To profit or not to profit? the case of state level public sector enterprises in India

Given the wide social ambit of state owned enterprises, operational inefficiencies may lead to forgoing profits. The current study examines profitability of state owned enterprises in India from 2007 to 2009 from a political economy perspective. The paper finds that profitability of an enterprise is driven by how right wing the state (where the enterprise is located) is. Additionally, if the state where the enterprise is located is politically aligned with the Central government, the enterprise earns higher profit. Finally, the effect of state subsidies on profits of enterprises reduces in the period just before state level elections.