Centre’s revenue focus has shifted from selling PSUs to earning more from them, data shows

The Government of India has a lot of Public Sector Undertakings, which’re companies like Coal India, ONGC, NTPC, SBI and Indian Oil. These companies work in areas such as energy, banking, infrastructure, mining and transportation. In the past the government used to make money from these companies in two ways:

Disinvestment, which means selling shares or ownership in these companies.

Dividend and profit income, which means earning money from the profits these companies make.

Now things are changing.

➡ The government is focusing more on earning income from these companies through dividends, profits and better performance.

This change is happening because of reasons. It shows that the governments financial plans, political priorities and economic conditions are changing.

What Are Public Sector Undertakings. Why Are They Important

Public Sector Undertakings are companies where the Government of India owns at least 51% of the shares and has control. They were created to serve economic and strategic goals, such as:

Providing essential services to people.

Supporting development in the country.

Ensuring the country has energy.

Creating jobs for people.

Developing infrastructure like roads and bridges.

Examples of Public Sector Undertakings include:

Coal India, which mines coal.

ONGC, which explores for oil.

NTPC, which generates power.

SBI, which is a bank.

GAIL, which distributes gas.

These companies make a lot of money and profits every year.

Why Governments Make Money From Public Sector Undertakings

Governments can make money from Public Sector Undertakings in ways:

1. Dividends: Public Sector Undertakings give a part of their profits to their shareholders, including the government.

Example: A Public Sector Undertaking makes a profit of ₹10,000 crore. Pays ₹4,000 crore as dividend. If the government owns 60% of the company it gets ₹2,400 crore.

Experts say that governments often want Public Sector Undertakings to pay dividends especially when the government needs more money.

2. Disinvestment: This means selling part of the governments ownership in Public Sector Undertakings.

This can be done in two ways:

sale, where the government still controls the company.

Strategic sale, where the government gives control of the company to the sector.

This gives the government a lot of money at once.

3. Taxes and Other Payments: Public Sector Undertakings pay taxes, such as tax, GST, royalties and license fees which add to the governments revenue.

The Old Strategy: Depending Heavily on Disinvestment

For a time the government focused on selling shares of Public Sector Undertakings.

The reasons for this approach were:

1. To get money quickly to reduce the deficit, fund welfare programs and invest in infrastructure.

For example the government planned to sell shares thousands of crores every year.

2. To improve efficiency by privatizing Public Sector Undertakings, which was expected to improve management increase competition and reduce the governments burden.

3. To reduce losses from Public Sector Undertakings that were not doing well such as Air India.

Problems With the Old Strategy

Despite its benefits the disinvestment strategy faced challenges:

1. Political opposition due to concerns about job security, fear of monopolies and public sentiment.

2. Market conditions, as the government could not sell shares easily when the stock market was weak.

Low share prices meant revenue and less demand from investors.

3. Strategic importance, as some Public Sector Undertakings operate in areas like defense and energy where full privatization is risky.

4. One-time revenue only as disinvestment gives money once and after selling shares the government loses future dividend income and ownership decreases permanently.

The Shift: Government Now Earning More From Public Sector Undertakings

data shows that the government is now focusing on earning regular income from Public Sector Undertakings instead of selling them.

This change is happening due to factors.

Major Reasons for the Shift

1. Public Sector Undertakings have become more profitable due to commodity prices increased energy demand, operational reforms and better management.

Profitable Public Sector Undertakings generate dividends.

2. Dividend income provides recurring revenue, which helps the government plan its finances.

Disinvestment provides one-time income while dividends provide yearly income and predictable revenue.

3. Disinvestment targets were often missed due to market conditions, lack of buyers and political resistance.

This forced policymakers to rely on dividends.

4. Rising Public Sector Undertaking share prices have increased dividend returns.

Higher profits mean dividends and higher government income without selling ownership.

5. Strategic and national security considerations, as Public Sector Undertakings operate in areas such as oil and gas defense, power and banking.

The government prefers to retain control and not sell much which could weaken national control.

6. Fiscal strategy shift toward long-term income as modern fiscal policy prefers recurring income of one-time asset sales.

This is similar to earning rent of selling property.

Evidence of the Shift: Revenue Trends

Government revenue from Public Sector Undertakings mainly comes from dividends, profit transfers and buybacks.

These sources have grown significantly while disinvestment revenues have fluctuated heavily.

In years dividend income has exceeded disinvestment revenue confirming the shift.

Example: Dividend vs Disinvestment Difference

Disinvestment Model: The government sells shares. Receives ₹50,000 crore once but ownership decreases permanently and future dividends reduce.

Dividend Model: The government keeps shares and receives ₹8,000-₹10,000 crore yearly with ownership remaining intact and income continuing

Over time dividends may exceed income.

Why the Government Prefers Dividend-Based Revenue

1. Sustainable income, which provides a financial flow.

2. Asset ownership is maintained, as the government keeps control of companies.

3. Less political controversy, as dividends do not cause job loss concerns.

4. Higher long-term returns, as owning companies generates more wealth.

5. Supports strategic interests as the government maintains influence over key industries.

Role of Public Sector Undertaking Buybacks

Public Sector Undertakings sometimes buy back shares from the government providing cash without losing ownership.

This is another income method for the government.

Government Reforms That Increased Public Sector Undertaking Earnings

Several reforms have improved Public Sector Undertaking performance, including:

1. Corporate governance reforms, which have improved accountability.

2. Professional management, with the appointment of executives.

3. Market listing, which has improved transparency.

4. Operational efficiency, with cost reductions.

5. Increased energy demand, which has benefited coal, oil and power companies.

Impact on Fiscal Deficit

The fiscal deficit is the difference between government spending and revenue.

Higher Public Sector Undertaking dividends help reduce the deficit without selling assets improving financial stability.

Impact on the Economy

The shift has economic effects, including:

Positive Effects:

1. Stronger government finances, with stable revenue improving health.

2. Stronger Public Sector Undertaking growth, as the government encourages profitability.

3. Long-term wealth creation, as the government retains assets.

4. Market stability, with frequent share dumping avoiding stock market pressure.

Negative Effects:

1. Slower privatization as private sector expansion slows.

2. Some Public Sector Undertakings may remain inefficient without privatization pressure.

3. The government still bears the risk if Public Sector Undertaking profits fall and income declines.

Comparison: Old vs New Strategy

The old strategy focused on selling Public Sector Undertakings while the new strategy focuses on earning from them.

The new strategy provides recurring revenue maintains ownership and reduces risk making it more sustainable.

International Comparison

Many countries, such as Singapore, Norway and China follow dividend-based models, where governments own state enterprises and earn dividends regularly.

Real-World Example: Oil and Coal Public Sector Undertakings

Companies like Coal India, ONGC and Indian Oil earn profits and the government receives thousands of crores in dividends annually.

Why Disinvestment Has Slowed Recently

Disinvestment has slowed due to market volatility, strategic importance, strong Public Sector Undertaking profits and political considerations.

Future Outlook

The government will likely continue a strategy privatizing loss-making Public Sector Undertakings and retaining profitable ones.

The focus will be on dividend income, buybacks and improved efficiency.

Long-Term Fiscal Impact

This strategy will help build revenue streams reduce dependence on borrowing and strengthen national wealth.

Simple Example to Understand

Imagine the government owns a shop.

Option 1: Sell the shop. Get ₹1 lakh once.

Option 2: Keep the shop. Earn ₹10,000 yearly forever.

The government is now choosing Option 2.

The shift in the governments revenue focus from selling Public Sector Undertakings to earning more from them represents a change, in Indias fiscal strategy.

Of relying heavily on one-time income through disinvestment the government is priorit