The Commission’s report places the spotlight on the financial performance of State public sector enterprises, which operate across sectors such as power distribution, transport, infrastructure, manufacturing and services.

For 2022-23, the top three States in terms of aggregate PSE losses were:

• Uttar Pradesh – ₹32,430 crore

• Rajasthan – ₹18,814 crore

• Tamil Nadu – ₹16,048 crore

These figures represent cumulative losses incurred by State-owned enterprises during the financial year.

The Commission’s classification signals significant fiscal exposure for these States, particularly when such losses require budgetary support or debt restructuring.

What Are State Public Sector Enterprises?

State public sector enterprises are government-owned or government-controlled entities engaged in commercial activities. They are established to:

• Provide essential services such as electricity and transport

• Support industrial development

• Generate employment

• Promote regional economic growth

However, many PSEs face operational inefficiencies, pricing constraints, political interference and rising input costs.

In several States, power distribution companies (DISCOMs) account for a substantial share of losses due to subsidy burdens, tariff gaps and transmission inefficiencies.

Tamil Nadu’s Fiscal Context

Tamil Nadu has a diversified industrial base and a strong manufacturing sector. It also operates a wide network of State enterprises, particularly in transport and power.

The reported loss of ₹16,048 crore indicates significant pressure on the State’s public sector ecosystem.

While the Commission’s report does not single out specific enterprises in this summary, sectors such as:

• Electricity distribution

• State transport undertakings

• Infrastructure corporations

are often major contributors to cumulative losses.

Persistent losses may require additional State support through capital infusion, guarantees or debt assumption, potentially impacting fiscal consolidation efforts.

Uttar Pradesh and Rajasthan: Larger Exposure

Uttar Pradesh, with losses exceeding ₹32,000 crore, recorded the highest aggregate losses among States. Given its population size and extensive public infrastructure network, the magnitude of its PSE operations is substantial.

Rajasthan followed with losses of ₹18,814 crore. Like many States, Rajasthan’s power sector has historically faced financial stress, contributing to cumulative enterprise deficits.

The comparison shows that while Tamil Nadu ranks third, its losses are not marginal and remain significant in absolute terms.

Implications for State Finances

Loss-making PSEs can have multiple implications:

1. Budgetary Pressure – States may need to allocate funds for bailouts or subsidies.

2. Rising Debt Levels – Guarantees extended to PSEs can become contingent liabilities.

3. Reduced Development Spending – Resources diverted to cover losses may limit spending on health, education and infrastructure.

4. Credit Ratings Impact – Persistent losses may affect investor perception and borrowing costs.

The Finance Commission’s role includes assessing such fiscal risks while recommending resource-sharing mechanisms between the Centre and States.

Finance Commission’s Mandate

The 16th Finance Commission is tasked with recommending the distribution of tax revenues between the Union and States and among States themselves.

It also examines:

• Fiscal sustainability

• Revenue deficits

• Public expenditure efficiency

• Off-budget borrowings and liabilities

The inclusion of PSE losses in its assessment indicates growing concern over the fiscal implications of State-owned enterprises.

Structural Issues Behind PSE Losses

Several structural factors contribute to recurring losses in State enterprises:

• Tariffs not aligned with market costs

• Delayed subsidy reimbursements

• High employee expenses

• Political considerations influencing pricing

• Inefficient procurement practices

• Ageing infrastructure

In the power sector, for example, cross-subsidisation and transmission losses often widen financial gaps.

Transport corporations frequently face losses due to regulated fares and rising fuel costs.

Reform Measures and Policy Interventions

Over the years, both the Centre and States have introduced measures aimed at improving PSE performance. These include:

• Financial restructuring schemes

• Performance-linked management frameworks

• Privatization or strategic disinvestment

• Public-private partnerships

• Technology-driven efficiency improvements

In the power sector, schemes such as UDAY and subsequent reforms have sought to reduce losses and improve billing efficiency.

However, structural challenges persist in several States.

Join our Telegram Channel for Latest News and Regular Updates.

Start your Mutual Fund Journey  by Opening Free Account in Asset Plus.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.