines public ownership with business flexibility, but amending its constitution requires amending the Act.

(c) Government company

A company registered under the Companies Act in which not less than 51 per cent of the paid-up share capital is held by the Central or State Governments (section 2(45), Companies Act, 2013). Examples: Steel Authority of India Ltd., Bharat Heavy Electricals Ltd., ONGC, Hindustan Aeronautics Ltd. It is the most common form because it is easy to form and gives the most operational freedom, though critics say it allows the executive to avoid parliamentary scrutiny.

4. Features

• State ownership, whole or majority.
• State control and management, directly or through appointed boards.
• Public accountability to Parliament or the legislature, through the Comptroller and Auditor-General and the Committee on Public Undertakings.
• Service motive along with commercial viability.
• Public finance: capital comes from the government.
• Autonomy that varies with the form.

5. Merits

1. Built heavy industry and infrastructure when private capital could not.
2. Balanced regional development.
3. Prevent private monopolies and concentration of wealth.
4. Large-scale employment and good labour welfare.
5. Self-reliance in defence, energy and strategic sectors.
6. Revenue to the State through dividends and taxes.
7. Stabilise prices of essential goods and services.

6. Demerits

1. Poor financial performance and losses in many units.
2. Bureaucratic management, red tape and slow decisions.
3. Political interference in appointments, pricing and location.
4. Over-staffing and low productivity.
5. Lack of accountability for results, since losses are covered by the budget.
6. Under-utilisation of capacity and delays in project completion.
7. Lack of competition, which leads to poor quality and customer service.

7. Changing policy

The Industrial Policy Resolution, 1956 reserved 17 industries (Schedule A) for the State and gave the public sector the leading role. The New Industrial Policy, 1991 cut the reserved list to eight and later to two (atomic energy and railway operations), opened other sectors to private firms, and began disinvestment: sale of part of the government’s shareholding. Sick PSUs were referred for revival or closure. The government grades its profitable central PSUs as Maharatna, Navratna and Miniratna, giving them greater financial and operational autonomy. The New Public Sector Enterprise Policy announced in the Union Budget 2021–22 keeps a bare minimum presence in four strategic sectors (atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; banking, insurance and financial services) and provides for privatisation or closure elsewhere. The sale of Air India to the Tata group, completed in January 2022, is the best-known strategic sale.

How this is examined

January 2026 (80 marks) set “Write a note on public enterprises” (6 marks), and February 2025 set public enterprises as a short note. A 6-mark note needs the meaning, the three forms with examples, and four merits and four demerits. In the 10-mark version, add the comparison table and the post-1991 policy.