This information is derived from the State Department's Office of Investment Affairs' Investment Climate Statement. Any questions on the ICS can be directed to EB-ICS-DL@state.gov
Last Published: 8/2/2017

The government owns or controls interests in key sectors with significant economic impact, including infrastructure, oil, gas, mining, and manufacturing. The Department of Public Enterprises (DPE), controls and formulates all the policies pertaining to SOEs, and is headed by a minister to whom the senior management reports. The Comptroller and Auditor General audits the SOEs. The government has taken a number of steps to improve the performance of SOEs, also called the Central Public Sector Enterprises (CPSEs), including improvements to corporate governance. Reforms carried out in the 1990s focused on liberalization and deregulation of most sectors and disinvestment of government shares. These and other steps to strengthen CPSE boards and enhance transparency evolved into a more comprehensive governance approach, culminating in the Guidelines on Corporate Governance of State-Owned Enterprises issued in 2007 and their mandatory implementation beginning in 2010. Governance reforms gained prominence for several reasons: the important role that CPSEs continue to play in the Indian economy; increased pressure on CPSEs to improve their competitiveness as a result of exposure to competition and hard budget constraints; and new listings of CPSEs on capital markets. According to the government’s most recent published data from March 2015, there were 298 CPSEs, of which 235 were in operation - 63 CPSEs have yet to commence business. 206 of the 298 CPSEs showed a profit during 2014-15 and did not require government support. The loss-making entities (e.g. Air India) and the state-run telecom company Bharat Sanchar Nigam Limited continue to be supported by the government through allocations in the general budget. The manufacturing sector constitutes the largest component of investment in CPSEs (45%), followed by services (35%), energy (12%), and mining (8%).

Foreign investments are allowed in the CPSEs in all sectors. The Master List of CPSEs can be accessed at BSEPSU While the CPSEs face the same tax burden as the private sector, on issues like procurement of land, they receive streamlined licensing that private sector enterprises do not.

Privatization Program

Despite the financial upside to disinvestment in loss-making PSUs, the government has not generally privatized its assets as they have led to job losses in the past, and therefore engender political risks. Instead, the government has adopted a gradual disinvestment policy that dilutes government stakes in public enterprises without sacrificing control. Such disinvestment has been undertaken both as fiscal support and as a means of improving PSU efficiency.

In recent years, the government has begun to look to disinvestment proceeds as a major source of revenue to finance its fiscal deficit. The government has budgeted $10.5 billion in disinvestment for the April 2017-March 2018 fiscal year. However, it has missed its disinvestment targets for each of the past four years. FIIs can participate in these disinvestment programs subject to these limits: 24% of the paid up capital of the Indian company and 10% for NRIs/PIOs. The limit is 20% of the paid up capital in the case of public sector banks. There is no bidding process. The shares of the PSUs being disinvested are sold in the open market. Detailed policy procedures relating to disinvestment in India can be accessed at: India Government.

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