📰Investigating India's State-Run Behemoths

One of Prime Minister Modi’s landmark promises was to privatize “Public Sector Undertakings,” or PSUs, which are large state-run conglomerates criticized for inefficiency and dragging down economic growth. Earlier this year, Modi announced a dramatic reversal: instead of privatization, New Delhi poured $1.5 billion (₹132.3 billion) into struggling state firms and signaled that privatization is off the table for the foreseeable future. PSUs are systemically important to the economy — they employ millions, soak up taxpayer capital, and control vital industries like energy generation. So, is Modi’s reversal good for India?

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Macro

• Commerce Minister Piyush Goyal announces the government will take rapid efforts to diversify the country’s exports and boost domestic demand, his first public comment on the U.S.’ 50 percent tariffs since they took effect.

• India’s economy grew 7.8 percent in April–June, its fastest pace in five quarters and well above forecasts, even as fresh U.S. tariffs of up to 50 percent on Indian imports threaten exports and jobs. Economists warn the duties could shave up to 0.8 percentage points off growth in the coming year, hitting sectors from textiles to chemicals despite resilient consumer demand and government support.

• Indian bonds tumbled Friday as stronger-than-expected GDP data dampened hopes for near-term RBI rate cuts, pushing the 10-year yield to 6.64 percent before easing. Traders fear faster growth reduces policy easing urgency, keeping borrowing costs elevated despite earlier rate cuts.

• Japan and India agreed to strengthen security and economic cooperation as New Delhi faces steep new U.S. tariffs and Tokyo seeks to counter China’s influence. The leaders pledged deeper defense ties, expanded collaboration in technology and supply chains, and targeted nearly $68 billion in Japanese private investment in India.

• India’s fiscal deficit for April–July stood at $53.5 billion (₹4.68 trillion) , or 29.9 percent of the 2025/26 target, with net tax receipts at 6.6 trillion, non-tax revenue at 4 trillion, and total spending rising to 15.6 trillion rupees including 3.5 trillion in capital outlays, government data showed.

Equities

• Mukesh Ambani said Reliance Industries will take Jio public by June 2026, its first major unit IPO since 2006, giving global investors an exit route. The offering, expected to raise over $6 billion (₹529 billion), comes as Reliance pivots toward AI partnerships and new ventures.

• Cube Highways Trust, backed by Abu Dhabi Investment Authority and Mubadala, is preparing a $600 million (₹52.9 billion) India IPO. It has hired Kotak Mahindra, HSBC, ICICI Securities, and HDFC Bank to arrange the sale.

Alts

• Citadel Securities and Tower Research are buying minority stakes in India’s National Commodity & Derivatives Exchange (NCDEX), marking the first such move by global market makers in the country. NCDEX is raising $87.3 million (₹7.7 billion), with Citadel investing $1.93 million (₹170 million).

• Former RBI governor Urjit Patel has been named executive director at the IMF for a three-year term, according to a government announcement.

• Oil India’s Numaligarh Refinery plans to raise about $565 million (₹50 billion) in its first bond sale next month, issuing notes with three- to five-year maturities, bankers said. The bonds, rated AAA by Crisil and India Ratings, may be launched in one or two tranches.

Policy

• RSS chief Mohan Bhagwat urged Indian families to have three children, warning that falling fertility rates—now below two per woman according to the UN—pose long-term demographic risks. He said the population should remain “controlled, yet sufficient,” while rejecting claims that the Hindu nationalist group is hostile to Muslims.

• India ruled out immediate retaliation against Trump’s 50 percent tariffs but kept informal talks open with Washington. Officials said discussions on defense, foreign policy, and trade continue, though a deal remains stalled until tariffs and secondary duties are lifted.

• India’s switch to petrol with 20 percent ethanol (E20) at nearly all 90,000 fuel stations has sparked driver anger, with fears it could damage older cars and cut fuel efficiency. Automakers have issued mixed guidance, and the Supreme Court will hear a legal challenge Monday as the government defends the policy as key to its clean energy goals.

• China’s Foreign Ministry said stronger ties with India serve both nations’ interests, highlighting steps to stabilize relations after Xi Jinping’s 2024 meeting with Narendra Modi. Officials stressed normal communication continues, with Modi and Xi set to meet at the Shanghai Cooperation Organisation summit.

• Modi secured up to ¥10 trillion ($68 billion) in investment pledges from Japanese PM Ishiba under a new economic and security pact. The deal spans semiconductors, critical minerals, artificial intelligence, and expanded defense cooperation amid heightened US tariff pressures.

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The Legacy, Lineage, and Long Road Ahead

One of Prime Minister Modi’s landmark promises was to privatize “Public Sector Undertakings,” or PSUs, which are large state-run conglomerates criticized for inefficiency and dragging down economic growth. Earlier this year, Modi announced a dramatic reversal: instead of privatization, New Delhi poured $1.5 billion (₹132.3 billion) into struggling state firms and signaled that privatization is off the table for the foreseeable future. PSUs are systemically important to the economy — they employ millions, soak up taxpayer capital, and control vital industries like energy generation. So, is Modi’s reversal good for India?

The tension is clear. Born in the post-independence drive for self-reliance, PSUs were meant to be nation-builders. Today, they stand at a crossroads, struggling under inefficiency and political cost, yet still commanding attention and resources from New Delhi. Their future is not just about balance sheets, but about whether India can reconcile its socialist legacy with its ambition to be a market-driven global power.

From Industrial Arsenal to Administrative Armies: In 1947, India was an agrarian state with limited industrial infrastructure. To drive rapid industrialization under Nehru’s vision, the government leaned heavily on PSUs. Institutions like Indian Railways, LIC, and steel and power producers were built to reduce reliance on imports, foster economic sovereignty, and create jobs. The Industrial Policy Resolution of 1956 and the First Five-Year Plans gave institutional heft to this strategy.

By the 1980s, hundreds of PSUs had proliferated across sectors—from telecom and fertilizers to aeronautics and shipping. These enterprises grew into government tools for regional development, employment, and bureaucratic control. But they also became bogged down by inefficiency, overstaffing, and a culture shielded from competition.

How effective are they? Fast forward to 2025: India counts around 272 central PSUs, including 14 Maharatnas (or “Great Jewels”), 26 Navratnas (“Nine Jewels”), and 62 Miniratnas (“Small Jewels”)—each given different thresholds of autonomy. Not every PSU is fully owned and operated by the Government of India; a minimum ownership of 51 percent by the state qualifies a company as a PSU. On paper, the tiered system was meant to balance oversight with efficiency. In practice, the sheer number has not translated into performance. Many PSUs still carry bloated payrolls, political appointments, and outdated assets. Once-dominant names like BSNL and MTNL missed the 4G wave entirely and now struggle to stay relevant in a 5G world dominated by Jio and Airtel. Even in heavy industries like steel or fertilisers, legacy cost structures and slow adoption of technology have left PSUs years behind their global peers. The result is a landscape where a few giants remain profitable, while a long tail of weaker entities weighs down the balance sheet.

Layered onto these legacy challenges are policy distortions. Initiatives like “Make in India” were designed to encourage domestic suppliers by mandating local procurement, but often force PSUs to buy lower-quality or higher-priced inputs. This erodes their competitiveness compared to private firms sourcing globally and slows procurement with layers of red tape. Instead of fostering innovation, it has locked PSUs into inefficiency, leaving them caught in a paradox: India has one of the largest state-owned corporate ecosystems in the world, but too many of these firms remain stuck in a cycle of underperformance, recapitalization, and political firefighting rather than true reform.

Why does the state keep investing? The early 2020s saw sweeping ambitions for PSU privatization. In 2021, New Delhi announced plans to disinvest most PSUs outside sensitive sectors. But political resistance, lackluster valuations, and coalition dynamics stalled that momentum. By early 2025, the government shelved privatization for at least nine PSUs and pivoted toward rescue packages, including a $230–$350 million (₹20.3-30.9 billion) infusion for Pawan Hans and additional capital for NBCC, HUDCO, Rashtriya Ispat Nigam Ltd, and MTNL, totaling about $1.5 billion (₹132.3 billion).

This pivot wasn’t purely altruistic. It served multiple purposes: preserving jobs, maintaining regional political goodwill, maintaining control over strategic sectors, and rehabilitating these firms for eventual future sale, optimally at higher valuations.

Has anything changed? There are some early green shoots. Public sector banks, PSBs, to many have seen impressive turnarounds. Post-NPA cleanups, mergers, and recapitalizations transformed their market capitalizations: Punjab National Bank and Bank of Baroda each surged from $680.4 million (₹60 billion) to $14.5 billion (₹1.28 trillion) in a decade. That demonstrates that, given structural reform and financial support, PSUs can shift direction.

Changes in governance have also been cited. In August 2025, the MoF’s Dipam Secretary highlighted that PSU leadership selection has become "efficient, transparent, and free from interference," producing leaders sought after even by private firms.

But challenges remain. Several PSUs report compromised procurement processes, operational inefficiencies, and structural rigidity. The larger transitions, from rescue to reform to autonomy, take more than fiscal injections. They require institutional change.

What’s next? If the 2025 injections were survival measures, the future path divides into two broad trajectories:

1. Reform and revitalization:
The Modi administration’s mid-2024 plan to overhaul 200+ PSUs set out goals: land monetization, asset monetization, professional board formation, manager training (230,000), and performance-linked targets over a five-year horizon. If implemented faithfully, this could reshape PSU culture into performance-driven entities, paving the way for partial or conditional privatization.

2. Managed entrenchment:
Alternatively, PSUs could remain on perpetual life support, constantly recapitalized but rarely privatized or overhauled. That path maintains political control and job security, but risks turning PSUs into perpetual drains, disconnected from market realities.

Key Takeaways: India’s PSUs stand at an inflection point. A legacy of socialist-era industrialization filled a vacuum in the early decades of development; today, they are under scrutiny for inefficiency and fiscal drag. Yet they also remain indispensable, especially in strategic sectors and in providing essential services across India’s length and breadth.

Survival packages like the $1.5 billion rescue are not evidence of failure; they are pause points, offering breathing room to reset. Signs of recovery in PSBs and improvements in leadership transparency offer hope. But unless capital infusions are matched with structural reforms, enhanced autonomy, accountability, and performance metrics, the cycle will likely repeat.

See you Monday.

Written by Eshaan Chanda & Yash Tibrewal. Edited by Shreyas Sinha.

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