PSUs have overstayed their welcome


14 Aug 2017

PSUs marching towards disinvestment, a pleasant sight for Indian economy

Public sector undertaking (PSUs) is a sensitive topic. There are two aspects of it - one from the perspective of why it was created in the first place and the other from what it has turned out to be.

Before starting a discourse, one should understand that not everything is black or white in these cases. There are lots of gray areas.

Here's more.


Built on noble foundations

PSUs, at the time of their inception, had a very noble agenda. Post India's freedom, they were created to propel self-reliant economic growth.

Indian economy was trying to stand on its feet and these PSUs helped in creating jobs, bridging regional imbalances, and substituting reliance on imports.

PSUs were created so that the economy could build itself from the base and prosper.


Things gradually got sour

However, by 1990s it was clear that the government had no idea how to make a business profitable and the majority of the PSUs were running at losses.

This made the government rethink its stance on PSUs. It opened up certain sectors like telecom, which was earlier reserved and started classifying the PSUs that showed promise into three categories - maharatnas, navaratnas, and miniratnas.

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An attempt at making things better

An attempt at making things better

The PSUs started burning a sizeable hole in government coffers and although disinvestment was suggested time and again, it didn't see much traction.

We did see a sell-off surge under the NDA government during 1999-2004 when white elephants such as Maruti, VSNL, IPCL, and IBP were privatized.

Then again, when the UPA government came to power, PSU disinvestments were put on the back-burner.

Air India

No more delaying the inevitable

The present government understands the economic implications of shouldering dead PSUs and is keen on disinvestment. However, the road, leading PSUs towards privatization, has been anything but smooth.

For example, nation's airline carrier Air India: it has losses of Rs. 50,000 crore, a debt of Rs. 55,000 crore, had a failed Rs. 30,000 crore bailout in 2012 and also failed disinvestment attempt in 2001.


Letting go of old relics

Letting go of old relics

The Modi government has now okayed Air India's sale and there will be no delays. This is just the beginning. More than half of India's 235 Central public sector enterprises (CPSEs) are being evaluated for disinvestment.

NITI Aayog has recommended the strategic sale in over 40 public sector undertakings (PSUs) and closure of 26 sick PSUs. Finally, we are getting to see some momentum.


A dismal state of affairs

Almost one-third of CPSEs are making losses and despite favorable GDP growth, their gross turnovers fell 7% in 2015-16 and losses between 2017-16 stood at Rs. 19.68 lakh crore.

So, one shouldn't be surprised when NITI Aayog CEO Amitabh Kant argues that schools, colleges, and prisons should be handed over to the private sector, as "the government has no business to be in business."


PSUs are liabilities, not assets

PSUs are liabilities, not assets

PSUs were initiated with a goal; but keeping them around and bearing losses year after year doesn't make sense.

Most of them are economic disasters. The government should cut its losses and wash its hands off them, except in certain strategically important sectors. And even in those sectors, it should strive to make PSUs self-sustainable and capable of churning profits.

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Indian Economy and Policy

Public Sector Undertaking (PSU)

Air India

Amitabh Kant






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