PSUs: Open Market Entities or Public Good?

The central premise of public sector undertakings (PSUs) in India, such as the Steel Authority of India Ltd (SAIL), is rooted in socialist ideology— a vision where the State, through ownership and operation of critical industries, guarantees equitable access to resources and fosters national development.

In such a system, these enterprises are not mere market participants but crucial agents of social welfare and economic justice. Yet, the introduction and application of competition law— most notably, the Competition Act of 2002— gives rise to an essential question, does the regulation of PSUs through competition law undermine their socialist foundation, or can it serve as a necessary check on State power?

Public sector undertakings and the socialist framework

In a socialist economy, the State occupies a central role, controlling industries not for profit maximisation but for social welfare. PSUs were created in this image, to counter the inherent inequalities of the market and ensure that critical resources remain in public hands.

Their purpose is not to compete with private firms but to shield essential sectors— such as steel, coal, or oil— from the volatility of the free market and the pressures of private profit.

In a socialist economy, the State occupies a central role, controlling industries not for profit maximisation but for social welfare.

The State's ownership of key industries in a socialist framework serves specific purposes: addressing market failures, correcting historical regional disparities, and providing employment.

The role of the State here is not a passive one; it actively directs economic growth toward these larger social goals. And yet, the objectives of socialism stand in an inherent tension with the core principles of competition law, which emphasises market efficiency, consumer choice and the dismantling of monopolies.

Competition law’s framework

India’s Competition Act, 2002, was borne out of the broader shift towards liberalisation. It seeks to create a level-playing field by preventing monopolistic behavior, protecting consumer interests and fostering competition.

The Act does not distinguish between private and public enterprises in its enforcement, subjecting PSUs such as SAIL to the same scrutiny as private players. This raises a critical question: should PSUs, whose very existence stems from a desire to avoid market imperatives, be treated as market actors under competition law?

At first glance, the logic seems paradoxical. These entities were created to achieve goals that often require non-competitive behavior— whether it is price controls, employment generation or ensuring universal access to resources.

To subject PSUs to competition law, then, might seem to impose free-market principles on institutions designed to operate outside of those very principles.

The socialist critique of competition law’s application to PSUs

The socialist critique of applying competition law to PSUs begins with a basic premise: public sector enterprises are not just another market participant, but instruments of State policy, created to address market failures and fulfill objectives far beyond market efficiency.

Treating PSUs like private enterprises undermines their ability to act as agents of social justice and economic equality.

The State's ownership of key industries in a socialist framework serves specific purposes: addressing market failures, correcting historical regional disparities, and providing employment.

State monopolies and public interest

A socialist defence of PSUs hinges on the idea that State monopolies are not problematic, as the State— unlike a private firm— is supposed to act in the public interest.

PSUs are intended to deliver essential services, often in sectors where introducing competition would lead to unequal outcomes. For example, SAIL’s role in providing affordable steel domestically could be compromised if competition law forces it to act like a private firm, maximising profit over public service.

Efficiency versus social goals

While competition law prioritises efficiency, it is important to recognise that this goal can conflict with the socialist commitment to equity and national development.

For instance, a PSU might engage in price regulation or employment practices that appear inefficient in a competitive market but serve critical social objectives. Competition law, in targeting such behaviors, risks undermining the purpose of PSUs themselves.

Accountability or overreach?

However, the application of competition law could also be seen as introducing accountability. PSUs, shielded from market pressures, can become inefficient or complacent monopolies that fail to serve the public interest.

In this sense, competition law could prevent PSUs from becoming exploitative or inefficient, but is it justifiable to impose private sector standards of accountability on institutions designed with entirely different mandates?

Finding a balance: Public welfare and market regulation

The Supreme Court’s decision in Competition Commission of India versus Steel Authority of India Ltd (CCI versus SAIL) lays bare the sharp tensions between neoliberal market principles and the socialist foundations of public sector undertakings (PSUs) in India.

Treating PSUs like private enterprises undermines their ability to act as agents of social justice and economic equality.

In CCI versus SAIL, the court unequivocally held that PSUs are not immune from the scrutiny of competition law, ruling that they must adhere to the same regulatory framework as private enterprises and that market fairness, defined by principles of competition law, supersedes the public nature of an enterprise.

This decision, however, calls for a critical interrogation from a socialist standpoint, which fundamentally challenges the market-driven assumptions embedded in the ruling.

Legal details of CCI versus SAIL

In CCI versus SAIL (2010), the Competition Commission of India (CCI) initiated an inquiry against SAIL, alleging that it had abused its dominant position in the market by supplying steel to Indian Railways.

The case revolved around Sections 3 and 4 of the Competition Act of 2002, which prohibit anti-competitive agreements and the abuse of dominance, respectively. The issue was whether SAIL, as a PSU tasked with fulfilling a public interest mandate, should be subjected to the same competition laws as private entities.

The Supreme Court ultimately ruled that PSUs are not exempt from competition law, emphasising that the objective of competition law is to protect consumer welfare and prevent monopolistic practices, irrespective of whether the entity is publicly or privately owned.

The court’s decision hinged on the idea that even State-owned enterprises could abuse their dominant positions to the detriment of consumers and market fairness, thereby justifying their regulation under the Competition Act.

The decision further clarified the procedural aspects of CCI investigations, holding that the CCI was not required to issue a formal show-cause notice before initiating an inquiry under Section 26(1) of the Competition Act.

This marked a significant shift in the way competition law applies to PSUs, reinforcing the idea that public enterprises must be held accountable to market principles in the same way as private firms.

In CCI versus SAIL, the court unequivocally held that PSUs are not immune from the scrutiny of competition law.

A socialist critique: A neoliberal blindspot

At first glance, the ruling seems grounded in sound legal reasoning— competition law exists to prevent the abuse of dominance and State monopolies, much like private ones, could potentially harm consumer interests.

But a socialist critique exposes a deeper, more fundamental flaw in this logic: the assumption that PSUs and private enterprises operate within the same normative framework.

The court's decision, in effect, ignores the fact that PSUs such as SAIL are not merely market actors but instruments of State policy, designed to achieve broader social objectives, including equity, regional development and access to essential goods.

By subjecting PSUs to the same competition laws as private entities, the court risks undermining these very objectives.

The mechanisms of accountability for public enterprises should be distinct from those applied to private enterprises, reflecting the fundamentally different roles they play in the economy.

Erosion of social mandates

PSUs, by their nature, are meant to pursue public welfare, often at the expense of market efficiency. SAIL, for instance, may prioritise ensuring the domestic availability of affordable steel for infrastructure projects over maximising profits.

This is not a market failure but a conscious policy decision aimed at national development. The court’s failure to distinguish between the motivations behind public and private enterprises reveals a neoliberal bias that assumes market efficiency is the only legitimate standard.

But efficiency is not always aligned with the public good. In sectors like steel, energy, or railways, the objective might be ensuring equitable access or employment generation, even if these goals result in practices that appear anti-competitive by market standards.

False equivalence between public and private monopolies

The court’s assertion that State monopolies can be just as harmful as private ones is misleading. It equates the predatory practices of private monopolies— driven by profit maximisation— with the operations of PSUs, which are supposed to operate in the public interest.

The logic underpinning competition law is that monopolistic behaviour is detrimental because it is motivated by profit-driven exploitation. PSUs, however, exist precisely to avoid such exploitation.

Their monopolistic position, far from being inherently harmful, is often essential to their role in safeguarding public welfare, especially in sectors critical to national infrastructure. The decision to subject PSUs to competition law, without acknowledging this difference, fundamentally distorts the purpose of State ownership.

Dilution of State power in critical sectors

The ruling also reflects an ongoing trend of diluting State control over key sectors under the guise of market fairness. In a socialist framework, the State’s role is to intervene where market forces fail to ensure equity, access and employment.

By treating PSUs like private enterprises, the court inadvertently strengthens the neoliberal project of shrinking the State’s role in the economy. This is particularly dangerous in sectors such as steel or energy, where State intervention has historically played a critical role in ensuring that national resources are used for the broader public good, rather than being subjected to the whims of market forces.

The path forward: Socialist regulation, not market competition

The critique of CCI versus SAIL does not imply that PSUs should operate without accountability. Indeed, socialist governance also demands that public enterprises remain efficient and responsive to public needs.

However, the mechanisms of accountability should be distinct from those applied to private enterprises, reflecting the fundamentally different roles they play in the economy.

Rather than subjecting PSUs to the free-market principles enshrined in competition law, a socialist framework might advocate for a different form of regulation— one that ensures transparency, efficiency and public accountability, but does not force PSUs to compete in a market they were never designed to inhabit.

This could involve the creation of a separate regulatory framework that recognises the unique social mandates of PSUs, focusing on public welfare rather than consumer choice or market efficiency.

Such a framework could impose stricter oversight on PSUs to ensure that they remain focused on their public service objectives, while also preventing the inefficiencies and complacencies that often plague State-owned enterprises. But this regulation must be rooted in the socialist ideals that justify State ownership in the first place, not in the market-driven logic of competition law.

Conclusion: Competition law as a tool of neoliberalism

The Supreme Court’s decision in CCI versus SAIL reflects a deeper ideological shift in India’s economic governance— a shift that prioritises market competition over the socialist foundations of public sector enterprises.

From a socialist perspective, this is a dangerous erosion of the State’s ability to protect public welfare through ownership and control of key industries. By applying competition law to PSUs, the court not only ignores the unique role of public enterprises but also accelerates the neoliberal dismantling of State intervention in the economy.

The path forward lies in a more nuanced approach to regulation— one that recognises the distinct social objectives of PSUs and holds them accountable, not to market principles, but to the public good. In doing so, we might reclaim the role of the State as a protector of equity and justice, rather than a mere market participant.