Finance Commission Advocates for Immediate Closure of Inactive Public Sector Enterprises
The 16th Finance Commission has issued a strong recommendation in its latest report, urging the central and state governments to consider the immediate closure of inactive public sector enterprises (PSEs). This move is aimed at alleviating the significant fiscal strain that these non-performing entities impose on public finances. The commission emphasized that deep reforms within the sector are essential to enhance its contribution to India's economic growth.
Valuable Assets and Alternative Uses
In its detailed review, the panel highlighted that the land and buildings owned by these inactive PSEs represent valuable assets. These properties could be strategically redeployed for alternative uses, potentially generating revenue or supporting public infrastructure projects. The report underscores the untapped potential of these resources, which currently remain idle due to the enterprises' non-operational status.
Reforms and Privatisation Efforts
The commission pointed to the New Public Sector Enterprise Policy, which was adopted in February 2021. This policy commits to closing or privatising central PSEs (CPSEs) operating in non-strategic sectors. While there has been some progress in shutting down loss-making enterprises recently, the report notes that action on privatisation has lagged behind. Drawing from past experiences, such as the privatisation of CPSEs between 1999 and 2004, the commission argues that significant efficiency gains can be achieved through similar measures for both CPSEs and state PSEs (SPSEs) in non-strategic areas.
Alarming Statistics on Inactive PSEs
Citing data from the Public Enterprise Survey 2023-24, the panel, chaired by economist Arvind Panagariya, revealed concerning figures. As of March 31, 2024, there are 17 CPSEs under liquidation, 24 approved for closure by the government, and 31 that are non-operational. In total, the assets of 72 CPSEs have been deemed unproductive. The situation is similarly dire at the state level, with 308 out of 1,635 SPSEs having ceased operations, indicating a widespread issue across India's public sector landscape.
Financial Losses and Proposed Solutions
The report detailed substantial financial losses incurred by these enterprises. Almost one-third of CAG-audited CPSEs reported losses ranging from Rs 36,213 crore to Rs 51,419 crore in each of the last four years. At the state level, 489 out of 1,055 SPSEs incurred losses totalling Rs 1.14 lakh crore in the 2022-23 period alone. To address this, the commission proposed a practical rule of thumb: any enterprise incurring losses in three out of four consecutive years should be mandatorily brought before the Cabinet for consideration of closure, privatisation, or continuation. This systematic approach aims to ensure timely action and prevent further fiscal drain.
The Finance Commission's recommendations highlight the urgent need for structural reforms in India's public sector. By focusing on closure and privatisation, the government could unlock economic potential, reduce wasteful expenditure, and redirect resources towards more productive avenues, ultimately supporting sustainable growth and development.
