The financial performance of State Public Sector Enterprises (SPSEs) underscores the urgent need for comprehensive reforms at the State level, aligned with the Union government’s New Public Sector Enterprise (PSE) Policy, the 16th Finance Commission said in its report.
As per the latest available data, nearly 50% per cent of SPSEs—541 out of 1,107 enterprises for which profit and loss data are available—are either loss-making or earning zero net profit. This reflects the fragile financial health of SPSEs and their growing burden on State finances.
SPES losses highest in north-eastern and hilly states
The problem is widespread but uneven across States. Most north-eastern and hilly (NEH) States show a disproportionately high share of loss-making SPSEs. Among non-NEH States, Goa, Karnataka, Kerala, Punjab, Telangana, and West Bengal stand out for their poor performance.
During 2022-23, 490 SPSEs reported aggregate losses of Rs 1.14 lakh crore, while 566 profit-making SPSEs earned only Rs 43,162 crore, resulting in a net aggregate loss of Rs 71,355 crore. Uttar Pradesh recorded the highest losses among non-NEH States at Rs 32,430 crore, followed by Rajasthan, Tamil Nadu, and Telangana. Among NEH States, Uttarakhand, Himachal Pradesh, and Meghalaya incurred the largest losses.
A significant concentration of losses is observed in the power sector, although there are notable exceptions. Power sector SPSEs in Andhra Pradesh, Haryana, and West Bengal emerged as the most profitable among non-NEH States, while Assam and Sikkim performed best among NEH States. This divergence highlights that losses are not inevitable and that governance, efficiency, and policy choices matter.
The poor financial health of SPSEs places substantial pressure on State budgets. In 2022-23 alone, State governments extended financial support worth Rs 2.5 lakh crore to SPSEs through equity infusions, loans, grants, and subsidies, with subsidies and grants accounting for nearly 90% of this outgo. In addition, States provide guarantees for SPSE borrowings, creating significant contingent liabilities. Without reforms, SPSEs continue to lock in valuable public assets, particularly land, while draining scarce fiscal resources.
308 SPSEs inactive, 490 loss making
The scale of inefficiency is further highlighted by the fact that out of 1,635 SPSEs, 308 are currently inactive or have ceased operations, yet many continue to receive budgetary support. There is also a persistent problem of loss-making enterprises: 490 SPSEs incurred losses in their latest finalised accounts as of 31 March 2023.
“So far, the idea of State‑level privatisation of SPSEs has not received any attention beyond electricity DISCOMs in the States. Even the subject of closure of SPSEs in perpetual losses has received limited attention,” the Commission headed by Arvind Panagariya said in its report published on February 1.’
“During our State‑visits, many State Governments shared their visions for becoming developed States. A State‑level policy, similar to the Union’s New Public Sector Enterprise Policy, must be an integral part of this vision,” it said.
In 2021, the Centre unveiled the PSE policy, which entailed that the government has a minimum presence in the four broad sectors, while the remaining ones can be privatised, merged or closed
The Finance Commission said a practical rule of thumb would be to mandate Cabinet-level review for any SPSE that records losses in three out of four consecutive years, with clear decisions on closure, privatisation, or continuation based on strategic importance.