Public Sector Undertakings in India

Public Sector Undertakings (PSUs) in India are government-owned enterprises, comprising central public sector enterprises (CPSEs) and state-level undertakings, where the Union or state governments hold majority equity stakes, typically exceeding 51 percent, and operate as companies under the Companies Act or as statutory corporations to conduct commercial activities aligned with national development goals.^[1]^[2]
Established prominently after independence to drive industrialization in a capital-scarce economy, PSUs focused on building infrastructure in core sectors like steel, power, oil, and mining, achieving self-sufficiency in heavy industries that private capital avoided due to high risks and long gestation periods.^[3]^[4]
As of 2025, India has approximately 272 central PSUs, categorized into Maharatnas (14), Navratnas (26), and Miniratnas (62), alongside numerous state entities, collectively contributing around 14 percent to GDP and employing over 20 million people, though their role has evolved amid economic liberalization since 1991.^[1]^[5]
While PSUs enabled foundational economic growth and strategic autonomy, such as in defense and energy security, they have been marred by chronic inefficiencies, political interference, overstaffing, and corruption scandals, resulting in persistent losses for many units and substantial fiscal burdens on taxpayers, prompting ongoing disinvestment reforms to enhance competitiveness.^[4]^[6]^[7]
Recent government initiatives, including performance-linked incentives and privatization drives, have revitalized select PSUs, turning some into market leaders with surging market capitalizations, particularly in infrastructure and energy, underscoring a shift from ideological dominance to pragmatic efficiency.^[8]^[7]

Definition and Legal Framework

Core Definition and Objectives

Public Sector Undertakings (PSUs) in India encompass government-owned enterprises where the central or state government maintains controlling ownership, typically through a minimum 51% stake in paid-up equity share capital for government companies under Section 2(45) of the Companies Act, 2013, or via statutory corporations formed under dedicated parliamentary or state legislative acts.^[9] Central Public Sector Enterprises (CPSEs), numbering around 300 as of recent audits, fall under the oversight of the Department of Public Enterprises in the Ministry of Finance, which coordinates policy and performance across sectors like energy, transport, and manufacturing.^[10] State PSUs operate analogously at the provincial level, often mirroring central structures for localized economic roles.^[11] The primary objectives of PSUs derive from their mandate to conduct commercial operations while prioritizing public welfare and developmental imperatives, addressing market gaps in capital-intensive or strategically vital areas where private entities hesitate due to risks or scale.^[12] These include building foundational infrastructure, such as power generation and heavy industries, to catalyze industrialization; generating large-scale employment to mitigate unemployment pressures; and promoting self-sufficiency in essentials like defense production and resource extraction, thereby reducing import dependence.^[13]^[3] Further aims encompass equitable regional development by investing in underdeveloped areas and resource mobilization for government revenues through dividends and taxes, though empirical assessments by the Comptroller and Auditor General highlight persistent challenges in achieving profitability alongside these social goals.^[11]^[14] Unlike purely profit-driven private firms, PSUs are tasked with balancing commercial viability against broader socio-economic imperatives, such as stabilizing essential services during market fluctuations.^[9]

Statutory and Constitutional Basis

The constitutional foundation for public sector undertakings (PSUs) in India derives primarily from Article 298 of the Constitution, which vests the executive power of the Union and the States with the authority to carry on any trade or business, to acquire, hold, and dispose of property, and to enter into contracts, both within and outside their territories, subject to laws made by Parliament or State Legislatures regulating such activities.^[15] This provision enables the government to establish and operate commercial enterprises, including PSUs, as instruments of state policy for economic development and strategic sectors.^[16] Article 12 of the Constitution extends the definition of "State" to encompass not only the government and Parliament but also "all local or other authorities within the territory of India or under the control of the Government of India," which the Supreme Court has interpreted to include government companies and statutory corporations functioning as PSUs, thereby subjecting them to fundamental rights enforcement under Part III.^[17] This inclusion ensures accountability to constitutional norms, such as equality and non-arbitrariness in operations. Directive Principles of State Policy under Articles 39(b) and 39(c) further underpin the rationale for PSUs by directing the state to secure the distribution of material resources of the community for the common good and to prevent concentration of wealth and means of production, influencing post-independence policies that expanded public ownership in key industries.^[18] However, these principles are non-justiciable and served more as policy guidelines than enforceable mandates. Statutorily, the majority of central PSUs operate as government companies under Section 2(45) of the Companies Act, 2013, defined as entities in which the central government or a state government, or both, hold not less than 51% of the paid-up share capital.^[19] These are incorporated under the Companies Act and governed by its provisions on incorporation, management, and winding up, with additional oversight from the Department of Public Enterprises for performance evaluation. Certain PSUs, particularly in sectors like power and transport, are established as statutory corporations through specific parliamentary enactments, such as the Electricity (Supply) Act, 1948 (for entities like NTPC), granting them autonomous legal status distinct from departmental enterprises.^[13] This dual framework—constitutional empowerment coupled with statutory incorporation—allows PSUs to function as commercial entities while aligning with governmental objectives, though empirical assessments of efficiency remain varied across sources like Comptroller and Auditor General reports.^[14]

Historical Evolution

Pre-Independence Foundations

The British colonial administration in India initiated public sector activities primarily to consolidate control, facilitate resource extraction, and support military logistics, establishing a limited number of government-managed enterprises focused on essential infrastructure and services. These precursors to modern PSUs were not aimed at economic development for Indians but served imperial priorities, with operations often yielding revenues remitted to Britain. By the early 20th century, such entities included departments for posts, telegraphs, railways, ports, and ordnance production, numbering fewer than a dozen major ones.^[20]^[21] The postal system, introduced in 1766 under the East India Company, marked an early state monopoly on communications to enforce taxation and administrative oversight across disparate regions. Telegraph services commenced in 1851 with the first line connecting Calcutta to Diamond Harbour, rapidly expanding to over 11,000 miles of lines by 1880 for rapid military and bureaucratic coordination. Ordnance factories originated with the Board of Ordnance at Fort William, Kolkata, in 1775, followed by gunpowder production at Ishapore in 1799 and systematic manufacturing at Cossipore starting March 18, 1802, producing artillery and ammunition to equip British-Indian armies amid conflicts like the Anglo-Maratha Wars.^[20]^[22] Railways, pivotal for colonial mobility, saw the inaugural passenger train run 34 kilometers from Bombay to Thane on April 16, 1853, under a private company with government land grants and guaranteed returns; by 1900, over 25,000 miles of track were operational, with increasing state acquisition of loss-making lines for strategic purposes. Major port trusts, such as Bombay's established via the Bombay Port Trust Act of 1879 (effective from 1873 operations), managed harbors like those at Calcutta (1870) and Madras (1880s), prioritizing export of raw materials such as cotton and jute while importing British manufactures. These entities demonstrated state intervention in capital-intensive sectors but prioritized profitability for the metropole, often at the expense of local investment or technology transfer.^[20]^[23]

Post-Independence Socialist Expansion (1947-1991)

Following India's independence in 1947, the government under Prime Minister Jawaharlal Nehru implemented policies to expand the public sector as a means of achieving self-reliance and industrial development. Drawing from socialist principles, Nehru advocated for state control over the "commanding heights" of the economy, including heavy industries, to drive planned growth via Five-Year Plans initiated in 1951.^[24] ^[25] The Industrial Policy Resolution of 1948 established a mixed economy framework, reserving critical sectors such as arms, ammunition, and atomic energy for exclusive state development while permitting private participation in consumer goods.^[24] This was expanded by the 1956 Industrial Policy Resolution, which classified industries into three schedules and mandated public sector monopoly in 17 strategic areas, including iron and steel, heavy electrical equipment, coal, mineral oils, railways, and air transport.^[24] The policy emphasized rapid industrialization through state-owned enterprises, with licensing controls under the Industries (Development and Regulation) Act of 1951 restricting private expansions to favor PSUs.^[24] Key PSUs were established during the Second and Third Five-Year Plans (1956-1966), focusing on core infrastructure. The Bhilai Steel Plant, set up in 1955 with Soviet collaboration, commenced production in 1959 as India's first integrated steel facility.^[26] Similar ventures included the Durgapur and Rourkela Steel Plants, operational by 1961 with British and German assistance, respectively, forming the backbone of public sector steel production.^[26] Other major entities like Bharat Heavy Electricals Limited (1964) and Hindustan Machine Tools (1953) supported machinery and equipment needs, marking a shift from five central PSUs in 1951 to dozens by the mid-1960s.^[27] Under Indira Gandhi's administration, expansion accelerated through nationalizations to consolidate state control. On July 19, 1969, 14 major commercial banks with deposits exceeding ₹50 crore were nationalized, followed by six more in 1980, integrating finance into the public domain.^[28] Coal mining was nationalized in phases, culminating in the takeover of non-coking mines effective May 1, 1973, leading to the creation of Coal Mines Authority Limited (later Coal India Limited).^[29] These measures, justified as protecting employment and resources, extended PSU dominance to over 240 entities by 1991, with public investment prioritizing heavy industry and infrastructure amid import substitution strategies.^[24]

Liberalization and Initial Reforms (1991-2014)

The 1991 economic liberalization in India, triggered by a severe balance of payments crisis, prompted significant reforms to the public sector, aiming to curtail the expansive role of Public Sector Undertakings (PSUs) that had dominated the economy since independence. On July 24, 1991, the government issued the New Industrial Policy Statement, which reduced the number of industries reserved exclusively for the public sector from 17 to 8 initially, and eventually to 3 core areas: arms and ammunition, atomic energy, and railway transport. This policy facilitated disinvestment of government equity in selected PSUs to alleviate fiscal pressures, enhance efficiency through market discipline, and fund budget deficits, while allowing private and foreign investment in previously restricted sectors. The reforms dismantled much of the License Raj, exposing PSUs to competition and reducing their monopoly privileges, though strategic sectors like defense and energy retained public dominance.^[30]^[31] Disinvestment efforts commenced immediately, with the first phase (1991-1999) focusing on minority stake sales through auctions and global depository receipts (GDRs) to domestic institutions and mutual funds, without pursuing full privatization. In 1991-92, equity stakes in 31 Central Public Sector Enterprises (CPSEs) were disinvested, yielding Rs. 3,038 crore, marking the initial step toward reducing government holdings to improve accountability. The Disinvestment Commission, established in August 1996, recommended structured sales and performance-linked incentives, leading to further minority dilutions, such as VSNL's GDR issue raising Rs. 380 crore in 1996-97. By the end of this phase, total proceeds reached Rs. 16,809 crore against a target of Rs. 34,300 crore, with government stakes diluted by an average of 8.87% across 39 CPSEs. Concurrently, internal PSU reforms included Memorandum of Understanding (MoU) systems for performance contracting, with 110 MoUs signed by 1996-97 to align managerial incentives with efficiency goals.^[31]^[32] The second phase under the National Democratic Alliance (NDA) government (1999-2004) shifted toward strategic sales in non-strategic PSUs, establishing a dedicated Department of Disinvestment in December 1999 to oversee privatization. Notable transactions included the sale of 74% equity in Modern Food Industries Limited for Rs. 105.45 crore in 2000 and 51% in Bharat Aluminium Company (BALCO) for Rs. 551.50 crore in 2001, despite labor protests and legal challenges later upheld by the Supreme Court. Videsh Sanchar Nigam Limited (VSNL) was strategically sold to Tata Sons with a 25% stake for Rs. 1,439 crore in 2002, introducing private management expertise. This period realized Rs. 24,619 crore in proceeds from 10 privatization deals, though political opposition limited scale; policies like Navratna status (introduced in 1997) granted select PSUs greater autonomy for global operations. A 2003 Supreme Court ruling mandated parliamentary approval for CPSE closures or major sales, constraining further aggressive reforms.^[31] From 2004 to 2014, under the United Progressive Alliance (UPA), disinvestment reverted to minority stake sales via methods like follow-on public offers (FPOs) and exchange-traded funds (ETFs), abandoning strategic sales amid coalition pressures and labor union resistance. The National Investment Fund, created in 2005, directed proceeds toward social sector schemes, raising Rs. 1,14,045 crore overall, highlighted by Coal India's 2010 IPO fetching Rs. 15,200 crore. Reforms emphasized retaining public character in CPSEs while promoting capital market access, but inefficiencies persisted in many PSUs due to delayed closures (e.g., Tyre Corporation's stalled 2007 Act) and mergers like Air India (2007), later criticized for value erosion. Total disinvestment from 1991-2014 amounted to approximately Rs. 1,55,473 crore, providing fiscal relief but falling short of transforming PSU productivity, as competition intensified yet government retained majority stakes in most entities.^[31]

Phase	Period	Proceeds Realized (Rs. Crore)	Key Methods
I	1991-1999	16,809	Minority auctions, GDRs
II	1999-2004	24,619	Strategic sales, public offers
III	2004-2014	1,14,045	FPOs, ETFs, minority stakes

Recent Reforms and Disinvestment Push (2014-Present)

Following the formation of the National Democratic Alliance government in May 2014, policies shifted toward accelerated disinvestment in non-strategic public sector undertakings (PSUs) to minimize fiscal deficits, enhance operational efficiencies, and redirect resources to infrastructure development. The Department of Disinvestment, established in 1999, was restructured and renamed the Department of Investment and Public Asset Management (DIPAM) in 2016 to emphasize asset monetization and value maximization over mere stake sales. This era marked a departure from ad-hoc minority divestments toward a structured approach, including the approval of a strategic disinvestment policy in February 2021, which classified sectors into strategic (e.g., atomic energy, defense) where government would retain majority control, and non-strategic areas targeted for full privatization.^[33]^[34] Annual disinvestment targets were incorporated into union budgets, with proceeds directed to the National Investment and Infrastructure Fund. However, realizations consistently lagged behind ambitious goals, attributed to volatile market conditions, valuation disputes, bidder hesitancy, and regulatory hurdles. From FY 2014-15 to FY 2023-24, cumulative disinvestment proceeds totaled approximately ₹4.28 lakh crore, representing a significant but underachieved effort compared to initial projections. The table below summarizes key fiscal years:

Fiscal Year	Target (₹ crore)	Achievement (₹ crore)
2014-15	58,425	24,349
2015-16	69,500	24,058
2016-17	56,500	46,378
2021-22	1,75,000	15,440
2022-23	65,000	31,059
2023-24	51,000	14,564

Notable transactions included the privatization of Air India to the Tata Group in January 2022 for ₹18,000 crore, marking the first full divestment of a flagship airline PSU, and the initial public offering (IPO) of Life Insurance Corporation (LIC) in May 2022, which raised ₹20,557 crore despite a discounted valuation amid market volatility. Other efforts involved minority stake sales via offer-for-sale (OFS) mechanisms, such as in NTPC and Power Grid Corporation, generating steady but modest inflows. In strategic sectors, reforms emphasized professionalization, including board independence and performance-linked incentives under the 2019 Public Enterprises Policy.^[37]^[34] Challenges persisted, with high-profile deals like the proposed sale of Bharat Petroleum Corporation Limited (BPCL) and Container Corporation of India (CONCOR) facing repeated delays due to insufficient qualified bids and geopolitical factors. FY 2024-25 saw no dedicated disinvestment target, with receipts projected at an 11-year low of around ₹10,000 crore by March 2025, reflecting a pivot to alternative monetization like asset leasing under the National Monetisation Pipeline launched in 2021. Critics, including opposition parties, argued that rushed privatizations risked undervaluing assets, while proponents highlighted efficiency gains in divested entities like Air India, where post-sale investments improved competitiveness. Overall, the period underscored tensions between revenue imperatives and PSU autonomy, with total proceeds since 2014 reaching ₹4.37 lakh crore by December 2024.^[38]^[39]

Classification and Governance Structure

Central vs. State PSUs

Public Sector Undertakings (PSUs) in India are classified into central and state variants based on the level of government ownership and administrative control. Central PSUs, also known as Central Public Sector Enterprises (CPSEs), are majority-owned (at least 51% equity) by the Union Government and operate under the oversight of central ministries or the Department of Public Enterprises (DPE). These entities typically focus on national-scale strategic sectors such as energy, defense, heavy industry, and transportation, enabling coordinated policy implementation across the country. In fiscal year 2023-24, CPSEs numbered approximately 272, categorized into elite groups like 14 Maharatnas (e.g., Indian Oil Corporation, NTPC) with enhanced operational autonomy and multibillion-rupee turnovers, alongside Navratnas and Miniratnas for progressively smaller scales.^[1] State PSUs, or State Public Sector Enterprises (SPSEs), are analogously controlled by individual state governments, with ownership stakes exceeding 51% vested in state entities, and they address localized economic and social needs such as regional power distribution, public transport, and agriculture-related services. Unlike CPSEs, SPSEs vary significantly in scale and efficiency across states, with totals estimated in the thousands nationwide, reflecting decentralized governance but also fragmented oversight. For instance, larger states like Maharashtra and Uttar Pradesh maintain dozens of SPSEs each, often in monopolistic utilities like state electricity boards, which prioritize affordability over profitability and frequently incur losses due to subsidized tariffs and political interference in operations.^[40] Governance structures diverge notably: CPSEs adhere to uniform guidelines from the DPE, including performance-linked incentives, board appointments via the Public Enterprises Selection Board (PESB), and mandatory disinvestment targets under central policy, fostering relative accountability through annual memoranda of understanding (MoUs) with ministries. SPSEs, however, fall under state-specific departments, lacking a centralized national framework, which leads to inconsistent corporate governance practices, higher vulnerability to regional fiscal deficits, and slower adaptation to market reforms. Empirical data indicates CPSEs outperform SPSEs in key metrics; for example, in 2022-23, operating CPSEs generated net profits of ₹3.43 trillion from 212 profitable entities, contributing substantially to central revenues via dividends exceeding ₹60,000 crore, whereas many SPSEs remain chronically loss-making, with aggregate state-level PSU debts burdening subnational budgets amid inefficiencies in sectors like transport and power.^[41]^[18] Employment patterns further highlight disparities: CPSEs employed about 14.5 lakh personnel as of 2023, with a decade-long decline of 2.7 lakh jobs due to automation and rightsizing, yet maintaining higher productivity per employee in capital-intensive industries. SPSEs, employing several million across states, often serve as reservoirs for regional job creation but suffer from overstaffing, with productivity lags attributed to union influence and limited performance-based restructuring, exacerbating fiscal strains on state exchequers. This central-state dichotomy underscores a causal tension between national strategic imperatives—favoring scale and viability in CPSEs—and decentralized welfare objectives, which sustain less efficient SPSEs despite reform pressures post-1991 liberalization.^[42]^[41]

Performance-Based Categorization

The Department of Public Enterprises under the Ministry of Finance categorizes eligible Central Public Sector Enterprises (CPSEs) into performance-based statuses—Maharatna, Navratna, and Miniratna—to reward strong financial and operational metrics with enhanced board-level autonomy in decision-making, investments, and joint ventures, aiming to improve competitiveness without prior government approval for specified thresholds.^[43] This scheme, operational since the early 2000s for Miniratna and expanded later, evaluates CPSEs on criteria including profitability, net worth, turnover, and Memorandum of Understanding (MoU) ratings over recent years, with periodic reviews to upgrade, downgrade, or revoke status based on sustained performance.^[44] Miniratna status serves as the foundational tier, split into Category I and Category II for smaller-scale CPSEs demonstrating basic viability. For Category I, eligibility requires a positive net worth over the last three years, pre-tax profits of at least ₹30 crore in one of those years, overall profitability without cash losses, and typically Schedule 'A' classification; benefits include authority for capital expenditure up to ₹500 crore or equity investments up to ₹300 crore.^[44] Category II applies similar conditions but with a lower profit threshold of ₹10 crore, granting limited autonomy such as capital projects up to ₹200 crore. As of 2025, approximately 61 CPSEs hold Miniratna Category I status and 12 hold Category II, covering sectors like engineering and services.^[45] Navratna status targets mid-tier performers, requiring prior Miniratna Category I designation, Schedule 'A' status, and 'excellent' or 'very good' MoU ratings in at least three of the preceding five years, alongside composite financial benchmarks such as a profit-to-net-worth ratio exceeding 25%, manpower costs below 15% of total production or service costs, and total expenses under 90% of total revenue.^[43] Granted Navratnas gain broader powers, including forming joint ventures up to ₹1,000 crore or 15% of net worth and capital investments up to ₹1,000 crore, fostering strategic flexibility. In 2025, 24 CPSEs qualify as Navratna, including entities in energy and infrastructure like Engineers India Limited and National Aluminium Company Limited.^[46] Maharatna represents the apex category for elite CPSEs, mandating Navratna status, listing on major Indian stock exchanges with minimum public shareholding per SEBI norms, and rigorous three-year averages: annual turnover above ₹25,000 crore, net worth exceeding ₹15,000 crore, and earnings before interest, taxes, depreciation, and amortization (EBITDA) over ₹2,500 crore, emphasizing global presence and significant scale.^[47] ^[48] These CPSEs enjoy near-total operational freedom akin to private firms, with board approval sufficient for investments up to 15% of net worth and restructuring initiatives. As of 2025, 14 CPSEs hold Maharatna status, such as NTPC Limited, Oil and Natural Gas Corporation, and recently added Hindustan Aeronautics Limited in 2024, predominantly in hydrocarbons, power, and steel sectors.^[49] ^[50]

Category	Key Eligibility Thresholds (3-Year Averages)	Autonomy Limits (Examples)	Approximate Number (2025)
Miniratna-I	Positive net worth; ₹30 crore pre-tax profit (at least 1 year); no cash losses	Capex up to ₹500 crore; JV equity up to ₹300 crore	61^[45]
Miniratna-II	Similar to I but ₹10 crore pre-tax profit	Capex up to ₹200 crore	12^[45]
Navratna	Miniratna-I base; MoU ratings (3/5 excellent/very good); financial ratios (e.g., profit/net worth >25%)	Investments up to ₹1,000 crore or 15% net worth	24^[46]
Maharatna	Navratna base; listed; turnover >₹25,000 crore; net worth >₹15,000 crore; EBITDA >₹2,500 crore	Investments up to 15% net worth; full board restructuring powers	14^[49]

This tiered system, while promoting accountability through performance linkage, has seen expansions in recent years, with upgrades reflecting improved metrics amid government reforms, though revocation occurs for underperformers to maintain incentives.^[50]

Management and Oversight Mechanisms

Public sector undertakings (PSUs) in India are primarily managed through a board of directors structure, where the government appoints the chairman-cum-managing director (CMD), functional directors, and independent directors to oversee strategic decisions, operational execution, and compliance with corporate governance norms. The board's composition typically includes government representatives from administrative ministries, ensuring alignment with national policy objectives, though this has been noted to limit managerial autonomy in decision-making processes.^[51]^[52] The Department of Public Enterprises (DPE), under the Ministry of Finance, formulates guidelines on board appointments, performance appraisal of executives, and corporate governance standards applicable to central public sector enterprises (CPSEs), promoting accountability while emphasizing professional management. Oversight is exercised by multiple layers, including administrative ministries that monitor day-to-day functioning and capital investments, with DPE providing nodal coordination for policy uniformity across CPSEs. The Comptroller and Auditor General (CAG) of India conducts supplementary audits of PSU accounts under Section 619 of the Companies Act, 1956, scrutinizing financial statements prepared by statutory auditors to ensure fiscal propriety and efficiency; in June 2025, CAG established a dedicated vertical for auditing approximately 1,600 state-level PSUs to enhance coverage and depth.^[53]^[54] Parliamentary committees, such as the Public Undertakings Committee, review PSU performance through annual reports and summon executives for accountability, though empirical assessments indicate variable effectiveness due to political influences on appointments.^[14] A key performance evaluation mechanism is the Memorandum of Understanding (MoU) system, introduced in 1987 and refined over time, whereby CPSEs enter annual agreements with their administrative ministries setting quantifiable targets in financial, operational, and strategic domains, evaluated biannually by DPE on a 10-point rating scale. For instance, the MoU framework for 2025-26 emphasizes measurable outcomes like profitability and efficiency benchmarks, with high performers eligible for incentives such as executive bonuses, though studies show mixed correlations between MoU ratings and overall firm profitability, attributed to external economic factors and internal rigidities.^[55]^[56]^[57] Disinvestment and restructuring decisions fall under the Department of Investment and Public Asset Management (DIPAM), which coordinates strategic sales and minority stake dilutions to improve governance, as seen in ongoing reforms since 2014 targeting underperforming entities.^[58]

Economic Performance and Metrics

Financial Trends and Profitability Data

Following economic liberalization in 1991, public sector undertakings (PSUs) in India experienced gradual enhancements in profitability, driven by increased competition, market-oriented reforms, and reduced fiscal protections that previously shielded inefficient operations. Analyses of financial performance indicate that post-liberalization, PSUs demonstrated improved profitability ratios, such as net profit margins and returns on assets, alongside higher internal resource generation compared to the pre-reform era characterized by widespread losses and dependency on government subsidies. In recent fiscal years, aggregate net profits of operating central public sector enterprises (CPSEs) have surged, reflecting the impact of performance-linked incentives, divestment initiatives, and sector-specific recoveries, particularly in banking and energy. For instance, the net profit of 272 operating CPSEs reached ₹3.22 lakh crore in FY 2023–24, marking a 47% increase from ₹2.18 lakh crore in FY 2022–23 and a threefold rise from ₹1.02 lakh crore in FY 2019–20.^[59]^[60] This growth outpaced earlier periods, with overall PSU profits escalating from ₹1.2 lakh crore in FY 2020 to approximately ₹5.3 lakh crore in FY 2025, led by entities like State Bank of India and Life Insurance Corporation of India.^[61] Despite these advances, profitability remains uneven, with nearly 75% of CPSEs reporting profits exceeding ₹3.4 lakh crore collectively as of early 2025, while a minority of chronic loss-makers, often in sectors like textiles and transport, continue to incur substantial deficits requiring government support.^[62] Dividend payouts to the government have correspondingly strengthened, nearly doubling to ₹74,017 crore in FY 2025 from prior years, bolstering non-tax revenues amid fiscal consolidation efforts.^[63] However, state-level PSUs lag, with examples like Uttar Pradesh showing 21 out of 37 enterprises posting losses totaling ₹15,857 crore in recent audits, underscoring persistent structural challenges.^[64]

Fiscal Year	Aggregate Net Profit of Operating CPSEs (₹ lakh crore)
2019–20	1.02
2022–23	2.18
2023–24	3.22

Contribution to GDP, Exports, and Employment

Central Public Sector Enterprises (CPSEs), a major component of PSUs, employed a total of 1.5 million people in FY 2023-24, reflecting a 2.05% increase from the previous year, though the number of regular employees declined 3.1% to 0.81 million.^[65] Including state-level PSUs and contractual workers, the broader public sector accounts for approximately 6% of India's total workforce, amid overall employment of 64.33 crore in 2023-24.^[66]^[67] This employment footprint, while providing stable jobs in strategic sectors like energy and infrastructure, remains modest relative to the private sector's dominance in labor absorption, particularly in services and manufacturing. PSUs contribute to India's exports primarily in niche areas such as defence and bulk commodities, but their overall share remains limited compared to private entities driving merchandise and services trade. In FY 2024-25, Defence Public Sector Undertakings (DPSUs) exported goods worth Rs 8,389 crore, comprising about 35% of total defence exports of Rs 23,622 crore, with the private sector handling the remainder.^[68] Entities like State Trading Corporation (STC) facilitate exports of steel, iron ore, and agro-commodities, yet aggregate PSU exports constitute a small fraction of India's total merchandise exports of approximately $434 billion in 2024.^[69]^[70] Regarding GDP, PSUs generate value added mainly in capital-intensive sectors like petroleum, power, and mining, where CPSEs hold dominant positions; however, their aggregate direct contribution is not isolated in national accounts, as private sector activity now predominates, with services comprising 55% of GDP in 2023-24 and industry 25%.^[71] Operating CPSEs reported a net profit of Rs 3.22 lakh crore in FY 2023-24, up from Rs 1.02 lakh crore in FY 2019-20, alongside contributions of Rs 4.85 lakh crore to the exchequer via dividends, taxes, and interest—representing a 120% rise over 11 years and bolstering public finances that support broader economic activity.^[60]^[72] This fiscal inflow aids infrastructure investment but underscores PSUs' role as enablers rather than primary GDP drivers in a liberalized economy growing at 8.2% in real terms for FY 2023-24.^[71]

Efficiency and Productivity Benchmarks vs. Private Sector

Empirical analyses of Indian Public Sector Undertakings (PSUs) reveal a heterogeneous performance landscape when benchmarked against private sector firms, with top-tier PSUs occasionally outperforming comparators in return on capital (ROC) while the broader cohort lags in efficiency and productivity metrics. A study examining 235 PSUs from 1990 to 2015 found that Maharatnas achieved an ROC approximately 4 percentage points higher than similarly sized private firms, alongside a 2 percentage point edge in return on assets (ROA), attributed to scale advantages in strategic sectors like energy and hydrocarbons.^[21] In contrast, Navratnas and Miniratnas recorded an ROC roughly 2 percentage points below private benchmarks, reflecting persistent operational inefficiencies despite Memorandum of Understanding (MoU) frameworks that boosted ROC by 8-9 points in manufacturing and mining PSUs but yielded negligible gains in services.^[21] Productivity comparisons underscore structural gaps, particularly in labor and total factor productivity (TFP). Sector-specific stochastic frontier analyses in power generation indicate that private plants exhibit higher TFP growth rates than public counterparts, driven by competitive pressures and optimized input utilization post-liberalization.^[73] In banking, Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA) applied to public and private scheduled commercial banks from 2005 to 2019 highlight lower technical efficiency in public sector banks (PSBs), with private banks demonstrating superior business and profit efficiencies due to agile decision-making and reduced non-performing assets.^[74] Aggregate PSU profitability, which peaked at 9% ROC during 2003-2007 before stabilizing at 5-6% post-2012, further trails private sector norms in competitive industries, where firms leverage market incentives for cost control and innovation.^[21]

PSU Category	ROC Differential vs. Private Firms	Key Driver
Maharatnas	+4 percentage points	Strategic scale in monopolistic sectors
Navratnas/Miniratnas	-2 percentage points	Bureaucratic inertia and overstaffing

Recent upticks in PSU financials, such as an aggregate return on equity (ROE) of 17.6% in FY24—a decadal high fueled by energy sector recoveries—mask underlying inefficiencies, as these gains stem more from oligopolistic pricing than operational excellence, unlike private firms' consistent TFP-driven outperformance in non-regulated domains.^[75] Partial privatization in select PSUs has tripled ROC from 5% (1999-2004) to 15.1% (2010-2015), suggesting that exposure to market discipline enhances productivity absent in fully state-controlled entities.^[21] Overall, causal factors like political interference and guaranteed employment erode incentives, leading to chronic underutilization of capital and labor relative to private benchmarks.^[76]

Achievements and Strategic Roles

Infrastructure and Industrial Development

Public sector undertakings (PSUs) in India have historically driven infrastructure and industrial development by investing in capital-intensive sectors where private participation was limited post-independence. Under the Second Five-Year Plan (1956–1961), which emphasized rapid industrialization following the Mahalanobis model, the government established PSUs to command the "commanding heights" of the economy, focusing on heavy industries like steel, power, and oil to build self-reliance in core inputs.^[77] This approach enabled the creation of foundational assets, such as the Bhilai Steel Plant in 1955 through collaboration with the Soviet Union, marking the onset of public-led steel production essential for manufacturing and construction. By prioritizing public investment, PSUs addressed market failures in long-gestation projects, facilitating downstream industrial growth despite initial technological and financial constraints. In the power sector, National Thermal Power Corporation (NTPC), incorporated in 1975, has been pivotal in expanding electricity infrastructure to support industrial expansion. As of 2025, NTPC's group installed capacity exceeds 84 GW across thermal, hydro, and renewable sources, generating over 400 billion units in FY 2024-25 and powering key industrial hubs.^[78] Similarly, Steel Authority of India Limited (SAIL), formed in 1973, operates five integrated steel plants and produces approximately 19.17 million tonnes of crude steel annually as of FY 2024-25, supplying critical materials for infrastructure projects like bridges, railways, and machinery while expanding capacity toward 35 million tonnes by 2030-31. These outputs have underpinned sectors such as automobiles, engineering, and construction, with SAIL's production historically accounting for a significant share of India's total steel output during early industrialization phases. Oil and Natural Gas Corporation (ONGC), established in 1956 as a statutory body and corporatized in 1994, has spearheaded upstream hydrocarbon exploration, discovering eight of India's nine producing basins and contributing around 70-74% of domestic crude oil production. This has ensured energy security for industrial processes, with ONGC's pipelines spanning over 11,000 km and supporting refining PSUs like Indian Oil Corporation in downstream infrastructure. In railways and ports, PSUs such as IRCON International and Dredging Corporation of India have executed projects like high-speed rail corridors and port deepening, enhancing logistics for industrial goods transport. Collectively, these PSU-led initiatives built the physical and industrial backbone, enabling India's manufacturing sector to grow from negligible post-1947 levels to contributing over 15% of GDP by the 1990s, though sustained efficiency remains contingent on operational reforms.

Notable Success Stories

Several Public Sector Undertakings (PSUs) in India, particularly in the energy sector, have achieved remarkable financial and operational milestones, contributing significantly to national revenue through profits and dividends while advancing energy security and infrastructure development. These entities, often granted Maharatna status for their sustained high performance—including average annual turnover exceeding ₹25,000 crore and net worth over ₹15,000 crore—demonstrate effective execution in resource extraction, power generation, and refining.^[79] Their success stems from strategic investments in domestic production and diversification into renewables, yielding record outputs amid global commodity volatility.^[80] Oil and Natural Gas Corporation (ONGC), India's largest upstream oil and gas explorer, reported a consolidated net profit of ₹38,329 crore for the fiscal year ending March 2025 (FY25), up from previous years despite fluctuating crude prices, driven by a 0.9% rise in crude output to bolster import substitution.^[81] ONGC's expansion into renewables, including joint ventures for offshore wind with NTPC, positions it for long-term sustainability, with plans to acquire 2.5-3 gigawatts of renewable capacity by 2030.^[82]^[83] Coal India Limited, the world's largest coal producer by volume, achieved a net profit of ₹9,593 crore in Q4 FY25, supporting India's power sector with over 700 million tonnes of annual production and delivering ₹10,300 crore in dividends to the government in FY25, the highest among PSUs.^[84]^[85] This performance underscores its role in ensuring affordable coal supply for thermal power, which constitutes about 70% of India's electricity generation, while maintaining operational efficiency through mechanized mining.^[86] National Thermal Power Corporation (NTPC), the country's premier power generator with over 70 gigawatts capacity, recorded a standalone profit after tax of ₹18,079 crore for FY24, reflecting a 5% year-on-year increase amid a 6% rise in generation to meet rising demand.^[87] NTPC's pivot to renewables, targeting 60 gigawatts by 2032, complements its thermal assets, enhancing grid stability and self-reliance in power infrastructure. Indian Oil Corporation (IOC), a dominant refiner processing over 80 million tonnes annually, posted a net profit of ₹12,962 crore for FY25, navigating lower margins through robust marketing of petroleum products and petrochemicals that account for 50% of India's fuel consumption.^[88] IOC's investments in refinery expansions and green hydrogen initiatives have sustained its profitability, contributing to energy access for millions while exporting refined products to reduce trade deficits.^[89]

Alignment with National Security and Self-Reliance

Public Sector Undertakings (PSUs) in India's defense sector play a pivotal role in bolstering national security by indigenously developing and manufacturing critical military hardware, reducing reliance on foreign imports that could be vulnerable to geopolitical disruptions. Entities like Hindustan Aeronautics Limited (HAL) and Bharat Electronics Limited (BEL), both Navratna PSUs under the Ministry of Defence, produce aircraft, helicopters, radars, electronic warfare systems, and communication equipment essential for air, land, and naval operations. For instance, HAL has advanced self-reliance through projects such as the Light Combat Aircraft (LCA) Tejas, with a new production line for the Mk1A variant inaugurated in Nashik on October 16, 2025, enhancing indigenous aerospace capabilities and aiming to meet Indian Air Force requirements for over 80 aircraft. Similarly, BEL supplies advanced defense electronics, including surveillance systems and weapon controls, fortifying border security and maritime domain awareness, as evidenced by its July 2025 contract with the Indian Navy for the National Maritime Domain Awareness project.^[90]^[91]^[92] Under the Atmanirbhar Bharat initiative, defense PSUs have indigenized over 3,000 items, contributing to a tripling of domestic defense production from ₹46,429 crore in 2014-15 to ₹1.50 lakh crore in 2024-25, with public sector entities accounting for approximately 80% of output. This shift has elevated India's indigenous content in military equipment to 65%, reversing prior import dependencies of 65-70% and enabling exports while ensuring supply chain resilience amid global tensions. Ordnance factories and other DPSUs have corporatized into seven specialized entities since 2021, focusing on munitions, armored vehicles, and optoelectronics to streamline production for strategic autonomy. These efforts align with causal imperatives of national security, where state control over PSUs mitigates risks from private sector profit motives potentially conflicting with long-term defense needs.^[93]^[94]^[95] In energy domains, PSUs such as Oil and Natural Gas Corporation (ONGC) and Coal India Limited underpin self-reliance by securing domestic resources critical for operational continuity during conflicts. Coal, predominantly mined by PSUs, supplies about 70% of India's electricity from indigenous sources, buffering against oil import vulnerabilities that constitute over 80% of needs. This infrastructure supports defense logistics and industrial base stability, though full self-reliance remains challenged by refining and technology gaps. Overall, PSUs' strategic orientation prioritizes empirical security outcomes over commercial efficiency, fostering a resilient ecosystem despite historical delays in delivery timelines.^[96]^[97]

Criticisms and Systemic Failures

Inefficiencies and Chronic Underperformance

Public sector undertakings (PSUs) in India have exhibited persistent operational inefficiencies, characterized by low capacity utilization, project delays, and suboptimal resource allocation, which have contributed to chronic financial underperformance across multiple sectors. For instance, the Comptroller and Auditor General (CAG) audits have repeatedly highlighted deficiencies such as poor inventory management in entities like Steel Authority of India Limited (SAIL), resulting in billions in avoidable losses between 2016 and 2023 due to excess stockpiling and wastage. Similarly, in the power sector, state PSUs in regions like Tamil Nadu reported cumulative losses exceeding ₹22,000 crore as of 2024, driven by non-compliance with governance norms and inefficient operations. These issues stem from structural factors including overstaffing and inadequate technological upgrades, leading to productivity levels that lag behind private sector counterparts; empirical analyses indicate that non-top-tier PSUs, such as Navratnas, achieve return on capital approximately 2 percentage points lower than comparable private firms.^[98]^[99]^[21] Financial metrics underscore the scale of underperformance, with a significant minority of central public sector enterprises (CPSEs) consistently reporting losses despite overall sector profits. According to the Department of Public Enterprises (DPE) survey for FY 2023-24, out of 272 operating CPSEs, 58 incurred net losses totaling ₹21,000 crore, representing a persistent drag even as 212 profitable entities generated ₹3.43 lakh crore in net profit. This pattern echoes earlier trends, where operational losses across PSUs aggregated ₹1.45 lakh crore between 2015 and 2020, exacerbated by policy paralysis and project execution delays. In telecommunications, Bharat Sanchar Nigam Limited (BSNL) exemplifies chronic inefficiency, capturing less than 10% market share by the late 2010s amid failure to adapt to technological shifts, resulting in annual losses exceeding ₹7,000 crore in FY 2016-17 alone—part of the top three loss-makers accounting for over half of the decade's major CPSE deficits. Pre-privatization Air India similarly hemorrhaged resources, with losses ballooning to ₹5,800 crore in FY 2016-17 due to high operating costs and route inefficiencies, underscoring how lack of competitive pressures perpetuates such outcomes.^[60]^[100]^[101] Comparisons with the private sector reveal deeper productivity gaps, particularly in service-oriented PSUs, where bureaucratic decision-making and absence of profit-driven incentives hinder innovation and cost control. Studies of PSU performance indicate that while select Maharatna entities occasionally match or exceed private benchmarks in return on assets, the majority—especially in manufacturing and services—suffer from stagnant labor productivity and inefficient capital deployment, with profitability margins averaging 5-6% post-2012 compared to higher private sector averages in analogous industries. CAG recommendations for loss-making state PSUs, such as evaluating revival or closure, highlight systemic failures like over-manning and delayed modernization, which have sustained underperformance despite periodic reforms. These inefficiencies impose opportunity costs, diverting capital from higher-yield private investments and reinforcing a cycle of fiscal dependency.^[21]^[21]^[102]

Corruption, Political Interference, and Overstaffing

Public sector undertakings (PSUs) in India have been plagued by corruption, with notable cases involving irregularities in procurement and project execution. In October 2025, the Central Bureau of Investigation (CBI) registered a case against officials of Bharat Heavy Electricals Limited (BHEL) and National Thermal Power Corporation (NTPC) for an alleged ₹35 crore fraud at the Ramagundam Super Thermal Power Station, involving forged bills, false measurement records, and cheating to inflate payments for civil works.^[103] ^[104] Such incidents reflect broader vulnerabilities, as public sector entities face heightened scrutiny and disclose more bribery cases than private firms due to regulatory oversight.^[105] Historical scandals, including the coal allocation scam uncovered in 2012, exposed systemic flaws in resource distribution that indirectly burdened PSUs like Coal India Limited through opaque processes favoring cronies.^[106] ^[107] Political interference manifests prominently through appointments to PSU boards and operational decisions, undermining professional management. Governments have appointed politicians affiliated with ruling parties as independent directors on PSU boards, with at least 10 such placements cleared by the Appointments Committee of the Cabinet in 2017 alone, prioritizing loyalty over expertise.^[108] ^[109] State-level examples include Odisha's BJP finalizing political appointees to PSU boards in August 2025 via party core committees, often sidelining merit-based selection.^[110] This patronage extends to decisions like project approvals and lending, where ruling parties influence outcomes for electoral gains, as seen in manipulated electricity billing to favor constituents.^[111] Such meddling fosters inefficiency, with PSUs historically viewed as vehicles for political rewards rather than commercial entities.^[112] Overstaffing exacerbates fiscal strains, with surplus manpower draining resources amid stagnant productivity. Central PSUs employed 17.3 lakh workers in 2013, reducing to 14.6 lakh by 2022 through attrition and hiring curbs, yet employee costs remain a major contributor to losses in underperforming units.^[113] State PSUs, such as Karnataka's 120 entities with 2.04 lakh employees as of 2022, report chronic losses partly attributable to excess staff, with 37 units incurring ₹6,103 crore deficits despite high payrolls.^[114] CAG audits highlight this in loss-making PSUs across sectors like power, where manpower surpluses—estimated at tens of thousands in banking PSUs historically—lead to unnecessary expenditures without proportional output.^[115] ^[116] Political pressures for job creation perpetuate this, shielding PSUs from market-driven rightsizing.^[117]

Fiscal Burden and Opportunity Costs

Public sector undertakings (PSUs) in India, encompassing both central and state entities, generate a fiscal burden primarily through direct budgetary support, capital infusions for loss-making operations, and implicit guarantees on their borrowings, which contribute to elevated government debt and deficits. In fiscal year 2025 (revised estimates), budgetary support to central public sector enterprises (CPSEs) reached Rs 5.48 lakh crore, marking a 150% increase from Rs 2.1 lakh crore in FY20, reflecting growing reliance on taxpayer funds for capital expenditure and operational revival rather than internal resources or private investment.^[118] This support often sustains underperforming entities, as evidenced by 58 out of 272 operating CPSEs reporting aggregate net losses of Rs 0.21 lakh crore in recent surveys, despite overall sector profits of Rs 3.43 lakh crore from 212 profitable units.^[60] State-level PSUs exacerbate this strain, with chronic losses in sectors like power distribution; for instance, state governments have absorbed over Rs 2.3 lakh crore in discom debts since 2012 through schemes like UDAY, alongside ongoing grants for operational shortfalls.^[119] The fiscal impact extends beyond explicit outlays to contingent liabilities from PSU borrowings, which totaled significant exposures in infrastructure-heavy sectors, crowding out private credit and inflating public debt ratios—India's general government debt hovered around 80-85% of GDP in recent years, partly fueled by such obligations. CAG audits highlight inefficiencies amplifying this burden: in Tamil Nadu, 30 PSUs incurred Rs 22,193 crore in losses for FY23, predominantly from power entities, while Uttar Pradesh's 21 loss-making PSUs reported Rs 15,857 crore in deficits against minimal profits from others.^[99] ^[64] Similar patterns in Kerala (77 PSUs with Rs 18,000 crore accumulated losses) and other states underscore a systemic issue where political reluctance to close or privatize viable alternatives perpetuates subsidies over restructuring.^[120] Opportunity costs arise from reallocating scarce fiscal resources to prop up inefficient PSUs, diverting funds from higher-return investments in human capital, physical infrastructure, or debt servicing that could lower interest burdens and enhance long-term growth. Economic analyses indicate that sustained support for loss-makers, such as BSNL's ongoing deficits or discom bailouts under consideration (potentially injecting fresh capital into indebted utilities), forgoes private sector efficiencies, where comparable enterprises achieve superior productivity without state backing.^[121] ^[122] For context, the Rs 5+ lakh crore annual support to CPSEs could alternatively fund expanded social spending or reduce the fiscal deficit, which stood at 4.8% of GDP in FY25 RE, thereby easing inflationary pressures and attracting foreign investment. This misallocation reflects causal dynamics where political interference prioritizes employment preservation over profitability, yielding lower multipliers than market-driven alternatives, as historical fiscal crises like 1991 demonstrated when PSU burdens precipitated balance-of-payments strains.^[123] Reforms targeting disinvestment could mitigate these costs, but persistent barriers sustain the drag on public finances.

Privatization Efforts and Outcomes

Historical Disinvestment Initiatives

Disinvestment of government equity in public sector undertakings (PSUs) in India originated in the context of the 1991 balance-of-payments crisis, which prompted structural economic reforms under Prime Minister P.V. Narasimha Rao and Finance Minister Manmohan Singh. The New Industrial Policy of 1991 emphasized reducing the government's fiscal burden by liquidating partial stakes in non-strategic PSUs, marking a departure from the post-independence emphasis on public ownership. The interim budget for 1991-92 explicitly proposed disinvesting up to 20% of equity in selected enterprises, favoring sales to mutual funds and financial institutions to avoid outright privatization connotations. This phase, spanning 1991-1999, involved primarily minority stake sales through auctions and global depository receipts (GDRs), diluting an average of 8.87% equity across 39 central PSUs, with total proceeds amounting to ₹16,809 crore against a target of ₹34,300 crore.^[31]^[31]^[32] In 1996, the Disinvestment Commission was established to recommend systematic strategies, advising privatization for 53 non-strategic PSUs while prioritizing minority dilutions in others; it operated until around 2004. The subsequent phase from 1999-2004, under the National Democratic Alliance (NDA) government led by Atal Bihari Vajpayee, introduced strategic sales involving transfer of management control, resulting in 10 full privatizations, two PSU-to-PSU transfers, and sales of 20 hotel properties. Key examples included the 51% stake sale in Bharat Aluminium Company (BALCO) to Sterlite Industries in 2001 for ₹551.50 crore and 26% in Hindustan Zinc in 2002-03 for ₹445 crore, alongside full exit from Maruti Udyog by 2007 yielding ₹2,366.94 crore cumulatively. Proceeds totaled ₹24,619 crore (or up to ₹47,614 crore per varying estimates) against a ₹58,500 crore target, reflecting higher valuations from strategic methods but hampered by legal disputes, labor unrest (e.g., 67-day BALCO strike), and valuation controversies flagged by Comptroller and Auditor General audits. The Department of Disinvestment, created in 1999 and elevated to ministry status in 2001, formalized procedures during this period.^[31]^[31]^[31] From 2004-2014, under the United Progressive Alliance (UPA) governments, policy shifted to preserving the "public sector character" per the National Common Minimum Programme, halting strategic sales and relying on minority stake dilutions via public offers, offer-for-sale through stock exchanges (OFS-SE), and exchange-traded funds (ETFs). Notable transactions included the 10% initial public offering (IPO) of Coal India in 2010, raising ₹15,200 crore. Cumulative proceeds reached ₹1,14,045 crore (or up to ₹1,44,451 crore) against a ₹1,93,000 crore target, with annual realizations averaging lower due to market volatility, political opposition, and a focus on retaining control in strategic sectors. The Department of Disinvestment was subsumed under the Finance Ministry in 2004, limiting aggressive pursuits. Overall, from 1991-2014, disinvestment generated approximately ₹1,55,473 crore against higher targets, underscoring persistent shortfalls from procedural delays, buyer hesitancy, and ideological resistance to privatization, though it contributed to fiscal consolidation and improved efficiency in select privatized entities.^[31]^[31]^[31]

Period	Target (₹ crore)	Realized (₹ crore)	Key Methods
1991-1999	34,300	16,809	Auctions, GDRs
1999-2004	58,500	24,619	Strategic sales, public offers
2004-2014	1,93,000	1,14,045	OFS-SE, ETFs, minority sales

Modi Government Reforms and Empirical Results

The Modi government, upon assuming office in 2014, prioritized strategic disinvestment in non-strategic public sector undertakings (PSUs) to reduce fiscal burdens and enhance efficiency, aiming to limit government equity below 51% in such entities while retaining control in strategic sectors like defense and energy. This approach built on earlier disinvestment policies but accelerated through measures like the establishment of the Alternative Mechanism in 2016 for faster approvals and the launch of the National Monetization Pipeline (NMP) in August 2021, targeting ₹6 lakh crore in receipts from core assets over FY2022–FY2025 via InvITs, REITs, and toll-operate-transfer models. By June 2024, the NMP had monetized assets worth ₹3.85 lakh crore, primarily from roads (via NHAI's ₹1.4 lakh crore raised across 6,100 km of highways) and coal sectors, funding infrastructure under the ₹111 lakh crore National Infrastructure Pipeline.^[124]^[125] Key empirical successes included the privatization of Air India, completed on January 27, 2022, when Tata Sons acquired 100% equity for ₹18,000 crore (approximately $2.4 billion including debt assumption), ending chronic annual losses exceeding ₹8,000 crore and daily government subsidies of ₹20 crore.^[126]^[127] Post-privatization, Air India reported operational improvements under Tata management, though full turnaround challenges persisted amid integration with Vistara and fleet modernization costing billions.^[128] Overall disinvestment proceeds from FY2014 to FY2024 totaled over ₹4.20 lakh crore, surpassing previous decade averages and contributing to fiscal consolidation, with minority stake sales in profitable PSUs like Hindustan Zinc yielding ₹3,449 crore in FY2025 via offer-for-sale.^[129]^[38] Reduced political interference in PSU operations correlated with improved profitability; for instance, PSUs shifted from net drains to dividend contributors, with market capitalization of listed central PSUs rising from ₹4 lakh crore in 2014 to over ₹20 lakh crore by 2024, driven by autonomy in appointments and capex decisions.^[130] However, privatization targets faced setbacks, with only three full successes (including Air India and two others) by 2025 despite ambitious plans for entities like BPCL and IDBI Bank.^[131] Annual disinvestment receipts averaged ₹25,000–₹30,000 crore in FY2021–FY2025, half the earlier pace under Modi, due to valuation disputes, union resistance, and strategic recalibrations post-2024 elections, leading to shelved sales for high-revenue PSUs like BPCL (52.98% stake, valued at ₹45,000 crore in FY2022 plans).^[37]^[132] The number of operating central PSUs grew 20% to around 300 by 2024, reflecting a pivot from outright privatization to professionalization and increased capital infusion (e.g., ₹3 lakh crore in PSU capex FY2023–FY2025), which boosted sectors like energy but raised questions on long-term efficiency gains absent ownership transfer.^[133] Empirical data indicate mixed fiscal relief: while NMP unlocked non-debt capital without new borrowing, persistent underachievement in stake sales contributed to FY2025 receipts hitting an 11-year low, constraining deficit reduction amid rising PSU dividends balancing low divestment yields.^[37]^[134]

Barriers to Further Privatization

Political opposition has significantly impeded further privatization of public sector undertakings (PSUs) in India, particularly following the 2024 general elections where the ruling Bharatiya Janata Party-led coalition secured a reduced majority. This shift compelled Prime Minister Narendra Modi's government to delay ambitious privatization plans, prioritizing instead the overhaul and capital infusion into over 200 state-run firms to enhance profitability. Opposition parties, including the Indian National Congress, have criticized disinvestment as a "distress sale of national assets," arguing it undermines social justice and regional development historically supported by PSUs. Additionally, affiliates like the Swadeshi Jagran Manch have demanded rejection of recommendations to close or privatize non-strategic PSUs, reflecting broader ideological resistance to reducing state control over key sectors.^[135]^[136]^[137] Labor unions represent a persistent barrier through organized protests and strikes against privatization initiatives, driven by fears of job losses and erosion of worker protections. Trade unions have mobilized nationwide actions, including vows to scrap new labor codes perceived as enabling easier privatization, with millions participating in strikes in 2023 and 2025 opposing anti-worker policies. Historical data on protests from 1991 to 2003 indicate intensified labor struggles, with interstate variations linked to union density and PSU employment levels, a pattern continuing under recent reforms. In sectors like banking and energy, unions have successfully delayed sales, such as in BPCL, by highlighting overstaffing and demanding guarantees for employee absorption.^[138]^[139]^[140] Economic and valuation challenges further complicate disinvestment, with repeated shortfalls in targets underscoring difficulties in attracting buyers amid high liabilities and perceived governance risks. For fiscal year 2023-24, proceeds totaled only ₹14,564 crore against a revised target of ₹30,000 crore, marking the lowest disinvestment ambition in years at ₹51,000 crore for 2023-24 initially. Privatization of firms like IDBI Bank proceeded, but broader efforts stalled due to disputes over asset valuation and buyer interest, exacerbated by PSUs' accumulated losses exceeding ₹3 lakh crore in some cases. The government's pivot to injecting billions into revival—rather than divestment—reflects these fiscal pressures, as minority stake sales alone could yield up to $137 billion but face execution hurdles.^[141]^[142]^[135] Regulatory and procedural complexities, including the need for parliamentary approvals and compliance with securities norms, add layers of delay, particularly for strategic sales involving over 51% stake transfer. Disinvestment requires clearance from multiple bodies like the Cabinet Committee on Economic Affairs and adherence to SEBI guidelines on public shareholding, which PSUs often fail to meet due to promoter holding caps. In sectors deemed critical for national security, such as defense or energy, additional scrutiny under policies like Atmanirbhar Bharat prioritizes retention over sale, limiting the pool of eligible PSUs to non-strategic ones numbering around 23 as of 2021, with progress halting post-elections.^[143]^[144]^[135]

Sectoral Overview

Energy and Infrastructure PSUs

Public sector undertakings (PSUs) in India's energy sector primarily encompass entities involved in power generation, oil and gas exploration, refining, and coal mining, forming the backbone of the country's energy supply amid rapid economic growth and increasing demand. NTPC Limited, incorporated in 1975, stands as India's largest power utility, with an installed capacity of approximately 80 GW across thermal, hydro, nuclear, and renewable sources as of fiscal year 2024-25, contributing over 25% of the nation's total electricity generation.^[13] Oil and Natural Gas Corporation (ONGC), established in 1956, dominates upstream hydrocarbon activities, accounting for about 70% of domestic crude oil and 55% of natural gas production in 2023-24, though output has stagnated due to maturing fields and geological constraints.^[145] Coal India Limited, the world's largest coal producer by volume, supplied 773 million tonnes in fiscal 2023-24, meeting over 80% of India's coal requirements primarily for thermal power plants, despite environmental pressures to diversify away from fossil fuels.^[146] Indian Oil Corporation Limited (IOCL), a refining and marketing giant, processed 81 million tonnes of crude in 2023-24, operating 11 refineries and commanding a 30% market share in petroleum products. These entities, classified as Maharatna PSUs, reported combined revenues exceeding ₹10 lakh crore in fiscal 2023-24, underscoring their fiscal scale but also highlighting dependency on government subsidies and policy directives for viability.^[147] In infrastructure, PSUs focus on transmission, distribution enablers, and specialized projects, with Power Grid Corporation of India Limited (PGCIL) managing over 180,000 circuit kilometers of transmission lines as of 2024, facilitating interstate power evacuation and renewable integration under the national grid.^[13] PGCIL's network, expanded by 15,000 ckms annually in recent years, supports India's goal of 500 GW non-fossil capacity by 2030, though right-of-way disputes and land acquisition delays have hampered progress in remote areas.^[148] NHPC Limited specializes in hydroelectric projects, operating 24 plants with 6,971 MW capacity in 2024, contributing to baseload power but facing sedimentation and rehabilitation challenges in Himalayan regions.^[149] Rural Electrification Corporation (REC) and Power Finance Corporation (PFC), as financing arms, have disbursed over ₹3 lakh crore in loans for power and infrastructure projects since 2020, enabling private participation but exposing them to non-performing assets from stressed distribution companies.^[13] Performance metrics reveal strengths in scale and stability but vulnerabilities in efficiency and transition risks. NTPC achieved a net profit of ₹18,078 crore in fiscal 2023-24, driven by capacity additions and cost controls, yet its coal-heavy portfolio (over 70% of generation) incurs high variable costs amid volatile fuel prices.^[150] Coal India's profit reached ₹37,369 crore in the same period, buoyed by production hikes to 703 million tonnes, though e-auctions and import competition erode margins.^[151] ONGC's net profit fell to ₹20,953 crore in 2023-24 from peak levels, reflecting declining reserves and under-recovery of under-lifting gas, necessitating joint ventures for revival.^[147] PGCIL maintained robust profitability at ₹6,480 crore, with a debt-equity ratio below 1.5, but grid congestion and integration delays for 100+ GW renewables by 2025 pose operational strains.^[152] Challenges persist in aligning with energy transition goals, including aging infrastructure, high aggregate technical and commercial losses (15-20% in power distribution linkages), and regulatory hurdles that delay evacuations.^[153] These PSUs have enabled India's per capita energy access to rise from 500 kWh in 2000 to over 1,200 kWh in 2024, but causal factors like political pricing interventions and over-reliance on coal sustain inefficiencies, with empirical data showing private sector outperformance in renewables deployment.^[154]^[155]

Financial Services PSUs

Financial services public sector undertakings (PSUs) in India encompass public sector banks (PSBs), nationalized insurance companies, and specialized financial institutions, primarily overseen by the Department of Financial Services under the Ministry of Finance. These entities were established or nationalized post-independence to promote financial inclusion, support economic development, and channel resources toward priority sectors. PSBs, which include 12 major nationalized banks such as the State Bank of India (SBI), Bank of Baroda, and Punjab National Bank, dominate the banking landscape with a substantial portion of deposits and advances.^[156] In fiscal year 2024, PSBs generated interest income of ₹11,09,730 crore, reflecting their scale in mobilizing savings and extending credit.^[157] Reforms including the Insolvency and Bankruptcy Code (IBC) and enhanced provisioning norms have driven a sharp decline in gross non-performing assets (NPAs), falling from 9.11% in March 2021 to 2.58% by March 2025, enabling recoveries exceeding ₹3.32 lakh crore.^[158] ^[159] This improvement culminated in record aggregate net profits of ₹1.78 lakh crore for PSBs in FY 2024–25, underscoring strengthened balance sheets amid government recapitalization and governance enhancements.^[160] Despite these gains, PSBs continue to face challenges in operational efficiency and competition from private banks, which exhibit lower NPA ratios and higher return on assets in comparative analyses.^[161] The Life Insurance Corporation of India (LIC), formed in 1956 through the nationalization of 245 insurers, remains the dominant player in life insurance with total capital and liabilities exceeding ₹5.62 lakh crore as of recent filings.^[162] ^[163] In the quarter ended June 2025, LIC reported revenue of ₹2,24,650 crore and net profit of ₹10,987 crore, supported by a robust policyholder base and investment portfolio yielding steady returns. General insurance PSUs like the General Insurance Corporation provide reinsurance and underwriting services, though their market share has eroded against private competitors due to slower product innovation and higher claims ratios. Specialized entities such as the Export-Import Bank of India (EXIM Bank) and National Bank for Agriculture and Rural Development (NABARD) focus on trade finance and rural credit, respectively, contributing to targeted sectoral lending but often at subsidized rates that strain profitability.

Major Financial PSUs	Type	Key Metric (Recent)
State Bank of India (SBI)	Bank	Largest PSB by assets; integral to systemic liquidity
Life Insurance Corporation (LIC)	Insurance	₹5.62 lakh crore total liabilities; 77.7% profit CAGR over 5 years
Punjab National Bank	Bank	Part of NPA recovery efforts; improved post-mergers

These PSUs collectively manage trillions in assets, yet empirical evidence indicates persistent underperformance relative to private peers in metrics like cost-to-income ratios, attributable to bureaucratic hurdles and political directives influencing lending.^[165] Ongoing disinvestment, such as LIC's 2022 IPO, aims to infuse capital and enhance accountability, though full privatization remains limited by policy constraints.^[166]

Manufacturing and Other Key Sectors

Public Sector Undertakings (PSUs) in India's manufacturing sector primarily focus on heavy industries such as steel, electrical equipment, and defense production, established post-independence to foster industrial self-sufficiency and reduce import dependence. Key entities include the Steel Authority of India Limited (SAIL), founded in 1973 through the merger of state-owned steel plants, which operates integrated steel plants with a crude steel capacity of approximately 19.6 million tonnes per annum as of 2023. Bharat Heavy Electricals Limited (BHEL), incorporated in 1964, specializes in power plant equipment and industrial machinery, reporting a revenue of ₹27,350 crore in fiscal year 2024-25, marking a 19% year-on-year increase driven by order inflows exceeding ₹92,535 crore. Hindustan Aeronautics Limited (HAL), established in 1940 and nationalized in 1970, leads in aircraft and helicopter manufacturing, achieving ₹29,810 crore in revenue for fiscal year 2023-24, an 11% rise attributed to defense contracts.^[167]^[168]^[169]^[170] These PSUs have contributed to India's manufacturing output, with SAIL producing 18.44 million tonnes of crude steel in fiscal year 2023-24, supporting downstream industries like automobiles and construction amid domestic steel demand growth of 13.4% year-on-year. BHEL's equipment underpins over 70% of India's installed power generation capacity, though its profitability remains constrained by project execution delays and competition from private players. HAL's production includes indigenous light combat aircraft like the Tejas, with deliveries accelerating to meet Indian Air Force requirements, resulting in a 12% year-on-year steel production growth for SAIL in Q1 2025. Empirical data indicate PSUs' share in manufacturing gross value added has declined to around 15-20% by the 2020s, reflecting liberalization's shift toward private sector dynamism while PSUs maintain strategic niches.^[167]^[171]^[172]^[58] In other key sectors intersecting manufacturing, such as defense and shipbuilding, PSUs like Bharat Electronics Limited (BEL) and Garden Reach Shipbuilders & Engineers (GRSE) dominate. BEL, set up in 1954, produces electronics for defense and civilian applications, with its market capitalization ranking among top PSUs due to export growth in radars and communication systems. GRSE, under the Ministry of Defence since 1960, focuses on warships, securing orders that bolster India's naval indigenization targets under the Atmanirbhar Bharat initiative. These entities have enabled technology transfer and skill development, yet face challenges like cost overruns; for instance, HAL's projects have historically exceeded budgets by 20-50% due to technological complexities and supply chain issues. Overall, manufacturing PSUs generated collective revenues exceeding ₹1 lakh crore in recent years, but return on capital employed often lags private counterparts at under 10%, highlighting inefficiencies in capital allocation.^[173]^[174]^[58]^[21]

Future Outlook and Policy Recommendations

Ongoing Reform Agendas

The Indian government maintains an active agenda for reforming public sector undertakings (PSUs) through the Department of Investment and Public Asset Management (DIPAM), emphasizing disinvestment to reduce fiscal burdens while enhancing operational efficiency. For the financial year 2024-25, the disinvestment target stands at ₹47,000 crore, comprising minority stake sales, initial public offerings (IPOs), and offers for sale (OFS), with DIPAM Secretary Arunish Chawla stating in September 2025 that this figure will be exceeded due to robust market conditions and retail investor participation.^[175]^[176] This approach prioritizes strategic sales over wholesale privatization, including plans to divest minority stakes in approximately half a dozen PSUs and complete the strategic disinvestment of IDBI Bank by March 2025.^[177]^[178] Broader reforms focus on capital restructuring and performance improvement across over 200 PSUs, shifting from aggressive privatization to long-term value unlocking through five-year performance targets tied to profitability and efficiency metrics.^[135] This includes enhancing professional management, granting greater operational autonomy, and imposing stricter accountability mechanisms to align PSUs with market disciplines, as inefficiencies in legacy operations continue to strain public finances.^[121] Record-high PSU dividends, projected to reach unprecedented levels in FY 2024-25, provide fiscal relief and underscore the viability of reformed entities contributing to government revenues without full divestment.^[176] Under the third Modi administration, coalition dynamics have moderated outright privatization ambitions—such as those for two public sector banks announced earlier—but the agenda persists with targeted interventions to foster competitiveness, including minority stake reductions in non-strategic sectors to invite private capital and expertise.^[135] These efforts aim to mitigate opportunity costs from underperforming assets, with empirical progress evidenced by surpassing interim disinvestment receipts and sustained PSU contributions to GDP amid global economic pressures.^[179]

Potential for Market-Oriented Restructuring

Market-oriented restructuring of public sector undertakings (PSUs) in India encompasses strategies such as strategic disinvestment, corporatization, professionalization of management, and integration of competitive incentives to align operations with profit maximization and efficiency imperatives rather than bureaucratic mandates.^[121] This approach aims to mitigate chronic underperformance, evidenced by the aggregate losses of approximately ₹20,000 crore reported by loss-making PSUs in fiscal year 2022-23, by introducing market discipline through minority stake listings, independent boards, and performance-linked remuneration.^[58] Empirical analyses of past disinvestments, such as those in the 1990s and 2000s, demonstrate post-reform improvements in return on assets and labor productivity, particularly when divestment exceeded 50% equity transfer, as private ownership incentivizes cost controls and innovation absent in fully state-controlled entities.^[180]^[21] The fiscal rationale underscores substantial potential, with PSUs contributing to India's non-plan expenditure through implicit subsidies and capital infusions totaling over ₹3 lakh crore in the decade to 2023, diverting resources from growth-oriented investments.^[58] Restructuring via strategic sales in non-strategic sectors—recommended by NITI Aayog for 34 PSUs since 2016—could generate divestment proceeds exceeding ₹2.1 lakh crore targeted for 2021-25, while enhancing taxpayer value through higher valuations under private oversight.^[181] For instance, partial privatizations like that of Bharat Petroleum Corporation Limited have correlated with operational upgrades, including digital integration and supply chain efficiencies, yielding profitability surges of 20-30% in comparable cases.^[182] Such reforms also foster broader economic multipliers, as restructured PSUs historically exhibit 15-25% higher capital expenditure efficiency post-market exposure, per panel data regressions on pre- and post-reform cohorts.^[41] Further potential resides in regulatory enablers, including the Reserve Bank of India's 2025 draft guidelines permitting up to 70% bank financing for PSU acquisitions by listed corporates, which could accelerate mergers and delistings to streamline underutilized assets.^[183] SEBI's streamlined delisting framework similarly facilitates government flexibility for modernization, potentially unlocking ₹1-2 lakh crore in latent value from redundant PSUs by 2030, contingent on overcoming union resistance through voluntary retirement schemes that have succeeded in prior cases like VSNL's 2002 privatization.^[184] Overall, these measures hold promise for elevating PSU contributions to GDP from the current 2-3% toward competitive benchmarks, provided implementation prioritizes full divestment in viable entities over partial retainment that dilutes incentives.^[121]

Comparative Lessons from Global SOEs

Global experiences with state-owned enterprises (SOEs) highlight that while they can address market failures in strategic sectors, they often exhibit lower profitability, efficiency, and productivity compared to private firms, particularly in competitive markets. Empirical analyses across countries show private enterprises achieving up to three times the labor productivity of SOEs, with gaps widening in high-corruption environments but narrowing under robust governance frameworks that limit political interference.^[185] ^[186] These disparities stem from SOEs' tendencies toward overstaffing, subsidized inputs, and misaligned incentives, though successes in resource-dependent economies demonstrate viability when commercial mandates are enforced. Privatization outcomes provide causal evidence of performance uplift in many cases, with meta-studies of over 200 firms across 20+ countries revealing post-privatization increases in net income-to-sales ratios from 8.4% to 12.4%, real sales per employee doubling from 97% to 177% of pre-privatization levels, and capital expenditures rising from 12% to 19% of sales.^[187] In the United Kingdom, the 1984 privatization of British Telecom and 1987 divestment of British Airways yielded efficiency gains through market exposure, though regulatory shortcomings in utilities underscored the need for competitive structures and oversight to prevent monopolistic pricing. Mexico's sale of 218 SOEs in the early 1990s boosted output by 54% and profitability margins by 40 points, illustrating benefits in developing contexts when paired with macroeconomic stabilization.^[187] Conversely, incomplete reforms in Russia during the 1990s led to asset stripping and oligarchic capture absent strong property rights, emphasizing institutional prerequisites for sustainable gains.^[185] Norway's model offers lessons in hybrid ownership, where listed SOEs like Equinor operate under arms-length governance, achieving return on equity and productivity metrics comparable to or exceeding private Oslo Stock Exchange peers from 2005–2020, driven by explicit commercial orientation policies and dividend-focused mandates rather than employment preservation.^[188] Singapore's Temasek Holdings, managing a S$215 billion portfolio as of 2013, separates policy from operations, delivering 13% compounded annual returns through professional boards, global expansion (e.g., SingTel), and selective divestments totaling S$100 billion, while fostering innovation in sectors like clean energy.^[189] In contrast, China's SOEs, consolidated under the State-owned Assets Supervision and Administration Commission since 2003, doubled per-firm assets to 1.3 billion yuan by 2010 but recorded profit declines of 0.2% amid 9.4% industrial growth in early 2014, reflecting persistent inefficiencies from state favoritism despite partial listings and mergers.^[189] ^[190] For India's PSUs, these cases advocate retaining state control in natural monopolies like defense and railways with enhanced autonomy and performance metrics, while privatizing non-strategic assets to unlock efficiency—evidenced by global patterns where 60–80% of divested firms improve key indicators. Adopting a Temasek-like holding structure could professionalize oversight, reducing fiscal drains (SOEs globally absorb implicit subsidies equating to 1–4% of GDP), and exposing firms to listing requirements for accountability, provided regulatory capacity prevents post-privatization reversals seen in tariff-sensitive utilities.^[185] ^[187] Failures in politically insulated SOEs, such as Venezuela's PDVSA amid mismanagement leading to production collapse from 3.5 million to under 0.5 million barrels daily by 2020, warn against perpetuating over-reliance without competition or fiscal discipline.^[191] Overall, causal realism points to market-oriented restructuring—via governance firewalls and selective divestment—as yielding superior long-term outcomes over status quo interventionism.