1. Prologue
  2. [Act 1] PSU Classification
    1. Classification #1: where they operate?
    2. Classification #2: How they were born?
  3. [Act 2] Disinvestment
    1. National investment fund (NIF-2005)
  4. [Act 3] CPSE-ETF Exchange traded fund
    1. How is CPSE ETF different from Mutual funds?
  5. [Act 4] Various “Ratna” for PSU


Economic Survey Ch.9 Industrial performance. Four subparts:

  1. Industries, Acts, Policies, excise and customs duty
  2. PSUs, Disinvestment, CPSE-ETF
  3. Companies Act 2013
  4. MSME sector

cover Economic Survey PSU

[Act 1] PSU Classification

Classification #1: where they operate?
  1. Arms, Ammunition, defense equipment
  2. defense air-crafts and warships
  3. Atomic Energy (except nuke energy for agriculture, medicine and non-strategic industries)
  4. Railways transport
Those who are not under “Strategic” category


Classification #2: How they were born?
ONGC, SAIL, Coal India ltd etc. LIC, Air India, IDBI, UTI etc.
registered under companies act, Government owns >50% shares setup under an act of parliament /Vidhan Sabha
Government decides majority of the board of directors. (independent directors will have to be appointed as per Companies Act 2013) Government decides ALL Board of directors. the independent director provision under Companies act doesn’t apply
Audit by CAG appointed private auditors. (with term limits as per Companies Act 2013) CAG directly audits using his own staff (some exceptions to certain large corporations).
  • Their Employees are not “public servants” or “Government employees”.
  • Their disciplinary rules, salary-pension benefits are separate from Government employees.
RTI applies same
Dept. of public enterprises (under Heavy ministry) acts as nodal agency same
Their top executives are selected by Public sector enterprises selection board (PSEB) under personnel ministry. same

What about Railways and Postal department?

Viewpoint #1:

  • Railways and posts are departmental undertakings.
  • And since all departmental undertakings are “public sector undertakings”, as per the classification given in Laxmikanth (Public Administration book) and NIOS courses.
  • Therefore, railway, posts, also “PSU” or “PSE”.

Viewpoint #2:

Railways and Postal department are not “public sector enterprises” (PSE) or public sector undertaking (PSU) because of the following reasons:

  1. Department of public enterprises has no jurisdiction over them.
  2. Their manpower and finance are directly controlled by respective ministries.
  3. Their top Executives are Group-A Government officers recruited through UPSC civil service exam. [And not through Public sector enterprises selection board (PSEB) under personnel ministry.]
  4. If railway and post were PSUs then parliamentary Committee on PSU would have been examining them.
  5. But railways under parliamentary standing Committee on railways; Postal under parliamentary standing Committee Information Technology.
Names not important except for PSU interviews
Top profit maker Top loss makers
  1. The Oil and Natural Gas Corporation Ltd
  2. National Thermal Power Corporation Ltd
  3. Fertilizer Corporation of India Ltd
  4. Coal India Ltd
  5. Bharat Heavy Electricals Ltd
  1. Bharat Sanchar Nigam Ltd
  2. Mahanagar Telephone Nigam Ltd
  3. Air India Ltd
  4. Chennai Petroleum Corporation Ltd
  5. Hindustan Photo Films Manufacturing Co. Ltd
  • Overall 277 Central public sector enterprises
  • Out of them ~80 loss making.
Problems with PSUs REFORMS TAKEN
  • Overstaffed. can’t hire and fire easily like private companies
Voluntary retirement scheme- VRS
  • APM: Administered pricing mechanism- over coal, steel, cement, fertilizer petroleum products etc.
  • Government began deregulating the prices- example petroleum, steel, cement
  • survey recommends Government to deregulate coal prices as well
Since Government is majority shareholder- constant political interference in board appointments, policy decisions, factory locations, product pricing etc.
  • disinvestment
  • operational flexibility to Miniratna, Navratna and Maharatna PSUs

[Act 2] Disinvestment

Mind the money flow in annual financial statement

Revenue Part: Annual financial statement
(Non-Tax) Receipts Expenditure
  • interest from loans given to PSU
  • dividend from shares owned in PSU
  1. Cost of running the department of disinvestment, Department of Public Enterprises etc.
  2. grants (खेरात) given to PSUs
Capital Part: Annual financial statement
Receipt Expenditure
  1. money earned from selling PSU shares aka Proceeds from disinvestment
  2. when PSU repays loan principal, counted here. (interest payment in revenue reciept)
loans given to PSUs

Current skeleton framework of “disinvestment” comes from UPA-I’s Common Minimum Program

  1. Department of Disinvestment will look after this matter.
  2. We’ll not disinvest from “strategic” Public sectors viz. arms, ammunition, defense equipment, railways and atomic energy.
  3. We’ll not privatize the profit making PSU. Government will control atleast 51% shareholding in them
  4. We’ll not disinvest Navratna PSU
  5. We’ll close / sell off the loss making PSUs, with adequate compensation to workers.
  6. We’ll setup Board for reconstruction of public sector enterprises (BRPSE) + National investment fund.

National investment fund (NIF-2005)

  • Disinvestment = when Government sells its shares of Public sector undertaking.
  • Obviously, Government would earn ‘money’ from this share-selling.
  • This money doesn’t go into Consolidated Fund Of India
  • It goes to National investment fund (under Public accounts of India), therefore, outside parliament control.
  • Three fund managers look after NIF viz. UTI, LIC and SBI
From NIF, money goes into
75% into sarkaari schemes- MNREGA, health education, JNNURM etc.
25% into reviving / expanding other PSUs

Above 75:25 rule continued till 31st March 2013. After that, NIF Money is used for following purposes

  • buying shares of CPSE to enture 51% sarkaari ownership
  • recapitalizing sarkari banks and insurance companies
  • Investing in EXIM bank, NABARD, Regional rural banks,
  • Uranium corporation, Nabhikiya Vidyut Nigam
  • Metro projects and Indian railways capital Expenditure.

And Government budget will decide where to spend money among these sectors. For Budget 2013, NIF money was spent on Bank recapitalization and Indian railways.

Disinvestment targets
Budget 2013 Rs. 40,000 crore but #EPICFAIL
Budget 2014 ~63,000 crores.

[Act 3] CPSE-ETF Exchange traded fund

CPSE-ETF Exchange traded Funds Goldman Sach

CPSE-ETF = a novel method of doing “Disinvestment”

  • Government takes out its shares of TEN Central public sector enterprises (CPSE) – ONGC, CIL, GAIL etc. worth total 3000 crore rupees.
  • gives them to fund manager Goldman Sach.
  • Goldman Sach packs these shares into a box. Then, he cuts off this box into smaller pieces, each piece sold for Rs. 17.45 as “new fund offer”.
  • You can buy these pieces (minimum order has to be Rs.5000)
  • if you’re first time investor, you can even get tax benefit under Rajiv Gandhi Equity Savings Scheme.(upto Rs.50k)
  • Later, you earn dividend (From the profit of those CPSE companies).
  • if you don’t want to wait for the dividend, simply sell your piece to another guy in the secondary market/stock exchange (BSE, NSE). (July rate Rs.26 for each unit).
  • Hence these are called “Exchange traded funds” (ETF)
  • and since the original shares were of Central public sector enterprises (CPSE)=> hence we call’em CPSE-ETF.

How is CPSE ETF different from Mutual funds?

Mutual fund CPSE-ETF
no such “free offer” Initially Goldman sach made an offer- if you buy 15 ETF units, they give you 1 unit free. (but with caveats on investment limit etc.)
When you return your mutual fund “UNIT” to the fund manager, he’ll repay CASH. when you return your ETF, Goldman SAch won’t give you CASH, he’ll give you shares (of those CPSE companies), then you can sell them in secondary market (at BSE/NSE etc) and recover the CASH
Fund manager takes higher Commission than ETF manager lower commission (meaning more “return” for you).
1963: UTI was the first mutual fund company in India
  • 1993: ETF launched in USA
  • 2002: ETF launched in India

SEBI Public listing norms

Minimum public shareholding
Non PSU (listed) public ltd. company 25%
PSUs 25% within next 3 years. (Earlier 10%)
  • So in other words, Government shareholding in PSUs, will decline to atleast 75% in the days to come.
  • Since Government will have to sell its shares= automatic disinvestment = ~60,000 crores will be earned = less fiscal deficit.
  • May be Jaitley himself secretly told SEBI to order this? One can come up with many conspiracy theories.
  • Related topic: PJ Nayak Committee for reducing Government shareholding in Sarkaari banks. But we’ll see that under chapter on financial intermediaries.

[Act 4] Various “Ratna” for PSU

Cost benefit of mugging up this topic= bad. But putting for the record.


  • two categories: CAT1 and CAT2
  • Common condition: must have made profit in last 3 years.
  • then further classification, based on “how much” profit they made
  • common benefit: capital Expenditure without Government approval
Miniratna CAT1 CAT2
  • 30 cr. profit in any one year
  • profit all three years
  • positive networth
Expenditure freedom
  • 500 crore or upto their – whichever higher
  • 300 crore or 50% of their networth
examples Airport Authority of India, Antrix (ISRO), BSNL HMT, Mineral Exploration Corporation Limited etc.

Navratna PSU (1997)

  1. already has miniratna cat1 status
  2. MoU with Government- has “very good” or “excellent” ratings
  3. 60 out of 100 marks in various criterias
  4. 4 independent directors in the board
  • can invest 1000 cr / 15% of networth in a single project- without Government approval
  • Examples: BEL, Hindustan Aeronautics, MTNL, Neyveli Lignite etc. total 17 as of June 2014.

Maharatna PSU (2010)

  • already has navratna status
  • significant global presence
  • listed on Indian stock exchange with minimum public shareholding as per SEBI rules (earlier 10%, new limit 25%)

in the last 3 years

  1. turnover >25,000 crores
  2. net worth >15,000 crores
  3. net profit after tax >5000 crores
can invest 5000 cr / 15% of networth in a single project- without Government approval.Full List (7)

  • NTPC, Coal India
  • ONGC, Indian oil