Pros and Cons of Privatization of PSU (Public Sector Undertakings)

Table of Contents

What is PSU

Everyone must have heard the word PSU. PSU stands for “Public Sector Undertaking”. In general, we can say that a PSU is an enterprise in which the majority of the stocks (more than 50%) are owned by the Central Government, State Government or Union Territory Government or more than one of them together. PSU or Public Sector Undertakings are also called Public Sector Enterprises. Currently India has about 300 PSUs working under the control of the Government.

Classification of PSUs

The PSUs can be classified into three categories as given;

CPSEs

CPSEs (Central Public Sector Enterprises) are the enterprises which share 51% or more stocks with Central Government or other CPSEs.

PSBs

PSBs (Public Sector Banks) are the Banks which works under the control of the Central Government or other PSB and share 51% or more stocks with them.

SLPEs

SLPEs (State Level Public Enterprises) are the enterprises working under the control of State Government or other SLPEs and share 51% or more stocks with them.

Status of PSUs

As we have discussed earlier that there are almost 300 PSUs at the time working in India. The work performance and efficiency of every PSU is different from the others. So the government has provided four statuses of the PSUs falling under which they are provided different advantages and they have to achieve the given parameters to be eligible for them. The four statuses are being provided below respective to their ranks:

Maharatna

It is the highest status of PSUs. To gain the status of Maharatna, a PSU must fulfil the following criteria and gets benefits as follows:

The status of Maharatna is a promotion of a PSU from Navaratna.
The PSU must have the average turnover of ₹ 20,000 crore per annum for the last three years.
The company must have the average annual worth of ₹ 10,000 crore for the last three years.
The enterprise must also have the average annual profit of ₹ 2500 crore during the last three years.
The Maharatna PSUs are provided the power to expand their operations and increase their investments up to ₹ 5000 crore.
They can decide their investment up to 15% of their net worth in a project.

Navaratna

Navaratna is the second highest status given to any PSU in this criterion. It is like a promotion from its lower status Miniratna category 1 to Navaratna. An enterprise needs to secure at least 60 out of 100 marks to be eligible for this status. The marks are given according to six parameters which are discussed below with the benefit of Navaratna status in the last:

Net worth or net profit is given maximum 25 marks
Inter-Sectoral comparison based on Net profit to net worth is given 20 marks
Manpower, Production and Services are given maximum 15 marks
Turnover is given maximum 15 marks
Gross Margin on Capital employed is given maximum 15 marks
Earnings from each shares is given 10 marks
Navaratna can increase their investments up to ₹ 1000 crore.

Miniratna 1

Miniratna category 1 is the 3^rd highest status given to any PSU. The PSU getting profits continually for last 3 years and having a positive net worth during the same period is considered to be eligible for Miniratna status of category 1 and 2. The condition for Miniratna 1 is as follows:

In the last 3 years, the PSU must have gained profit continuously.

Must have gained the profit of at least ₹ 30 crore in one of the last 3 years.
Miniratna 1 has the power to invest up to ₹ 500 crore.

Miniratna 2

Miniratna 2 is lowest status of a PSU under these categories. This status puts the condition as follows:

The PSU must have made profit continuously for the last three years.
The company should also have a positive net worth during the given period.
The PSU under this status can invest up to ₹ 300 crore in a project.

Some PSUs with their Categories

Among the 300 PSUs (or CPSEs), here are some important PSUs with their status given below:

Maharatna PSUs

National Thermal Power Corporation (NTPC)
Bharat Heavy Electricals Limited (BHEL)
Gas Authority of India Limited (GAIL)
Indian Oil Corporation Limited (IOCL)
Bharat Petroleum Corporation Limited (BPCL)

Navaratna PSUs

Power Grid Corporation of India Limited (PGCIL)
Oil India Limited (OIL)
Bharat Electronics Limited (BEL)
Hindustan Petroleum Corporation Limited (HPCL)
National Aluminium Company (NALCO)

Miniratna 1

Airports Authority of India (AAI)
Bharat Sanchar Nigam Limited (BSNL)
South Eastern Coalfields Limited (SECL)
Indian Railway Catering and Tourism Corporation (IRCTC)
India Tourism Development Corporation (ITDC)

Miniratna 2

Rajasthan Electronics & Instruments Limited
Central Mine Planning and Design Institute
National Film Development Corporation of India (NFDC)
Bharat Pumps & Compressors (BPC)
Ministry of new and renewable energy (MNRE) and Solar Energy corporation of India Ltd (SECI)

Privatization of PSUs

The privatization of any organisation mainly refers to transferring the power of authority from Government to the Private hands. If same happens in the case of PSUs then it is called the privatization of PSUs.

The Public Sector Undertakings are running in India for approximately 58 years but now many renowned personalities of India are suggesting the Indian Government to step up towards the privatization of these PSUs. Yes, the suggestions have started to reach the Government of India yet there has no step been taken towards this concern.

Rationale of Privatization of PSUs

It is obvious that the idea of privatization of many PSUs must not have been arisen instantly but may be the result of many surveys and researches conducted on the concern. Some reasons for the privatization of the PSUs are as follows:

The PSUs spent unnecessary capital in extra activities including wasting time and man-power, like expenditure in Hindi Pakhwada, Vigilance Pakhwada and Swachh Bharat Pakhwada etc.
PSUs are very insensitive to the number of employees and accept the candidates for employment in large numbers. It results to the wastage of money paid as salary.
PSUs are also not concerned about the quality of the services provided and always prefer a long term tender which reduces the quality of services and wastes the time.
The Managements in PSUs always fails to conduct a good relation among employees as the Officers assume themselves the master of the Workmen.
The employees of PSUs are often found irresponsible and they lack of accountability. They also found blaming one another for their faults.
Red-Tapism is the root of the PSUs and that is why it takes long time for any operation to be accomplished.
The PSUs generally don’t acclaim employees according to their performances and the best performer is treated in the same way as a worst or average performer.
PSUs are often managed by the related ministry and Board of directors lose their power which causes failure to the achievements.

So these are the basic reasons, apart from many other reasons, which made the Indian Government to think about the Privatization of the PSUs.

Pros of Privatization of PSUs

The privatization of PSUs is the need of the time and is very necessary for the growth of the nation. The privatization has many strong favours and thus seems to be profitable for the country. Some of the Pros/advantages of privatization of PSUs are as follows:

The PSUs in India are suffering from the problem of inefficiency and privatization would be the best tool to remove this inability.
The privatization of PSUs will reduce the burden of the Government and will also help in generating financial resources.
The privatization will also help in improving the performances of the employees, making them accountable and increasing their efficiency.
The private sectors understand better the value of time and money and so make the optimum utilization of the resources available.
The privatization of PSUs will bring the competitiveness and thus increasing their productivity, it will bring them in the international markets.
The privatization of PSUs will free them from the Governmental and political interference.
Privatization will help in removing the bureaucracy from the Enterprise.

Cons of Privatization of PSUs

Although privatization will bring many positive changes in the economy yes it has some dark side too. None of them can be ignored. Though we have prepared to move towards the privatization, it is very important for us to know its cons and should work in reducing their effects. Some of the disadvantages of privatization of PSUs are as follows:

Although the main goal of privatization is to increase the efficiency of the Enterprise yet the inefficiency at certain extent is found in private organisations too.
As the PSUs works with the motive to social welfare, the private enterprises will be mostly concerned on the profit of the enterprise.
The privatization of PSUs will reduce the opportunity of employment.
It is also seen and is obvious that the employees in private enterprises often become the victim of exploitation.
Also an Industrial dispute is seen in private enterprises which will be obstacle in the smooth run of the enterprise.

So these are some important Pros and Cons of the privatization of a PSU. Neither any Pros nor any Cons can be avoided and Government must think over these points seriously. There are some more Pros and Cons apart from these which can affect the economy.

Conclusion

So we see that the Public Sector Undertakings (PSUs) are a major part of Indian economy. They have been running for a long time in India and are now being captured by some drawbacks. The Government of India has taken serious concerns on them and is planning to privatize the PSUs but before applying the rule of privatization, it must be though if these problems can be removed without privatizing them. If the answer is ‘Yes’ then I think improving the services of PSUs is a better way than privatization.

Related Information:

Pros and Cons of Privatization

Pros and Cons of Privatization of Indian Railway

Pros and Cons of Privatization of BALCO

Pros and Cons of Privatization of Banks

Pros and Cons of Privatization of VSNL