With the Union Budget approaching, the performance and future role of public-sector enterprises (PSEs) have once again come into focus. Far from the stereotype of inefficiency, India’s central public-sector enterprises (CPSEs) have undergone a significant transformation over the last decade—emerging as profitable, investment-driven, and strategically relevant actors in the economy. This shift reflects both global trends and India’s own recalibration of the state’s role in production and markets.
Why PSEs are being rethought globally
Across the world, the decline of centralised economic planning has not meant the retreat of the public sector, but its reconfiguration. Governments have sought to improve efficiency, governance, and accountability in state-owned firms rather than dismantle them. According to the OECD, by 2023, public entities owned over a quarter of listed companies globally, accounting for nearly 12% of total market capitalisation. Reforms have focused on listing enterprises, professionalising management, strengthening corporate governance, and, more recently, positioning PSEs as leaders in the low-carbon transition.
India’s New PSE Policy and strategic clarity
In India, this shift was formalised through the 2020 New PSE Policy under the Atmanirbhar Bharat framework. The policy clearly demarcates sectors into strategic and non-strategic categories. In non-strategic sectors, the government has chosen to minimise its presence. In strategic areas—such as defence, energy, space, and infrastructure—it retains a limited number of CPSEs, while encouraging private participation. This approach reflects a move away from blanket state ownership towards selective, purpose-driven intervention.
A decade of financial turnaround in CPSEs
The financial performance of CPSEs over the last ten years underscores the impact of these reforms. The number of profit-making CPSEs rose sharply, while loss-making enterprises declined. Aggregate profits more than doubled between FY15 and FY25, alongside a substantial rise in paid-up capital and net worth. Market confidence is evident in stock market performance: listed CPSEs have outperformed broader indices, and their combined market capitalisation has tripled over the decade.
Equally important is their fiscal role. CPSEs’ contribution to the central exchequer has more than doubled, reinforcing their relevance not just as service providers but as revenue generators.
Investment engines in a slowing private cycle
Non-financial CPSEs have played a stabilising role in India’s investment cycle. Gross capital formation by these enterprises has grown steadily, supporting demand in core sectors such as energy, transport, and heavy industry. Notably, CPSEs have emerged as a net-saving sector, financing much of their capital expenditure internally and reducing dependence on foreign capital—an often overlooked aspect of macroeconomic stability.
PSU banks and the post-crisis revival
Among financial CPSEs, public-sector banks stand out for their dramatic turnaround after the twin balance sheet crisis. Bank consolidation, improved governance, and technology adoption have translated into record profitability, healthier balance sheets, and improved returns on assets and equity. This revival has strengthened credit delivery and restored confidence in the public banking system, which remains central to India’s financial architecture.
Exports, defence, and global footprint
CPSEs are no longer inward-looking entities. Their contribution to exports has expanded, particularly in defence, engineering, and commodities. Defence exports touching record levels reflect both indigenisation and growing global competitiveness. Indian oil PSUs have also built a substantial overseas presence, with assets spread across multiple continents—enhancing energy security while integrating India more deeply into global value chains.
Green transition and technological leadership
The evolving role of public enterprises is also visible in the green transition. While not a CPSE by definition, Indian Railways illustrates the broader trend. Large-scale electrification, renewable energy integration, and successful trials of hydrogen-powered coaches signal how public entities can drive decarbonisation at scale—often faster than fragmented private efforts.
Challenges ahead for public enterprises
Despite the progress, challenges remain. Rapid technological change demands continuous skill upgradation and higher R&D spending. Market competition will intensify, and global energy and trade transitions will test the adaptability of CPSEs. Moreover, while central-level reforms have delivered results, similar momentum is largely absent at the State PSE level, where transparency and governance gaps persist.
Why this matters for the Budget debate
As the Union Budget approaches, CPSEs represent more than balance-sheet entries. They are instruments of investment, fiscal support, strategic autonomy, and green transformation. Budgetary decisions on capital infusion, dividends, disinvestment, and governance reforms will shape whether this decade-long turnaround is consolidated or stalls.
What to note for Prelims?
- 2020 New PSE Policy and sectoral classification.
- Rising profitability and market capitalisation of CPSEs.
- Role of CPSEs in capital formation and national savings.
- Turnaround of PSU banks post twin balance sheet crisis.
What to note for Mains?
- Evaluate the changing role of CPSEs in India’s economic strategy.
- Discuss the impact of PSE reforms on investment and fiscal stability.
- Analyse the contribution of public enterprises to exports and energy security.
- Examine the need for extending PSE reforms to the State level.
