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The integration of the Indian economy with global markets resulted in several challenges and concerns. These challenges act as impediments in the growth of public sector enterprises and come in the way of competing space with other private entities. Since their inception, public enterprises have been bereft of proper autonomy and authority to make investments and acquisitions whether in India or overseas. Few of the major challenges and concerns facing these public sector enterprises especially Central PSUs have been discussed below:

• Multiple Principles: Most Central PSUs these days are being plagued by multiple principles and multiple goals often resulting in conflicting situations for these enterprises. The outcome of these conflicting principles and goals lead to the public sector enterprises being unable to ascertain the outcome. Conflicting goals often result in affecting overall performance of the organization.
• Broad based decision making structures: More often than not, the decision making structures in Central PSUs are broad based, resulting in people working at cross purposes owing to lack of proper coordination and a common objective. The principle of profit maximization takes a backseat while vested interests seem to take over.
• Problem of untapped talent: PSUs were established with the purpose of absorbing surplus labour while reducing unemployment rates in the country. However, owing to stringent recruitment practices that are filled with old-school thoughts and political interventions, these enterprises lost their sheen compared with their private counterparts who despite lacking size and might of such enterprises, end up in moving ahead in recruiting the country’s best minds. Moreover, lack of transparency in the entire recruitment process stops students from top educational institutes from applying for these government posts.
• Private sectors steer ahead in terms of compensation structure: On the back of economic liberalization and movement of compensation structures from socialist regimes, the differentials between the public sector and their corporate counterparts is widening. If this disparity is not controlled, the private sector will continue to draw all the talent and public sector enterprise would be left high and dry. Despite the sixth pay commission being implemented, there is still not enough parity between the compensation structures prevalent in the public sector and their private sector counterparts.
• Inadequate implementation of quantitative performance metrics: Performance measurement of the past years, such as linking financial parameters with operational efficiency led to deterioration of liability. As a result, public sector enterprises find it difficult to compete with private sector companies, whose processes are better aligned. Owing to this, the opportunities available to this sector have become constricted.
• Lack of autonomy in decision making: Public sector enterprises have always suffered due to lack of autonomy. Initially, delegation of powers was restricted. Consequently, when the Indian economy opened up in the early nineties, such companies were caught off-guard and lost out on several opportunities of expansion both within the country as well as overseas. The need of the hour was to divest more by granting more financial and operational autonomy to the top management in decision making. Creating Maharatnas and Navratnas was one such step towards creating greater autonomy.

Policies governing the Indian public sector

• The Indian government passed the Industrial Policy Resolution 1948 that outlined the importance of the economy and its continuous growth in production and equitable distribution. In this process, the policy envisaged active engagement of the State in development of industries. The resolution stipulated that in addition to arms and ammunition, atomic energy and railway transport, which continued to be government monopoly, the State would exclusively be responsible for establishment of new enterprises in six basic industries - except the industries where in the national interest, private sector participation and cooperation could be allowed.
• The public sector in India assumed a strategic role in the Indian economy after the introduction of the Industrial Policy Resolution 1956. The public sector was built over massive investments over the past five decades. Enterprises that came into existence under this regime expanded their production successfully, explored newer areas of technology and build reserves of technological competence in number of areas. Moreover, after the initial investments by the government in important infrastructure areas, public enterprises expanded to all areas of the economy, which included non-infrastructure areas and non-core areas.
• The Industrial Resolution Policy 1956 also classified industries into three categories with respect to the role played by the State; the first category (Schedule A) included industries whose future development would be the exclusive responsibility of the State; the second (Schedule B) category included enterprises whose initiative of development would principally be driven by the State, but private participation would be allowed to supplement the efforts of the State, and the third category included the remaining industries, which would be left to the private sector. In 1969, the government nationalised 14 major banks.
• The Industrial Licensing Policy 1970 placed certain restrictions on undertakings belonging to large industrial houses defined on the basis of assets exceeding Rs 350 mn. In 1973, the definition of large industrial houses was adopted in conformity with that of the Monopolies and Restrictive Trade Practices Act (MRTPA) 1969 and included companies whose assets exceeded Rs 200 mn. This move intended to provide the government more effective control on concentration of economic power.
• The Industrial Policy 1977 provided greater interaction between agriculture and industrial sectors. The Industrial Policy Statement of July 1980 spelt out major policy initiatives such as XVIII optimum utilisation of installed capacity, correction of regional imbalances, high employment generation, promotion of economic federalism, and more importantly, focused on reviving efficiency of public sector enterprises through a time-bound programme of corrective action on a unit-by-unit basis.
• The next major policy initiated by the government was the announcement of the Statement on Industrial Policy in July 1991. This statement consisted of the following strategic decisions:
1. The entire portfolio of investments made in the public sector was to be reviewed with an aim to focus on sectors of strategic importance, sectors that were technologicallyadvanced and essential infrastructure sectors.
2. Reservations were retained for the public sector to a certain extent, albeit, without any restraint on area of exclusivity to be opened up selectively to the private sector.
3. The public sector was allowed entry into areas in which no reservations were made for it.
4. Sick public enterprises that are unlikely to be turned around were referred to the Board for Industrial and Financial Reconstruction (BIFR) and other such institutions that were created for the same purpose.
5. Interest of workers likely to be affected by rehabilitation packages were kept in mind through social security mechanisms created for this purpose alone.
6. Greater thrust was laid on performance improvement through MoUs signed between the government and enterprises.
7. The boards of these enterprises were given wider powers.

The above statement of Industrial Policy brought in fundamental changes in the MRTP Act as well. From 17 industries exclusively reserved for the State in 1956, the statement in 1991 revised the priority of the public sector to four major areas - essential infrastructure goods and services, exploration and exploitation of oil and mineral resources, technology development and building of manufacturing capabilities in areas that are crucial for long-term development of the economy and where private sector investment is inadequate, and manufacturing products where strategic considerations predominate, such as defence equipment.

At the commencement of the First 5-year plan (April 1951), there were five public sector enterprises with an investment of Rs 290 mn that rose to 246 with an investment of Rs 1,354 bn by the end of the Eighth 5-year plan (April 1992) period.