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What is a Public Sector Undertaking (Governance Model)?
Grade Level:
Class 7
Law, Civic Literacy, Economics, FinTech, Geopolitics, Personal Finance, Indian Governance
Definition
What is it?
A Public Sector Undertaking (PSU) is a company where the Indian government, either central or state, owns more than 50% of its shares. This means the government has the main control over how the company runs. PSUs are created to provide important services or goods to the public, often at affordable prices.
Simple Example
Quick Example
Imagine your school bus service. If the government owns most of the buses and decides the routes and ticket prices, it's like a PSU. The aim is to make sure everyone can travel safely and affordably, not just to make a huge profit.
Worked Example
Step-by-Step
Let's say a company needs 100 shares to be fully owned. If the government buys 51 shares, it owns more than half.
---Step 1: Total shares in a company = 100
---Step 2: For it to be a PSU, the government must own more than 50% of these shares.
---Step 3: Calculate 50% of 100 shares: (50/100) * 100 = 50 shares.
---Step 4: The government needs to own more than 50 shares. So, if the government owns 51 shares, it becomes a PSU.
Answer: If the government owns 51 shares out of 100, the company is a Public Sector Undertaking.
Why It Matters
Understanding PSUs helps you know how the government provides essential services like electricity, banking, and fuel. This knowledge is crucial for future careers in civil services, economics, or even just being a smart citizen who understands how their country works.
Common Mistakes
MISTAKE: Thinking all big companies in India are PSUs. | CORRECTION: Only companies where the government owns more than 50% of the shares are PSUs. Many big companies are privately owned.
MISTAKE: Believing PSUs only aim to make profit. | CORRECTION: While PSUs do aim to be efficient, their primary goal is often public service, providing goods or services that might not be profitable for private companies but are essential for society.
MISTAKE: Confusing a government department with a PSU. | CORRECTION: A PSU is a company with its own management and structure, even though the government is its main owner. A government department is a direct part of the government administration.
Practice Questions
Try It Yourself
QUESTION: If the Central Government owns 60% of a bank's shares, is it a PSU? | ANSWER: Yes, because the government owns more than 50% of the shares.
QUESTION: A company has 200 shares. The state government owns 90 shares, and private investors own the rest. Is this a PSU? | ANSWER: No. The state government owns 90 shares out of 200 (which is 45%). Since 45% is less than 50%, it is not a PSU.
QUESTION: The Indian Railways is managed by the government. Is it a PSU? Explain why. | ANSWER: Yes, Indian Railways is considered a PSU because it is fully owned and controlled by the Government of India, meaning the government owns 100% of its 'shares' or control.
MCQ
Quick Quiz
What is the minimum shareholding the government must have in a company for it to be called a Public Sector Undertaking (PSU)?
Less than 25%
Exactly 50%
More than 50%
Any amount, as long as it's a government company
The Correct Answer Is:
C
For a company to be a PSU, the government (central or state) must hold more than 50% of its shares, giving it majority control. Options A and B indicate less or exactly half ownership, which doesn't make it a PSU.
Real World Connection
In the Real World
Many things you use daily are provided by PSUs. For example, the Indian Oil Corporation (IOCL) fills up your scooter with petrol, and banks like State Bank of India (SBI) handle your parents' savings. These are big PSUs that serve millions of Indians every day.
Key Vocabulary
Key Terms
SHARE: A small part of ownership in a company | GOVERNMENT: The official group that controls a country or state | PUBLIC SERVICE: Work done for the benefit of the community | PROFIT: Money gained from a business activity after all expenses are paid | OWNERSHIP: The state or right of possessing something.
What's Next
What to Learn Next
Next, you can learn about 'Private Sector Companies' to understand the difference between government-controlled and privately-run businesses. This will help you see how different types of companies contribute to India's economy.
