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Public Sector Enterprises and Disinvestment

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Public Sector Enterprises and Disinvestment

Public Sector Enterprises (PSEs)

Public Sector Enterprises are companies owned fully or partially by the government. They play a critical role in India’s economic development, especially in strategic sectors like energy, defence, and infrastructure.

Classification of PSEs

1. Central Public Sector Enterprises (CPSEs)

  • Owned and managed by the Central Government.
  • Examples: ONGC, BHEL, Coal India, Indian Oil.

2. State Public Sector Enterprises (SPSEs)

  • Owned and managed by State Governments.
  • Examples: Gujarat State Fertilizers & Chemicals Ltd, Maharashtra State Electricity Board.

3. Public Sector Banks (PSBs)

  • Commercial banks where the government holds a majority stake.
  • Examples: SBI, Bank of Baroda, PNB.

Role of PSEs in India

  • Infrastructure creation – Railways, power plants, steel plants.
  • Employment generation – Direct and indirect employment.
  • Balanced regional development – PSEs set up in backward areas.
  • Revenue generation – Through dividends and taxes.

Challenges Faced by PSEs

  • Operational inefficiency – Bureaucratic processes and lack of innovation.
  • Overstaffing – Political interference in hiring.
  • Financial losses – Several PSEs operate at losses.
  • Global competition – Struggle to compete with private and global firms.

Disinvestment – Meaning and Objectives

Disinvestment refers to the government selling its stake in PSEs, either partially or fully, to private players, institutions, or the public.

Objectives

  1. Reduce fiscal burden – Raising funds to meet fiscal deficit.
  2. Improve efficiency – Bringing private expertise.
  3. Widen ownership base – Encouraging public participation in ownership.
  4. Focus government role – Limit state role to strategic sectors.

Types of Disinvestment

  1. Minority Disinvestment
    • Government retains majority control.
    • Example: LIC IPO (2022).
  2. Strategic Disinvestment
    • Transfer of management control to private sector.
    • Example: Sale of Air India to Tata Group.
  3. Complete Privatisation
    • Government exits entire ownership.

Disinvestment Policy Post-1991

  • Focus shifted from revenue generation to efficiency improvement.
  • Strategic disinvestment gained traction in non-core sectors.
  • NITI Aayog identifies candidates for strategic sale.
  • Key sectors like defence, atomic energy, and railways remain under state control.

Recent Initiatives

  • National Monetisation Pipeline (NMP) – Monetising government-owned infrastructure assets (roads, railways, airports) to raise funds.
  • Air India Privatisation (2021) – Complete transfer of ownership to Tata Group.
  • LIC IPO (2022) – Largest-ever IPO, raising over ₹20,000 crore.

Statement-based MCQs

MCQ 1
Consider the following statements regarding Public Sector Enterprises (PSEs):

  1. All PSEs are fully owned by the government.
  2. PSEs play a crucial role in infrastructure development.
  3. Public Sector Banks are excluded from the category of PSEs.

Which of the statements given above is/are correct?
a) 1 and 2 only
b) 2 only
c) 2 and 3 only
d) 1, 2 and 3

Tap here for Answer
Answer: b) 2 only
Explanation:

  • Statement 1 is incorrect — Many PSEs are partially owned by the government (minority disinvestment).
  • Statement 2 is correct — PSEs contribute significantly to infrastructure development.
  • Statement 3 is incorrect — Public Sector Banks (PSBs) are also part of PSEs.

MCQ 2
Which of the following correctly describes strategic disinvestment?
a) Sale of only minority shares in PSEs to private investors.
b) Transfer of management control along with majority stake to private entities.
c) Selling loss-making PSUs to foreign governments.
d) Partial sale of shares to employees of PSEs.

Tap here for Answer
Answer: b) Transfer of management control along with majority stake to private entities.
Explanation:

  • Strategic disinvestment involves handing over management control, unlike regular minority disinvestment.

MCQ 3
Which of the following is/are objectives of the National Monetisation Pipeline (NMP)?

  1. Raising resources for infrastructure development.
  2. Enhancing private sector participation in asset management.
  3. Divesting entire ownership of public sector enterprises.

Select the correct answer using the code below:
a) 1 and 2 only
b) 2 and 3 only
c) 1 only
d) 1, 2 and 3

Tap here for Answer
Answer: a) 1 and 2 only
Explanation:

  • NMP focuses on leasing public assets (like roads, ports) to private players, not complete disinvestment of PSEs.

MCQ 4
Which of the following PSEs was completely privatised by the Government of India in 2021?
a) Bharat Petroleum Corporation Ltd (BPCL)
b) Air India
c) Coal India
d) Life Insurance Corporation of India (LIC)

Tap here for Answer
Answer: b) Air India
Explanation:

  • Air India was fully transferred to Tata Group in 2021.
  • BPCL’s strategic sale is still pending.
  • LIC underwent partial IPO (minority disinvestment).

MCQ 5
Which entity is responsible for recommending PSEs for strategic disinvestment in India?
a) Reserve Bank of India
b) Securities and Exchange Board of India
c) NITI Aayog
d) Ministry of Labour

Tap here for Answer
Answer: c) NITI Aayog
Explanation:

  • NITI Aayog identifies PSEs for strategic disinvestment, while final approval comes from the Cabinet Committee on Economic Affairs (CCEA).

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