By Nantoo Banerjee
The Indian government’s approach to disinvestment in state-controlled enterprises is generally positive when it aims to transform them into professionally managed entities that can achieve faster growth. However, the current disinvestment activities appear to be mismanaged, primarily serving to fill gaps in the annual union budget deficit. This trend has persisted for several years, with new shareholders often being other state-controlled entities that show little interest in actively managing the Public Sector Enterprises (PSEs). As a result, government oversight continues, and the directors and chief executives of these PSEs often remain in their roles temporarily until retirement at age 60, or 62 in exceptional cases. This minor reduction of government stakes fails to alter the management approach or ensure the retention of high-performing executives.
In the current financial year, the government is projected to achieve only 66% of its disinvestment targets for PSEs. The disinvestment goal for 2025-26 is set at Rs 47,000 crore, lower than the Rs 50,000 crore target for 2024-25. The administration has opted not to establish a distinct disinvestment target, instead including such efforts in ‘miscellaneous capital receipts’. Furthermore, the general public displays a lack of enthusiasm for investing in PSE stocks due to their low appreciation rates. Disinvestment initiatives rarely generate excitement in the market, and operational practices within these enterprises remain unaffected, negatively impacting their original intention of enhancing India’s industrial framework and invigorating private sector activity.
Ideally, the government’s strategic divestment in large PSEs should facilitate the establishment of professional management, enabling growth and expansion while enhancing the competitiveness of their products and services on an international scale. During their inception, many of these PSEs were launched at a time when private entrepreneurs had limited financial resources to diversify in basic industries. In the 1960s and 1970s, only a handful of prominent business houses, like the Tatas and the Birla group, had the necessary surplus to pursue expansion. What truly drove industrial growth during that era was the establishment of significant greenfield PSEs, which subsequently fostered a new wave of private sector entrepreneurship.
Interestingly, in the 1950s and 60s, agriculture-dependent China drew inspiration from India’s socialist government policies to establish large state-owned enterprises (SOEs) that would quickly boost its economy. China invested significantly year after year into developing its SOEs, which are now integral to its status as the world’s second-largest economy and leading exporter. In 2024, 133 Chinese companies, mostly SOEs, were featured on the Fortune Global 500 list, while only nine Indian companies made the list, five of which were PSEs. The restrictive industrial policies of the Indian government have stunted the growth of both PSEs and private enterprises. Today, China boasts around 391,000 SOEs, with many operated professionally and focused on maintaining international competitiveness.
Chinese SOEs are pivotal in driving the country’s industrial expansion, infrastructural growth, and economic stability, controlling essential sectors such as energy, telecommunications, and finance, even as there is a push for increased private sector involvement. They contribute significantly to China’s GDP and include some of the world’s largest corporations by revenue. The SOEs are positioned to prioritize developments in sectors critical to national interest, including high-tech industries and renewable energy, and are viewed as stabilizing forces in China’s economy, ensuring consistent investment even during downturns. Moreover, these enterprises are substantial employers, providing jobs to a significant portion of China’s workforce.
In stark contrast, the Indian government exhibits a lack of enthusiasm regarding the performance and potential of its PSEs in the national economy, seemingly indifferent to their persistent underachievement. Take, for example, Coal India Limited (CIL), which accounts for approximately 90% of the country’s coal production but has struggled with performance challenges like many other major PSEs. Despite sitting on the world’s fifth-largest coal reserves, India remains a substantial coal importer, with private companies even managing coal mines abroad and exporting coal back to India. CIL, which the government holds about 66.13% of, has not seen significant changes in management style. Operating through 10 subsidiaries across 84 mining areas in eight states, it had around 229,000 employees as of last July, having reduced its workforce by nearly 12,000 over the preceding two years, while coal production remains below one billion tonnes compared to China’s output of 4.8 billion tonnes in 2024.
India has 389 Central Public Sector Enterprises (CPSEs) and their subsidiaries, including well-known entities like Indian Oil Corporation, Bharat Petroleum, Hindustan Petroleum, NTPC Limited, the National Hydroelectric Power Corporation, and the Rural Electrification Corporation. The government must decide its holding strategy in these enterprises. Ideally, it should maintain a simple majority stake of 51% in non-defence or non-strategic PSEs, ensuring that their boards comprise solely professional members, excluding serving bureaucrats. A critical aim should be to elevate these PSEs to world-class status with a focus on exports, potentially providing protection against import dumping when necessary. Ultimately, these PSEs could significantly enhance India’s GDP growth, driving it beyond 8% annually. (IPA Service)
