By Nantoo Banerjee
The government disinvestment in India’s state-controlled enterprises is always welcome if it is aimed to make them professionally managed entities for faster growth. Unfortunately, the haphazard disinvestments in public sector enterprises (PSE) by the government seem to have only a single purpose — financing part of the annual union budget deficit. The practice has been going on for the last several years. New shareholders are mostly other state-controlled entities. They rarely take any active interest in the management of those PSEs. The government continues to control those PSEs. The directors and chief executives of those PSEs are usually there merely to complete their terms to retire at 60. A PSE chief executive is allowed to serve till 62 under exceptional circumstances. The government’s stake dilution in small parts does not bring any change to the PSE management style, including the continuity of top performing executives and CEOs.
During the current financial year, the government is expected to meet only 66 percent of its disinvestment target in PSEs. The disinvestment target for 2025-26 is Rs 47,000 crore, lower than the 2024-25 target of Rs 50,000 crore. The government continues its strategy of not having a separate disinvestment target, instead including it under ‘miscellaneous capital receipts’. The general public is not particularly keen on buying PSE stocks due their low appreciation rate. PSE disinvestment schemes rarely excite the market. There is little change in the operational styles of those PSEs after partial stock disinvestment by the government. In fact, such disinvestments are harming the operation of those PSEs, which were originally set up to strengthen India’s basic industrial environment and help rejuvenate the country’s industrial activities in the private sector.
Ideally, the government stock disinvestments in large PSEs should result in installing professional management to freely run those enterprises, exploiting opportunities for growth and expansion, making their products and services internationally competitive, and improving market share. Most of these PSEs were set up at a time when private entrepreneurs had little surplus funds to launch long-term diversification programmes, especially in basic industries. In the 1960s and 1970s, only a few private enterprises had surplus funds to expand up to a point. Those business houses included the Tatas, the GD Birla group, the Mafatlal Group, Dalmia-Jain Group, Shriram Group, Sarabhai Group, Walchand Group, Scindia Group and MA Chidambaram group. The Dhirubhai Ambani-led Reliance group was the only major new entrant during this period. The Tata Group, Birla Group, and Mahindra Group were considered the most prominent business houses, with diverse interests across industries. However, the real industrial growth push came from giant greenfield PSEs. The latter helped create a new generation of private sector entrepreneurs.
Ironically, agriculture-dependent China in the 1950s and 60s took the cue from India’s pseudo-socialist government’s industrial policy to set up large state-owned enterprises (SOEs) to rapidly boost its economy. Year after year, the government in China invested large amounts of money to build giant SOEs which today perform as the backbone of the world’s second largest economy apart from making it the world’s biggest exporter. As many as 133 Chinese companies, mostly SOEs, were on the 2024 Fortune Global 500 list, which ranks the world’s largest corporations by revenue. In contrast, only nine Indian companies featured in the Fortune Global 500 list, of which five were PSEs. The Indian government’s industrial policy throttled the growth of both the PSEs and private enterprises. Today, China has some 391,000 SOEs. A new analysis of state ownership among all 40 million registered firms in China shows that 363,000 firms are 100 percent state-owned, 629,000 companies are 30 percent state-owned, and nearly 867,000 firms have smaller state stakes. All Chinese SOEs are run professionally with focus on international competitiveness.
The Chinese SOEs play a crucial role in driving China’s industrial growth, infrastructure development, and overall economic stability by controlling key sectors like energy, telecommunications, and finance, even though there are ongoing efforts to increase private sector participation. The SOEs account for a substantial portion of China’s GDP. Several of them rank as some of the world’s biggest corporations by revenue. The SOEs are used to prioritize development in key sectors deemed vital to the national economy, such as high-tech industries, aerospace, and renewable energy. The SOEs are often seen as China’s economic stabilizing force, providing consistent investment even during economic downturns. China’s state-owned enterprises are significant employers, providing jobs for a large portion of the Chinese workforce.
On the contrary, the India government shows little exuberance about the performance of its PSEs and the role they play in the national economy. It does not seem to be concerned about their underperformance. For instance, the government-controlled Coal India (CIL), accounting for about 90 percent of the country’s coal production, has remained an underperformer for years like several other major PSEs. India, boasting the world’s fifth largest coal reserves, continues to be a major coal importer, mostly by private parties. One such Indian private enterprise even operates coal mines in Australia and exports coal to India. This is despite the fact that India accounts for 9.5 percent of the world’s proven coal reserves. The government holds around 66.13 percent in CIL. However, that has not changed the company’s management style. The country’s state-controlled coal mining behemoth since 1975 operates through 10 subsidiaries in 84 mining areas across India’s eight states. It had some 229,000 employees as of last July, after getting rid of nearly 12,000 workers in the two previous years. India’s coal production continues to be below one billion tonnes as against China’s output of 4.8 billion tonnes in 2024.
India has 389 Central Public Sector Enterprises (CPSEs) and their subsidiaries. They include Indian Oil Corporation, Bharat Petroleum, Hindustan Petroleum, NTPC Limited, National Hydroelectric Power Corporation, and Rural Electrification Corporation. Its wholly-owned defence undertakings include Munitions India Limited, Armoured Vehicles Nigam, and Advanced Weapons and Equipment India Limited. It is for the government to decide its holding pattern in PSEs. Ideally, it should hold a simple majority stake of 51 percent in non-defence or non-strategic PSEs. The board of directors of such PSEs must have all professional members, including government representatives who are not serving bureaucrats. One of the key objectives should be to make such PSEs world class enterprises with focus on exports. If necessary, they may be offered protection against import dumping under specific circumstances. In due course, such PSEs together can help boost the country’s GDP growth beyond eight percent per year. (IPA Service)
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