State-owned enterprises in India: Restructuring and growth

Abstract

Economic reforms in India are often hailed as the march of private enterprise, unshackled from bureaucratic control. Though it is true that the Indian growth story is led by private capital, reforms have also unleashed a resurgent public sector in the Indian economy, with a significant contribution to investment and growth in India. This article looks at the political economy of SOE reforms, their partial privatization and restructuring, with enhanced autonomy as the key factors that have shaped a more dynamic SOE sector, at least amongst those controlled by the central government. As India moved to market-based prices and incentives, and better contract enforcements, central government SOEs (CSOEs) have substantially enhanced their profitability, investments and growth. As far as manufacturing SOEs are concerned, their profitability and efficiency is superior to private firms, while the performance of CSOEs in services has been rather poor.