Role of Public Sector
Undertaking
In
Nation’s
Building
Public Sector Undertakings
The government-owned corporations
are termed as Public Sector Undertakings (PSUs) in India
A pubic sector enterprise may be defined as
any commercial or industrial undertaking
owned and managed by the government with a
view to maximise social welfare and uphold
the public interest.
Public Sector Undertakings
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.
Public Sector Undertakings
Objective
Ownership
Management
Capital
Area of operation
Maximise social welfare
and ensure balanced economic
development.
Owned by Government.
Managed by Government.
Raised from Government
sometimes through Public Issues
Operates in basic and
public utility sectors.
Evolution of Public Sector
Undertakings

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.
Evolution of Public Sector Undertakings
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.
Classification
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).
'strategic'
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.
Status
Maharatna
Navratna
Miniratna
for Public Sector Undertakings
The status of Maharatna, Navratna,
Miniratna to CPSEs is conferred by the
Department of Public Enterprises - 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 - 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 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.
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
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.
FORMS OF ORGANISATION
FORMS OF ORGANISATION OF PUBLIC ENTERPRISES
DEPARTMENTAL
UNDERTAKINGS
FEATURES OF DEPARTMENTAL
UNDERTAKINGS
The main features of departmental undertakings are as follows:
(a) It is established by the government and its overall control rests
with the minister.
(b) It is a part of the government and is managed like any other
government department.
(c) It is financed through government funds.
(d) It is subject to budgetary, accounting and audit control.
(e) Its policy is laid down by the government and it is accountable
to the legislature.
MERITS OF
DEPARTMENTAL UNDERTAKINGS
The following are the merits of departmental
undertakings:(a)Fulfillment of Social Objectives:
(b)Responsible to Legislature:
(c)Control Over Economic Activities:
(d)Contribution to Government Revenue:
(e)Little Scope for Misuse of Funds:
LIMITATIONS OF
DEPARTMENTAL UNDERTAKINGS
Departmental undertakings suffer from the following
limitations:
(a)The Influence of Bureaucracy:
(b)Excessive Parliamentary Control:
(c)Lack of Professional Expertise:
(d)Lack of Flexibility:
(e)Inefficient Functioning:
STATUTORY
CORPORATIONS
FEATURES OF STATUTORY
CORPORATIONS
The main features of Statutory Corporations are as follows:
(a) It is incorporated under a special Act of Parliament or State Legislative
Assembly.
(b) It is an autonomous body and is free from government control in respect of its
internal management. However, it is accountable to parliament and state
legislature.
(c) It has a separate legal existence. Its capital is wholly provided by the government.
(d) It is managed by Board of Directors, which is composed of individuals who are
trained and experienced in business management. The members of the board of
Directors are nominated by the government.
(e) It is supposed to be self sufficient in financial matters. However, in case of
necessity it may take loan and/or seek assistance from the government.
(f) The employees of these enterprises are recruited as per their own requirement by
following the terms and conditions of recruitment decided by the Board.
MERITS OF STATUTORY
CORPORATIONS
Statutory Corporation as a form of organisation for
public enterprises has certain advantages
that can be summarised as follows:
(a) Expert Management:
(b) Internal Autonomy:
(c) Responsible to Parliament:
(d) Flexibility:
(e) Promotion of National Interests:
(f) Easy to Raise Funds:
LIMITATIONS OF STATUTORY
CORPORATIONS
Having studied the merits of statutory corporations we may now
look to its limitations also.
The following limitations are observed in statutory corporations.
(a) Government Interference:
(b) Rigidity:
(c) Ignoring Commercial Approach:
GOVERNMENT
COMPANIES
FEATURES OF GOVERNMENT
COMPANIES
The main features of Government companies are as follows:
(a) It is registered under the Companies Act, 1956.
(b) It has a separate legal entity. It can sue and be sued, and can acquire property
in its own name.
(c) The annual reports of the government companies are required to be
presented in parliament.
(d) The capital is wholly or partially provided by the government. In case of
partially owned company the capital is provided both by the government and
private investors. But in such a case the central or state government must own
at least 51% shares of the company.
(e) It is managed by the Board of Directors. All the Directors or the majority of
Directors are appointed by the government, depending upon the extent of
private participation.
(f) Its accounting and audit practices are more like those of private enterprises
and its auditors are Chartered Accountants appointed by the government.
(g) Its employees are not civil servants. It regulates its personnel policies
according to its articles of associations.
MERITS OF GOVERNMENT
COMPANIES
The merits of government company form of
organising a public enterprise are as follows:
(a)Simple Procedure of Establishment:
(b)Efficient Working on Business Lines:
(c)Efficient Management:
(d)Healthy Competition:
LIMITATIONS OF GOVERNMENT
COMPANIES
The government companies suffer from the
following limitations:
(a) Lack of Initiative:
(b) Lack of Business Experience:
(c) Change in Policies and Management:
Role of Public Sector Undertakings
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 socioeconomic objectives and maximize long-term goals.
Role of Public Sector Undertakings
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 are entrusted
with more powers in order to facilitate further
improvement in their performance.
Empowerment of Public Sector Undertakings


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.
Governance of Public Sector
Undertakings
The Department of Public Enterprises - acts as a nodal
agency for all Public Sector Enterprises (PSEs).
The important roles and tasks of the Department are:
General policy relating to Public Sector.
Matters relating to issue of Presidential Directives and
guidelines to Public Sector Enterprises.
Formulation of policy guidelines pertaining to Public
Sector Enterprises in areas like performance
improvement and evaluation, financial management,
personnel management, board structures, wage
settlement, training, industrial relation, vigilance,
performance appraisal, etc.
Governance of Public Sector Undertakings
Matters relating to reservation of posts in the
public sector enterprises for certain classes of
citizens.
All matters relating to Memorandum of
Understanding between the Public Sector
Enterprises and the administrative
Ministries/Departments.
Matters relating to delegation of powers to Board
of Directors.