New Delhi:
Johns Hopkins University professor Devesh Kapoor has raised serious concerns over India’s continued reliance on public sector undertakings (PSUs), warning that loss-making government enterprises are imposing a heavy and persistent cost on the economy. In his new book, “A Sixth of Humanity: Independent India’s Development Odyssey,” co-authored with economist Arvind Subramanian, Kapoor argues that India is still paying a high price for its attachment to state-owned enterprises—contrary to the belief that this was only a legacy of the Nehru era.
According to Kapoor, inefficient and loss-making PSUs impose an annual opportunity cost of 1.5% to 2.5% of India’s GDP. This means that a significant portion of national resources is locked into enterprises that deliver poor returns, instead of being invested in critical areas such as healthcare, education, or infrastructure.
More PSUs Under Modi Than Nehru
One of the most striking findings in the book is that the expansion of PSUs has not slowed over time. Kapoor notes that 70 new PSUs were established during Prime Minister Jawaharlal Nehru’s tenure, while 84 new PSUs have been set up during Prime Minister Narendra Modi’s tenure.
“This belief that the romance with public sector undertakings is a thing of the past is simply incorrect,” Kapoor said, emphasizing that the scale and scope of state involvement remain substantial even today.
Massive Economic Cost Over Decades
Kapoor explained that to estimate the real cost of PSUs, he and his co-author compiled financial data of all central public sector enterprises and compared their returns with the government’s borrowing cost (G-Sec rates). The gap between the two represents the opportunity cost.
He found that for nearly the last 50 years, this cost has consistently remained between 1.5% and 2% of GDP every year. In several states, even basic financial data on PSUs is unavailable, which Kapoor said highlights the poor oversight and weak governance of these entities.
What India Could Have Gained Instead
Kapoor underlined the scale of the loss by putting it in perspective. If this money had not been poured into inefficient PSUs:
- States could have doubled their health expenditure, or
- The central government could have spent nearly 100% more annually on infrastructure over the last five years.
“This shows how extraordinarily expensive these loss-making enterprises have been for the country,” he said.
Capital Spending: Nehru Era vs Modi Era
The book also compares capital expenditure on PSUs across different political eras. Kapoor noted that:
- During the Nehru era, capital expenditure on PSUs was about ₹1 lakh crore in 2024 real terms.
- Under the Modi government, this figure has surged to ₹22 lakh crore.
However, Kapoor clarified that as a percentage of GDP, PSU spending appears lower today because India’s economy has expanded significantly. Still, the absolute financial burden remains enormous.
Shift in PSU Focus, Not in Burden
Kapoor observed that while the nature of PSUs has changed, the financial strain has not. Nehru-era PSUs were largely focused on manufacturing, whereas under Modi, new PSUs are concentrated mainly in energy and infrastructure sectors. Despite this shift, many continue to generate weak returns and require repeated government support.
BSNL and MTNL as Key Examples
Citing the telecom sector, Kapoor highlighted the repeated bailouts of government-owned companies. Between 2019 and 2023, the government spent ₹3.22 lakh crore (around $40 billion) to revive BSNL and MTNL.
This spending, he argued, is difficult to justify when India already has strong private telecom players. “BSNL or MTNL are not in a position to do anything transformative in the future,” Kapoor warned.
A Cautionary Message
Kapoor’s analysis serves as a sharp caution against the unchecked continuation of state-owned enterprises. While the form and sectors of PSUs may have evolved, the underlying economic cost, he argues, remains a serious drag on India’s development potential—one that policymakers can no longer afford to ignore.