{"id":341364,"date":"2025-06-25T18:27:35","date_gmt":"2025-06-25T12:57:35","guid":{"rendered":"https:\/\/forumias.com\/blog\/?p=341364"},"modified":"2025-06-25T18:27:35","modified_gmt":"2025-06-25T12:57:35","slug":"indian-government-redefines-public-sector-strategy","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/indian-government-redefines-public-sector-strategy\/","title":{"rendered":"Indian Government Redefines Public Sector Strategy"},"content":{"rendered":"

Source<\/strong>: The post Indian Government Redefines Public Sector Strategy has been created, based on the article \u201cShifting gear<\/strong>\u201d published in \u201cBusiness Standard <\/strong>\u201d on 25th June 2025<\/p>\n

UPSC Syllabus Topic:<\/strong> GS Paper<\/strong>3-Investment models<\/strong><\/p>\n

Context<\/strong>: The Indian government\u2019s approach to Public Sector Undertakings (PSUs) has changed significantly over the past decade. Initial hopes of privatisation gave way to a strategy focused on using PSUs to drive capital expenditure and economic growth. This shift has had wide-ranging implications for disinvestment, revenue generation, and fiscal planning.<\/p>\n

Disinvestment Trends and Early Expectations<\/strong><\/h2>\n
    \n
  1. Initial Optimism in Disinvestment Policy: <\/strong>The Indian government began with a strong push for disinvestment. Receipts rose from 0.2% of GDP in 2014\u201315 to 0.6% in 2017\u201318<\/strong>, raising hopes for accelerated privatisation.<\/li>\n
  2. Sharp Decline in Receipts Post-2018: <\/strong>After 2017\u201318, disinvestment receipts fell to 0.03% of GDP by 2024\u201325<\/strong>. The decline was sharper than the earlier rise, reflecting a reversal in approach.<\/li>\n
  3. Limited Progress in Privatisation: <\/strong>Despite plans in 2021 to privatise several PSUs, only three \u2014 Air India, Neelachal Ispat, and Ferro Scrap Nigam \u2014 were privatised<\/strong> in the last ten years. Some PSUs, like Rashtriya Ispat Nigam, received new equity instead.<\/li>\n
  4. Shift Toward Value Creation Narrative: <\/strong>The government repositioned PSUs as instruments of value creation<\/strong>, moving away from the earlier disinvestment model which aimed to reduce government ownership in businesses.<\/li>\n<\/ol>\n

    Financial Engagement with PSUs<\/strong><\/h2>\n
      \n
    1. Drop in PSU-Linked Revenue: <\/strong>Combined receipts from disinvestment and dividends fell from 0.45% to 0.25% of GDP<\/strong> over the decade, indicating limited financial returns from PSUs.<\/li>\n
    2. Rising Capital Allocations: <\/strong>Equity and loan support to PSUs rose from 0.54% of GDP in 2014\u201315 to 1.66% in 2024\u201325<\/strong>. This growth far exceeded that seen during the UPA government.<\/li>\n
    3. Support Integrated into Capex Strategy: <\/strong>This funding became a central part of the government\u2019s capital expenditure plan, which doubled from 1.6% to 3.1% of GDP<\/strong> over ten years.<\/li>\n
    4. PSUs Used for Economic Recovery: <\/strong>Higher PSU investment enabled the government to maintain a robust capex push, particularly during the post-Covid growth phase<\/strong>.<\/li>\n<\/ol>\n

      Changing Composition of Capital Expenditure<\/strong><\/h2>\n
        \n
      1. PSU Share in Capex Rose Sharply: <\/strong>In 2014\u201315, PSU-related equity and loans made up 34% of total capex<\/strong> (\u20b967,512 crore of \u20b91.96 trillion). By 2024\u201325, the share rose to 54%<\/strong> (\u20b95.48 trillion of \u20b910.2 trillion).<\/li>\n
      2. Strategic Realignment of Growth Model: <\/strong>Instead of selling PSUs, the government used them as instruments for capital formation and infrastructure development<\/strong>.<\/li>\n
      3. Sustainability Concerns: <\/strong>Future expansion may face limits unless new funding options<\/strong> are explored, as dependence on PSU capitalisation may not be sustainable long-term.<\/li>\n<\/ol>\n

        Fiscal Adjustments and State Support<\/strong><\/h2>\n
          \n
        1. Correction in Revenue Estimate: <\/strong>A previous report wrongly stated a 6% drop in income tax collection. The actual fall in 2024\u201325 was only 1.7% below the revised estimate<\/strong>.<\/li>\n
        2. Shortfall from Negative IGST Receipts: <\/strong>A 2.3% fall in net tax revenue<\/strong> was largely due to negative IGST collections of \u20b932,995.3 crore, caused by excess settlements with states<\/strong>.<\/li>\n
        3. No Recovery from States: <\/strong>The government allowed states to retain this amount, providing them with fiscal space<\/strong> for investments without cutting devolution.<\/li>\n
        4. Savings from Underutilised Allocations: <\/strong>Expenditure was lower due to savings of \u20b925,000 crore (unclaimed grants), \u20b920,000 crore (interest payments), \u20b918,000 crore (scheme savings), and \u20b98,000 crore (unused MSME funds).<\/li>\n<\/ol>\n

          Broader Implications of PSU Strategy<\/strong><\/h2>\n
            \n
          1. Capex Growth Without Revenue Gains: <\/strong>The government increased capital spending without matching revenue growth, relying on PSU support rather than disinvestment<\/strong>.<\/li>\n
          2. PSUs Central to Growth Revival: <\/strong>This strategy was crucial to post-pandemic recovery, despite low direct returns.<\/li>\n
          3. Need for New Financing Tools: <\/strong>Sustaining future growth will require broadening funding sources<\/strong> or strengthening PSU balance sheets further.<\/li>\n<\/ol>\n

            Question for practice: <\/strong><\/p>\n

            Examine how the Indian government’s changing approach to Public Sector Undertakings has influenced its capital expenditure strategy over the past decade.<\/p>\n","protected":false},"excerpt":{"rendered":"

            Source: The post Indian Government Redefines Public Sector Strategy has been created, based on the article \u201cShifting gear\u201d published in \u201cBusiness Standard \u201d on 25th June 2025 UPSC Syllabus Topic: GS Paper3-Investment models Context: The Indian government\u2019s approach to Public Sector Undertakings (PSUs) has changed significantly over the past decade. Initial hopes of privatisation gave… Continue reading Indian Government Redefines Public Sector Strategy<\/span><\/a><\/p>\n","protected":false},"author":10320,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230],"tags":[10503,216,8184],"class_list":["post-341364","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","tag-business-standard","tag-gs-paper-3","tag-indian-economy","entry"],"jetpack_featured_media_url":"","views":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/341364","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10320"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=341364"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/341364\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=341364"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=341364"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=341364"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}