In 1998, under prime minister A B Vajpayee, India too embarked on public sector enterprises (PSEs) reforms with the Navratna Scheme.
The large profit-making PSEs were granted autonomy in strategic and operational decisions, including investment, acquisitions, and borrowings. The Vajpayee government also encouraged these PSEs to become “global” and acquire assets and strategic minerals abroad.
However, the PSEs were denied any fiscal support, rather the government insisted on taking large dividends. This is in stark contrast to China where SOEs are liberally funded to grow and become global.
The Vajpayee government promoted the private sector in areas that were dominated by the public sector and privatised many PSEs.
It undertook a series of sectoral price reforms where PSEs were dominant such as in power, petroleum, fertiliser and chemicals. Low prices of PSE products had made private entry unattractive. The PSEs were encouraged to charge full-market prices or even global prices to facilitate private entry.
The UPA in 2004 deepened the Navratna policy by including several more PSEs, and in an Indian version of “let go the small and weak”, set up the Board for Reconstruction of PSEs (BRPSE) to turn around or shut down loss-making companies.
The profits of Central PSEs by 2018 stood at Rs 1,75,000 crore, up from Rs 43,000 crore in 2003-04. The rising profitability meant that Indian PSEs were investing more and expanded rapidly. The PSEs also played a major role in increasing capital formation and accelerating growth.
With government encouragement but negligible financial support, PSEs were acquiring assets and resources abroad, often clashing with Chinese SOEs vying for the same assets.
Till 2007, the PSEs were the largest outward investors from India. As the private sector has cut back its investment over the last several years, PSEs have become important drivers of industrial investment.