The Risk Adjusted Return on Indian Central Public Sector Enterprises

Abstract

This paper presents an empirical examination of financial performance and governance of 84 Indian Central Public Sector Enterprises (CPSEs). Currently, most CPSEs are 100% owned by Government and some are listed on the Stock Exchange. Of this smaller group, there is some public shareholding, and other CPSEs seem to acquire block of shares and the Government holds at least 51% and more typically 85%. The study is timely at this juncture as plans are formulated by the Indian Government to sell very substantial block of shares in these institutions to the public.

The period of study is 2003-2011 which encompasses the establishment of the Maharatna, Navratna and Miniratna categories of CPSEs. Government had nominated these as being of strategic importance and having the potential to emerge as global players. Reforms to governance in CPSEs were introduced in 2005, 2007&2009 through clause 49, pay incentives linked to performance and grant of autonomy. The efficiency of these reforms is important in terms of reflecting overall financial performance.

The issue of financial performance in State sector enterprises is more pressing as a result of the global economic downturn since 2007. The potential of CPSEs to contribute to the reduction in poverty is an imperative to review raising and a rising living standards for a large and impoverished portion of the population. The role of government ownership and its impact on financial performance is an important issue, across the Asia-Pacific region where governments play a significant role in the economic development.