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बेसिक इंग्लिश का दूसरा सत्र (कक्षा प्रारंभ : 22 अक्तूबर, शाम 3:30 से 5:30)
Q. Reforms of PSU's: Can making a loss-making public enterprise the subsidiary of a profit-making will solve the problems that PSU’s are facing? Discuss.
May 31, 2016 Related to : GS Paper-3

Ans :

in News-

Earlier Government of India has asked profit-making to mentor and turnaround loss-making PSU’s. Recently Government approved takeover of ailing Hindustan Steel Works Construction Limited (HSCL) by profitable National Buildings Construction Corporation (NBCC). Now HSCL has been made subsidiary of NBCC to financially restructure the ailing HSCL.


In 2011, The S K Roongta committee on bringing reforms in PSU’s, had recommended several measures including of takeover of sick PSUs by financially strong ones to achieve such redeployment. Recently the NITI Aayog report on loss-making PSU’s suggested for consolidation in some cases.

Analysis of recent decision-

In support of takeover-

  • Both NBCC and HSCL are in similar lines of business activities. The decision will benefit in economies of scale for NBCC and would assist in better manpower utilisation.

  • The better-run PSUs, are in a position to financially restructure the loss-making PSEs. Hence such a takeover will helps ailing companies.

  • Eventually such takeovers will not be restricted to only loss-making entities as the aim of the government is to improve both functional and financial efficiency of PSU’s.

Against such takeover-

According to some analysts, any failed enterprise must be shut down and its assets must be redeployed in production.
Using the balance-sheet strength of well-run PSUs to prolong the life of a failed enterprise or to service its loans, seems to be waste resources, instead its assets should be redeployed by auction.
Even S K Roongta panel, recommended that the sale of loss-making PSU’s, should be sold to other PSU’s through auction. So that the better-run PSEs would be in a position to create new businesses by leveraging infrastructure that many of the loss-making PSUs do possess.
Hence instead of such irrational merging, government should have selected highest bidder which would have made sense.


According to the latest government data, there are about 80 entities that made a combined loss of Rs 27,300 crore at end of financial year 2015. There is urgent need for financial restructuring of loss making PSU’s through various mechanisms. Government instead of irrational merging PSU’s, it can prefer auction route to that is limited to other PSU’s. So that it will enable profit-making PSU’s to bid, which will help to create new businesses and leveraging on the infrastructure of the loss-making PSU’s.  

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