Public Sector Undertakings (PSUs) are government-owned companies that operate in India’s energy, manufacturing, finance, and telecommunications sectors. They are also known as Public Sector Enterprises (PSEs).
How do PSUs impact India?
PSUs are vital to India’s economic and social development, They contribute significantly to GDP, They drive infrastructure growth, They provide employment opportunities, and They promote socio-economic welfare.
A Historical Context: Performance of PSUs since 2019-20
- Decrease in dividends
- PSU dividends paid to the government fell to ₹0.35 trillion in 2019 20 which is 19% less than one year previous.
- Weaker capital outlay growth
- The growth of PSUs in respect of capital outlay was a mere 2% reaching ₹8.51 trillion.
- Less government support
- The budget allocation of support to PSUs was reduced by 7%, leading to a 25% share in the total capital outlay of PSUs.
- Disinvestment downtrend
- Receipts from PSU stake sales plummeted to ₹0.5 trillion, registering a decline of 47%.
Comparison of PSUs in Action between 2020-21 and 2024-25
- Stagnation in capital outlays
- The capital outlay of PSUs registered a growth rate less than 2% CAGR.
- Declined Internal & Extra Budgetary Resources (IEBR)
- The resources generated by the PSU declined with a 10% CAGR.
- Increased dividends to the Government
- While PSUs have not been on solid footing financially, dividends paid to the Government increased in 9.5% CAGR.
- Increased government support
- Capital infusion by the government into PSUs grew at 21% CAGR, increasing their share of PSU capital outlay to 59% (from 25% five years ago).
- Further slowdown in disinvestment
- The decline in the government’s share sales in the PSUs by 8% over a period of five years is manifest.
Comparison With the First Term of the Modi Government (2014-19)
- Higher Investments in PSUs & IEBR
- A capital outlay increase of 23% CAGR.
- An IEBR increase of 26% CAGR.
- Lower Dividend Payouts
- The average growth of the PSU dividend payments is 2% CAGR.
- Aggressive Disinvestment
- Growth rate of sales proceeds from government disinvestment is 9% CAGR and render production for fiscal needs.
- Greater Capital Support from the Government
- Support from the government through budget for equity and loans grew by 26% CAGR.
Why the Change?
- Strategic Disinvestment Policy (2021) Was Not Implemented
- The stated aim was to generally privatise or close unviable PSUs while minimising governmental interference in strategic sectors.
- Privatisation of PSUs was stalled only Air India, Neelachal Ispat and Ferro Scrap were actually sold.
- The government fairly intervened by pumping new money into some PSUs on the brink of failure, whereby reversing a previously held decision on privatisation.
- The New Approach for Monetisation
- The government switched from direct asset sales to monetisation and leasing of PSU assets to raise the needed funds.
- Lack of Value Creation from PSUs
- There are no practically visible signs of improvement in the dividend payout or generation of extra budgetary resources (EBR) from these PSUs against the backdrop of increasing capital outlay and government support.
- Inefficiency is evident from a growing dependence on government funds.
Budget 2025 26: Indicators of Change or Continuity?
- Higher Dividend from PSUs Expected
- The government wants to press these PSUs for higher dividends.
- Disinvestment Receipts Marginally Higher
- There has been no push for stake sales, hence this has been a cautious trend.
- Other Trends Point to Decline in Direct Capital Support to PSUs
- This is a notable change, and the PSUs are to generate some more capital on their own.
- Return to Strategic Disinvestment Is Not So Clear
- There are no clear aggressive privatisation plans at the moment, despite earlier commitments.
Although the government announced a strategy in 2021, it remains undecided regarding PSU disinvestment. The reliance on PSUs for dividends continues, while stake sales are slowly progressing.
