BAJAJ BROKING
June 13, 2025
4 mins read
Public Sector Undertakings (PSUs) are an essential component of India's industrial and economic landscape. The government-owned companies play their role in every sector like energy, banking, defence, transportation, and manufacturing. Indian public sector undertakings have developed over decades to serve economic objectives, fill infrastructure gaps, and offer jobs.
India's mixed economy model includes both public and private players. Within this structure, PSUs hold a distinct place due to their scale and role in ensuring the availability of essential services and goods. Many of these undertakings were established to develop core industries and reduce dependency on imports.
Although the landscape of PSUs has changed due to liberalisation and privatisation efforts, they continue to contribute in multiple ways to India’s economy. With government oversight and public accountability, they function across critical sectors where private investment may be limited or inconsistent.
Public sector undertakings refer to companies owned wholly or partially by the Government of India or individual state governments. These undertakings operate as commercial entities but differ from private enterprises due to government ownership and control.
Public sector undertakings means enterprises where the majority stake (51% or more) is held by the government. These enterprises may be statutory corporations, departmental undertakings, or government companies formed under the Companies Act.
PSUs are structured to achieve social and economic objectives, often undertaking projects that may not offer immediate financial returns but are significant for national development. Over the years, many PSUs have transitioned into listed companies, offering shares to the public while maintaining government control.
Public sector undertakings in India fall under various ministries and departments, depending on the industry they operate in. Their governance includes oversight by boards, audits by statutory bodies, and evaluations by parliamentary committees, ensuring transparency and accountability in their functioning.
Public sector undertakings are classified based on their financial performance, investment capacity, and operational autonomy. The classification helps in determining the level of decision-making authority and flexibility granted by the government.
Classification | Criteria | Examples |
Maharatna | Must be listed on a stock exchange and have a Navratna status. Should record a net profit of over ₹5,000 crore for three consecutive years, an average annual net worth of ₹15,000 crore, and a turnover of ₹25,000 crore. | ONGC, NTPC, IOCL |
Navratna | Should have a Miniratna Category I status and score at least 60 out of 100 in performance indicators. Must have a positive net worth and profitability for the last three years. | BEL, Hindustan Aeronautics Ltd, Shipping Corporation of India |
Miniratna Category I | Must have made profits for the last three consecutive years and a positive net worth. Can invest up to ₹500 crore or equal to their net worth, whichever is lower, without government approval. | Airports Authority of India, BSNL |
Miniratna Category II | Must have made profits for the last three years and have a positive net worth. Allowed to invest up to ₹300 crore or 50% of their net worth, whichever is lower. | MECON, Projects & Development India Ltd |
This classification allows operational freedom while ensuring compliance with policy and governance frameworks.
Public Sector Undertakings (PSUs) play a crucial role in addressing infrastructure deficits across various sectors like energy, transportation, and communication, enabling economic growth and improved living standards.
PSUs are significant contributors to employment in India, offering both skilled and unskilled job opportunities. They provide stable employment and promote skill development.
By establishing units in underdeveloped regions, PSUs help foster economic activity in rural and backward areas, reducing regional disparities and promoting balanced development across the country.
PSUs support the ‘Make in India’ initiative by focusing on domestic production. They reduce the country’s reliance on imports, strengthening self-sufficiency and boosting the domestic manufacturing sector.
PSUs are instrumental in stabilizing prices of essential goods and services, especially in sectors like petroleum, food, and utilities, ensuring affordability and availability to the general population.
PSUs invest in research and development (R&D) to advance technologies and improve efficiency in critical industries, such as defence, energy, and telecommunications. This encourages innovation and technological advancement.
PSUs play a key role in disaster management and public welfare initiatives, providing essential services like food, water, healthcare, and infrastructure during emergencies, thus supporting the well-being of citizens.
In conclusion, PSUs are integral to India’s economic development by contributing to infrastructure, employment, regional development, self-reliance, price stability, innovation, and public welfare.
Brings stability and ensures continuity of operations even during economic downturns.
Important sectors like defence, energy, and railways remain under state supervision.
Projects often prioritise broader socio-economic goals over short-term profitability.
Investments in core sectors contribute to the country’s industrial base.
PSUs offer job opportunities to a diverse section of society.
Units are often set up in less-developed regions to promote equitable development.
PSUs engage with small and medium enterprises through procurement and vendor development.
Efficient use of natural and human resources for large-scale operations.
Profitable PSUs contribute to the national exchequer through taxes and dividends.
Act as vehicles for executing government economic and social policies.
Indian Oil Corporation Limited (IOCL) stands as one of the largest and most significant Public Sector Undertakings (PSUs) in India. It plays a pivotal role in the country’s oil and gas sector, contributing to the economy through its extensive operations. Established in 1959, IOCL is primarily engaged in refining, pipeline transportation, and the marketing of petroleum products. The company is integral to meeting the country’s energy needs by ensuring the supply of fuel for transportation, cooking, and industrial purposes.
IOCL operates a vast network of refineries, which are spread across key locations in India. These refineries produce a wide range of products, including petrol, diesel, and liquefied petroleum gas (LPG). The company also manages a significant network of pipelines, ensuring efficient transportation of these products across the nation. By maintaining strategic petroleum reserves, IOCL contributes to India's energy security, helping the country mitigate risks associated with global supply disruptions.
In addition to its core activities, IOCL is also involved in several government initiatives. These include promoting the use of clean fuels and supporting the distribution of LPG to rural and underserved regions under the Pradhan Mantri Ujjwala Yojana. This initiative aims to provide clean cooking fuel to millions of households, improving the health and well-being of citizens.
Other major PSUs in India, such as Oil and Natural Gas Corporation (ONGC), National Thermal Power Corporation (NTPC), and Coal India Limited, also operate in sectors critical to energy generation and industrial production. These companies contribute substantially to the country’s economic development, making the energy sector one of the most vital components of India's growth.
PSUs frequently experience inefficiency owing to bureaucratic processes, resulting in reduced speed of decision making and lagging project implementation.
Several PSUs experience overstaffing, causing increased personnel costs and diminished productivity. It can restrict operational effectiveness in specific units.
Political intervention in decision-making tends to interfere with the autonomy of PSU management, resulting in short-term consideration instead of long-term planning and development strategies.
With the rise of private firms and liberalisation of the economy, PSUs face increased competition, which affects their ability to maintain pricing power and market share.
PSUs, in some sectors, struggle with outdated technology and limited innovation, resulting in slower adoption of new technological advancements compared to their private-sector counterparts.
Several PSUs operate under financial pressure due to ongoing losses, which impacts their sustainability and ability to invest in future growth or modernisation efforts.
Compliance with complex government regulations and audits can lead to delays in project approvals, affecting the timely execution of initiatives and reducing efficiency.
These challenges create barriers that affect the growth and performance of PSUs, which require continuous reforms and effective management to remain relevant and competitive in the evolving market landscape.
Over the last few years, the Indian government has initiated numerous steps to counter the structural and performance issues associated with Public Sector Undertakings (PSUs). These efforts are designed to enhance the efficiency, competitiveness, and sustainability of PSUs in the changing economic environment.
One of the most important initiatives is the Disinvestment Policy, where the government partly or fully sells government holdings in certain PSUs. This policy is meant to enhance operational efficiency through the infusion of private sector know-how and management techniques. This way, the government also hopes to generate funds for development.
Strategic Sale is another crucial step where the government disinvests ownership in non-core PSUs to private players. This strategy ensures that these companies are utilized better and can become more growthful and profitable.
To improve corporate governance, the government has reinforced board supervision, enhanced independence, and imposed rigorous financial disclosure standards. These efforts are intended to enhance transparency and accountability in PSU operations, which will bring them closer to international standards.
The Performance Monitoring program is also essential. Utilizing Memorandums of Understanding (MoUs) to establish yearly targets assists in assessing PSU performance against pre-established benchmarks, keeping them on track towards their objectives.
The government has also emphasized the reduction of dependence on public finance through budgetary allocation reforms. By promoting self-sustainability, PSUs are motivated to create their own sources of revenue for long-term survivability.
Asset monetisation is another important programme, where value is released from under-utilised land and infrastructure assets. This helps to give PSUs the resources needed to invest in more productive fields.
Finally, merger and consolidation efforts seek to form more efficient, powerful units by merging lesser, less competent firms. The strategy enables PSUs to experience economies of scale, lowering their operational expenses as well as administrative costs.
Together, these reforms aim to enhance the financial and operational viability of PSUs, making them more competitive and aligned with the current market dynamics.
Indian Public Sector Undertakings (PSUs) have made a considerable contribution to the growth of the Indian economy, being instrumental in the development of industry, infrastructure creation, and provision of public services. They have been instrumental in the achievement of national goals, particularly in the areas of energy, transport, and manufacturing. PSUs have, however, been facing various challenges such as operational inefficiencies, political interference, and competition in the market. Yet, these reforms are continuously being pursued through disinvestment, strategic sale, and corporate governance reforms to improve their efficiency and financial viability. The fate of PSUs is dependent on how they learn to keep pace with changing market conditions, embrace innovative approaches, and function with increased autonomy and accountability. By positioning their operations in sync with the shifting economic scenario, PSUs can continue to be relevant and contribute to the growth goals of the country.
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A PSU is a company where the government holds a majority stake of 51% or more, operating in various commercial and strategic sectors.
PSUs are classified as Maharatna, Navratna, or Miniratna based on their financial performance and operational autonomy.
Indian Oil Corporation Limited (IOCL) is among the largest PSUs in India in terms of revenue and operational scale.
PSUs contribute to infrastructure, employment, regional development, and policy implementation.
Reforms include disinvestment, strategic sale, governance changes, performance monitoring, and asset monetisation.
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