Professional Documents
Culture Documents
Public Sector Enterprises have been playing a dominant and unique role In lndustnal growth and development of Indian econom!. In order to dismantle the
accumulated problems of unemployment, disparities of rural, urban, ~nter-regionaland lnterciass dlsparltles and technological backwardness and to set up a soclallsnc pattern of society In the country1 establishment of Public Entemrtsdxive been conce~ved
Public t.nterpr~teshaw become the temples of modem lndla2 Thls
IS
.-
the \Ision of
i'andlt Jawaharlal Nehm. who la~d foundat~onfor Modem lndra W~thhls slncere the efforts and ~nltratlves,lndla now has the bas~c strategic industnes ltke Coal, Steel, and M~nerals,Petroleum, Heavy En~neenng, Chemicals, Fertilizers, Pharmaceuticals, etc., base of the world' and has emerged as the major rndu~trial I'ubl~c l.nlerpr~sesHere prwlalmed to*ards galnlng control over the command~ng heights of the natlon and for promonng cntical developments in terms of
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'I nvedi, Pnajapau, "Publ~cEnterpnses in lnha If not Profit then for What9", Economic and Politrcal Weekly, Vol 1, No 48, November 29, 1986 'lndrasena Reddy, P , "Performance Appmsal In Publlc Enterpnses Through Value Added Approach, The Journal of Inshtute of Publ~c Enterprises, Vol 18 (3 & 4), Apnl-June, 1994, p 164
3~umaramangalam, S Mohan. "Public Sector Tomorrow", Mainstream. May 1987. p. 13 Yesterday, Today and
social gain and strategc value and to generate cornmercral resources for capital formatron Besldes, they are considered as powerful instrument$ of b n n ~ n g b u t a
soclo-economlc transformatron In our country On the contrary to the expectatrons, the performance of mo5t Publrc Sector 'nterprlses ha5 been a below the planned targets Many enterprises have accumulated deficlts over a penod of trme causlng conslderable dram on the cxchequer4 Thrs trend has attracted the attention of policy makers. politrr~dns, bureaucrats, academicrans, researchers and the publrc to find out the reasons for such
\hen fall In performance not onlv agalnst the stated objectives but also thelr
stand o n adoptrng sound wmmercral pnnclplcs of viablllty Thus. there 1s a conslderable nccd to c\arnlne and dnalyse the operat~onalaspect\ of select Publ~c Sector Fnterpnses whi~h dominate the entrre lndustnal base of our country
1.2
with weah industrial base, low levels of savrngs and Investment and lacks rnfrastructure
in Income. employment opponunltles were low, senous reg~onal lmbalances were noticeable In LTonomic attainments It was felt obvlous that if thc .ouiiti?. ~ i i to sp..d s up
11s ccullLmlc
11 In
State lnltlativc as an essentral pre-requ~s~te" '~enkatachalam, C., Financing of Publrc Entemnses in lnd~a, Himalay Publishing House, Bombay. 1986. p. I. ' ~ a k m i Narain, Principles and Practice of Publlc Enternrise Manapement. S.Chand and Company Limited, New Delhi, 1994. p 32
Besides, the Industrial Policy Resolution, 1948 laid down that the manufacture of arms and ammunition, the production and control of Atomic energy and ownership and management of Railway Transport should be In the exclusive monopoly of the Central Government By doing so, it has sown the seeds for the grow h of Public sector6
I he Const~tut~on Indla, adopted on 26U' January 1950, directs the State of
as per Artlcle of 39(b) and (c) to secure "that the ownersh~p and control of the matenal resource\ of the community are so d~stnhuted best to subserve the common good" and a\ 'that system does not result In the
concentration
1.3.1
of the
cconomlc and social re%pons~b~l~ties State to satlsfv the legt~mate of the expectabons of thc people
I he (~overnmentand rulers were real~sedthat these would he achleved
through the c\tabl~shment l'ubl~c Sector of of Owing to the small size of the First Plan, insuffic~ency funds ' ~ p a w a l . A N.. H.O. Vanna and R.C Gupta India - Economlc Lnformation Year Book. National Publishing House, New Delh~.1989, 9.279.
7m.. p32
and greater urgency of agricultural development because of serious shortage of food and industrial raw materials, the First plan did not make any big provision for industrial development However, 11 a ~ m e dat budding up the bas~cservices like Power and
Irrigation so that lndustnalisat~onmay be facilitated ' f i e Public Sector outlav on p w e r . transport communicat~onand ~ndustrywere Rs.260 crores, Rs.520 crores and Rs.120 crores respect~vc~y~ I>ur~ng plan penod, several new products came to be manufactured thls for the fir\t tlmc A numher of ne\s ~ndustnes icere establ~shed for example Petroleum retinaw, S h ~ p bu~ld~ng. Manufacture of A~rcraft, Rallwav wagons, Penc~ll~n D D T and However the temp) of ~nduztnallzat~on dunng the F~rst plan was \lo\\
1.3.2
Second Five Year Plan (19%-61) Ihe Second F ~ v eyear plan enb~sagedthe Publ~ck t o r In accordance
concentration
of
economlc power9 Bes~dec, Second plan has been huly called the ~ndusmal the plan It aimed at lavlng the ven foundat~on industrial development in the countn b\ bu~ldlng of
3 numher
The Publ~c Sector outlav allocated to Ihc actual In\estmcnt In the Publlc
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' ~ l a n n ~ nCornmiss~on. g "Second Five Year Plan: A Draft Outline, 1956, p.93 9 ~ C h a l a m ,F~nanc~ng. Publ~cE n t e m s e s In Lnd~a, H~malaya Publ~sh~ng of I-louse, Bombay, 1988, p 3
A spectacular ach~evement of the Second plan was the remarkable expanslon of Iron and Steel Industry through the senlng up of three huge Steel plants In an Publ~c Sector, v17, Rourkela, R h ~ l a ~ Durgapur steel plants Hec~des, apprec~able and expanslon of heavy tndustrles l ~ k e Heavy Englneenng, Chem~cal, Mach~ne tool\, Cement and Fert~ll~ers taken place In short, the Second plan could be regarded as the first has long-term planned ~n~tlatlve the Publlc Sector to bu~ld up the base for the of ~ndu\tr~al~\atton country of the
1.3.3
Third Five Year Plan (1961-66) The plan emphas17ed on the "rap~ddevelopment of Publ~cSector" to
\ c n e a tho-fold oblect~ves removlng certa~n of base d e f i c ~ e n ~ Inethe economlc ~nfra~ \ \tructure and reduce the scope for accumulat~onof wealth and ~ ~ o w ofhmonopol~st~c t
tendencies In prlvate hands1' The raisoo d' etre ot such an rxpanslon of Publlc Sector
could be found In the followng statement of the then lnd~anPnme Mln~ster,late Smt lnd~raGandh~."We advocate publ~csector for three reasons to galn control over the command~ng helghts of the economy, to promote cntlcal development In terms of soc~al galn and \tratcglc balue rather than pr~manl)on cons~derat~on profits and to problde of commcrc~al~ u r p l u ~ ~ \ ~ nhlchh to finance further cconornlc d e i e ~ o ~ m c n t ~ ~ e t The Publlc sector outlav on ~ndusmal de\elopment was Rs 1970 crores of whlch the Investment component was around Rs 1700 crores The Private sector
s Investment during t h ~ plan penod was about Rs 1300 crores Substantla1 "lb~d , p 9 " ~ a g a d ~ sPrakash and Nageshwara Rao, Adm~n~stratlon Publ~c h of Entcmnses In w a , H~malaya Publ~sh~ng House, Bombay, 1991, p 62
additions to capacity were made for the manufacture of Machine tools, Coal mining machinery, Steel making machinery, Paper machinery, Cement maclunery and Cotton machinery during this plan period. However, the progress in several crucial sectors wa5 far from satisfactory In case of special steels, aluminum and ferttllzers. In short, during Third Plan, a vast base for future industnal~sation emerged as a result of the completion of projects In areas of Heavy mach~nes,Heavy chemicals and Steel and the annual growth rate of industrial output waz in the v~cinity of clght per cent
1.3.4
The Fourth plan emphastsed the need for achievement of self-reliance tn Industry Accord~ngly.~t has proposed for faster expanston of ~ndustnesproduc~ng It
IS
also aimed at
devclop~ng~ndtgenoustechnolog~es,des~gnand enyneenng skills and to reduce the Import of fore~bmtrchnolog~es Besldes, ~t ha l a d panlcular stress on the development of lndustnes In the backward reglons and preventing further concentration on industrial act~vity However. the plan targets were fulfilled with a Public Sector's outlay Rs.3.630 crores and Private Sector investment during this plan period was Rs 2,250 crores. Moreover. the plan envisaged for Puhl~cSector "as the domlnant and effectlvc area of the economy so that 11 may take charge of the commandmg heights in the production and distribution of basic consumer goods12.
The actual
I2 Government of India, Draft Filth Five Year Plan 1974-79, Planning Comm~ss~on, Delhi, Vol. 1, p. 134.
performance during the plan was however disappointing. The annual growth rate was hardly five per cent as against the plan target of elght per cent
becomes self-sufficient and to have self-sustained gowth Also, the plan focussed or the henerrnent of econom~callyweaker sectrons of society, so that the gap between the nch and the poor
IS
narrowed down The total expendrture under the Fifth plan amounts to
Rs 39,426 crores of whlch the share of the Publlc Sector was Rs 8,989 crores worklng out to 22 8 per cent productron
I
Rapld gowth of the core sector slnce thev were v~talfor sustained growth on a long-term bass (Accordingly, hlgh pnonty was attached to expansion In steel, nonferrous metals, femllzen. mineral 011s. coal and rnactune burldlng);
II
Raprd dlverslficatlon and development of lndustrlal expons. Suh5tantlal Increase In the production of mass consumption goods Ilke Cloth. Edlhle oils, Sugar, Eletctncals, and
III
IV
Restram on the producuon of non-essenaal goods llke luxunes and comforts l3 The average rate of indusmal growth dunng this plan was targeted at 8 1
per cent per annum. However, the actual rate achieved was 5 2 per cent per annum.
-
'3Government of Inda. " r f Slxth Flve Year Plan - Job Generatron a Dat Challenge". The Econom~c Tlmes, Vol VII, No 160, September 2. 1980, p 89
7
U.6
While making a review of industrial development over the thlrty years of planning, the Slxth plan noted that industrial production had increased by about five tlmes. More Important than thi! quantitative Incraw In output, the dlversificat~onof mdustrial structure covering broadly the entire range of consumer, intermediate and cap~tal goods. IS commendable. The successwe plans have stressed the increasing role of Publ~c Sector In the removal of unemployment and under-employment and enhance the standard of llv~ng through the provlslon and distribution of essential commodities and prov~dinginfrastructural fac~llties However, the pattern of industrial development was not sufficiently gu~dedhv cost cons~deratlons Most, ~ n d ~ t n have tended to get established at subes
optimal capacltles lead~ng a hlgh cost of mdustnal structure to
In the light of the above, the Sixth plan has emphasized on optimum utilisation of exlstlng capacities and Improvements In productivity, enhancement of manufactunng capacity, specla1 attenoon to the caprtal goods ~ndustryand electronics industry, Improvement in energy efficiency, d~spersalof industry, such alike. Of the total expcnd~tureof Rs 1.09.292 crores proposed under this Plan, the share of Publ~c Sector was marked at Rs 15,002 crores which comes to 13.7 F, ieni. The p e r i d Slit11 plan
saw
tht.
I4 Rewrt of the Economic Adminishative Reforms Commission. on Government pf Publlc Sector Entenmses. B P E., New Delhi, 1985
The role of Public Sector is also clearly stated in the industrial policy of
1980 with a major stress on the o@murn ut~lisationof installed industrial capacity,
reduction in production, development of the export orientation and import substitution industnes and also to establ~shthe industnes whlch reduce the r:gional imbalances.
R ~ J I V ' government had marked new thrust towards liberalisat~ons, inter aha through S large scale delicenslng, broad bandcng of industries which remained within the ambit of licensing and h~gher endorsements for capactty
expansion.
The
fields like
telecomcnunccat!on. oil exploration, o ~ l refinery and c~vcl avcarion, which were csclusivcl!: rcscrved for the Publlc Sector, now t h r o w open to thc Pnvate sector'"
1.3.7
and
IS
rncdemcutlon rather than on large scale expansion of capaclty except when ~t crnperatnr
economy vlsualcsed in the Industrial Pollcy Resolution, 1956, 1s charactensed by a svmbol~c complementary relatconsh~p e e n the Publlc and Pnvate sectorI6 and b The Seventh plan has envisaged for an annual growth rate of 8 7 per cent
of industrcai productcon The lotal investment of Rs 19.708 crores was expected to be
invested In the Public sector to promote industrial development. This target was sought to be achreved through the increase in efficiency, productivity and upgradation of '"inarain, Publlc Enterprise Mmxuement, S.Chand and Company L~mited, New Delhi. 1994. p.37. I 6 s S . ~ . ~ l s hand V.K. Pun, I d a n Economv. Its Develooment Ex~erience, ra l-limalaya Publishing House, Bombay, 1996, p 601
technology It rs heartemng to note that the Seventh plan 1s deemed to have achieved the targeted lndustnal growth rate of 8 5 per cent It has been made possrble because of
adequate ~nfrastructure pollcles of the govemmentI7 lndustr~alPol~cy Statement of 1991 IS a total reversal of the ex~stence of Publ~cSector In lndla The statement adrnltted that many Publ~centerpnses have
become burden rather than the assets to the government and therefore, the government has to adopt a new approach to P u b l ~ ~ enterprises In the new economlc scenano The SIX dlrnenc~on approaches were suggested These ~nclude. of
I
Publ~c enterpnses to focus on strategic, h~gh-tech essential infrastructure Items, and Chron~callvs ~ c hPublic cnterprlses to be referred to the Board of lndustnal and flrlanclal Recon\tructlon
II
given
greater
VI
The (iovernment should ensure that the Publlc enterpnses are run on bus~ness lines
"L Naraln, "New Econom~cPol~cy Publlc Sector Reforms", The Economic and Tlmes of lnd~a, July 167, 1992
I8 Government of Ind~a,Draft Seventh Flve Year Plan, 1985-90, Plannlng Comm~ss~on. Delh~. Vol I . p 136
1.3.8
all set for managtng the trans~tlon from centrally The plan alms at roll~ngback the Pubi~c
sector Investment from those sectors of the economy where the pnvat- sector can move In The problem affl~ct~ng Publ~centerprises
IS
~nfrastructurewll be squarely addressed wth a vlew to maklng the sector strong and more dynamlc Bewdes, the thrust of new economtc pol~cyIS towards creatlng a more COmpetlhVe environment In the economy a a means to Improve the product~v~ty s and eflic~encyof the Publlc sector and generates the necessary surpluses as was ongnally envrsaged If 1s only an eftic~ent Publ~c enterpnce system that can enable the
(iovemment to meet ~ t soc~al s ohl~gat~on" Moreover, the Eighth plan env~sageda annual growth rate of 8.0 per cent In industr~alprcduct~on The first year of this plan has rr~tncsscd2 3 per cent growth wh~ch ~ncreasedto 4 1 per cent In the second year of the plan Thus, during 1992-93 hac and 1993-94, the Industrial growth rates fell short of the targeted ~ ~ o wrate It was due th to the factors like, the ~ m p recession However. ~ndustnalgrowth rate has sharply of picked up to 8 0 per cent in the rest of the plan period.
1.4
I,IBERAI,ISKI'IONS AND PUBLIC SECI'OR POLICY The change in economic policy of the Govemment has brought new
brought out a sea change in terms of liberalisatjon ofllcensing policy in favour of large
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15, 1992
m.August
busmess houses, particularly, In terms of maklng them free from the provlslons of MRTP Act and FERA Thls attltude of the government has created new awakenings on
Sector Enterpnses whlch are expected to fulfill the~r objectives on management of Publ~c
government dunng late 1980sZ0 The Industrial Pollcy announced by the Congress (I) Rao, on 24" July 1991 marked a s~gn~ficant departure government, led by Mr Naras~mha from the concept of a command economy towards a market dnven economy In wh~ch
liberal market based economlc pollcles were cons~deredas the major stlmul~l~kelyto
hoost the development of the lnd~aneconomy Bes~des,the new pollcy also marked
s~qlficant departure from the trad~t~onal command approach to Publlc Sector Pol~cy and redefined 11s o b j ~ ~ t l v e one whlch will ~nducegreater effic~ency,productlvlty and as competltlrenes\ In the Publlc Sector 7'hl~pollcv a~mcd to shed the load of the Publ~centerpnses whlch have showm a very low rate of return or lncumng losses over the years Therefore the government has adopted a new approach to Publlc enterpnxs Units wh~ch may be faltering at present but are potentially v~able must be restructured and glven a new lease of l~fe" Further, the government wII strengthen those publlc enterpnses whtch fall tn the reserved areas of operation or In hlgh pnonty areasor generating
good ~ r l drc,isonahlc prolit\
At the same tlme, there are a large number of chmnlcally slck publlc
" ~ r a n o m a Ray. "Llberallsatlon and Modernity MDI Management Journal, Vol6, No 1, January 1993 " ~ u d d a r Dan and Sundaram, l.~m~tcd. Delhl. 1998, p 171 New
enterprises incurring heavy losses, operating in a competitive market and serving little on no public purpose. In order to make these units to become more viable, the following measures have been suggested:
i. Portfolio of Public Sector Investment wll be revlewed with a vlew to re-focus the
Publlc enterprises whlch are chronically stck and are l~kelyto be tumed around would for the formulatron of appropnate revlval or rehab~l~tatlon schemes be referred to the Board for lndusmal and Flnanclal Reconstruchon (BIFR),
111
In order to ralse resources and-encourage wder publ~cpanlclpatlon, a part of the government's share holdlng In the Publlc sector would be offered to mutual funds,
1.5
natlonal document. one can gather together a set of ohjectlvez of the Publlc Sector from ofiiclal documents irom tlme to hme az tolln\\s
I
Help In the rapid economic growth and ~ndustrial~sation the country and create of the necessary ~nfrastructurefor economic development,
il.
iv. Create employment opportunities; v. Promote balanced regional development; and vi. Assist in the development of small scale and ancillary indastr~es; vii Promote import substitutions,save and earn foreign exchange for the economy These objectives, for obvious reasons, have undergone changes over a period of trme
1.6
PROGRESS MADE BY PUB1,IC SECTOR ENTERPRISES IN LNDIA Publlc Sector In lnd~ahas been cntlclsed vehemently by a number of
\upporter\ of the Pnvate Sector who have chosen to shut thelr eyes towards the achle~ements the Publrc sector Followng descnpt~on sufficrent to conwnce one of be that Publ~c sector has played slbmlficant and a defin~te s ~ t ~ role In the economy p ve
1.6.1
Sim and lnvestment In order to achleve the stated objectrves, the government of lndia has
nods
The
phcnorncnal Increase o f the s1c.e and Investment In t h ~ s sector can be observed In the Table I 1 The number of enterprises has ~ncreasedfrom a mere F~ve companies In 19.51 to as many as 243 companies In 1995-96. S~milarly. total investment has also recorded a steep nse from a meagre amount of Rs.29 crores to a huee amount of a little over Rs. 1.64.332 crores during the same period. The investment In the Public sector over the years has grown at an annual Compound Growth Kate (CGR) of 28 26 per cent dunng forty-five year period. Moreover. its spectacular
Table 1.1 Growth of Investment and Size in Central Public Sector Enterprises Since Independence
1
!
Year
11
I
1
I
CGR : Compound Growth Rate Source: Bureau of Public Enterprises, Public Enterurises Survey, Wnistry of Industry, Government of India, New Delhi, Vol. I , 1995-96, Chapter 1
growth in size of investment has diversified into vmous fields of activity. Public sector has created the infrastructure base for modem industrial economy and has helped the economy in achieving a very large measure of self-sufficienc!~ In the matter of industrial equipment and mach~nery,designing of power equipment. bas~cdrugs and chemicals, raw materials, aeronautics, making of steel, mining of coal and minerals, extraction and refin~ng crude oil, manufacturing of heavy machinery, machlne tools, Instruments and of activities other commerc~al
1.6.2
Generation o f Employment Puhl~c enterprise have a hignlticant place In Indian economy as they have
From the
emploved in Public Sector Enterpnses receiwng an average emoluments of Rs 105,879 per annum When these figures are compared to that of the 1975-76 figures, only 15 05 lakhs were in e m p l o ~ e n twith an average emolument of Rs 8.983 per annum The achievement wwthln nineteen years appear significant However, it could be noticed that Pcb!:c e-!cTrxes have reduced the emplovment mzrgnallv since 1990-91 due to the lntroductlon new economic pollcle.. Desp~teot thew new trends. Public Sector has
saved the mlllions of population trom the problem of unemplosment and mlsery and of helped in the stab~lisation lndustnal productron
Table 1.2 Generation of Employment and Average Annual Per Capita Emoluments in Public Sector Enterprises
Year
I
1
I
1995-96
--_l_______ L CGR : Compound Growth Kate Source: Bureau of Publ~c Entepses. Publlc Entemses Survey. Mlnlstq of Indusm. Government of lnd~a. New Delh~, Vol 1, 1995-96. Chapter I
CGR
20 51
1 69
102879
1 1 59
1 I I
1.6.3
Contribution to Exchequer The Public Sector enterprises have been making cons~derablt: contribution
to the central exchequer by way of dividends, corporate tax, sales tax, excise duties and customs and other duties. Their contribution to the central exchequer on the whole ~ncreasedat the rate of 2 1.17 per cent per annum from Rs 1,196 crores to Rs.32,096 crores by 1996-97 a.can be observed from the Table 1.3. The phenomenal growth is due to record nse In corporate taxes and dividends Though the growth rates In exclse and tax are low. these two resources have contnbuted 81.25 per cent of the total contribution made by the Public Sector to the government
1.6.4
the~rrole In foreign trade and the~r contnbut~onIn earnlngs from foreign exchange for the country As far as f o r e ~ g exchange earnlngs are concerned. the Public Sector has contnbuted In three ways i
II
Through d~rect export of Items produced in the Public Sector Through servlces rendered by the Publlc Sector undertakings. and Through trad~ngand marketing servlces of the undertakings through wh~chthe exports are canalised
ill
19x1-XL 1982-87
IOU
IT
'
/
I
1
/
133
176 191
1190 lo00
,
I
4117
--
14 58
I28l
C G R : Compound Growth Rate Source: Bureau of Publrc Enterprises. Publrc Entemnses Survey. M~nlstry Industry. of Government of Indla, New Delhr, Vol I , 1995-96. Chapter I
13 82 -- -
1683
The Public Seclor Enterpnses' export earnings are depicted in Table 1.4. The earnings of the Public enterprrses from exports have substantially rose from Rs.1640 crores In 1975-76 to Rs. 1 1,326 crores in 1995-96 whlch constituted roughly 43 per cent of the total ~ndustnalexports Thus, the Public Sector enterprises have today cc me to share of the total exports command a very substant~al
Table 1.4
Export Earnings of Public Sector Enterprises
I
---
1
I
I
I
1975-76 l Y7h-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1986-87 1988-88 1988-89 1989-90 1990-91 199 1-92 1C9Z-93 1993-94 1994-95 1995-96 CGR
- - --
I I
1640 00 1753 00 1562 00 1834 00 1913 00 221700 2756 00 4747 20 5512 10 583 1 45 3822 32 3941 78 417648 489222 6367 84 7085 82 8979 78 10338 02 11935 52 11326 18 11 05
-.
I
I
42 50 6 90 - I090 17 40 4 30 1 5 90 24 30 72 60 16 53 5 41 - 34 45 3 31 6 03 17 14 10 12 1 1 31 26 73
15 13
1
--
--
15 06
-
Source: Bweau of Publlc Enterpnses, Publ~c Entemnses Survey, M~nlstryof Industry, New Delh~, Vol I . 1995-96,Chapter I Government of Ind~a,
1.6.5
The role of Publlc Sector ~ncollecting savlngs and lnvestlng them dunng and the planned era has been very ~mportant Dunng the F~rst Second plans of the total ~nvestment, per cent was In the Publlc Sector and the remalnlng In the Pnvate Sector 54 The share of Publ~c Sector enhanced to 60 per cent In the Th~rd Plan The Fourth, Fifth and S ~ x t h plans env~saged respectively 59 per cent, 57 6 per cent and 53 per cent share In Publ~cSector of total plan Investment However, for the first tlme slnce the advent of plann~ng, Seventh plan reduced the share of Publlc Sector Investment ro below 50 per the cent and kept at 47 8 per cent compared to 52 2 per cent for the Pnvate Sector At the same tlme. the Puhllc Sector financ~allnstltutlons have plaved an Important role In
collecting savlngs and mobll~satlon resources
The share of Puhllc Sector In Gross Domestlc Sa\lng\ iGIlS) wa\ 16 2 per cent d u n g 1980-8I , 7 3 per cent ~n 1992-93 and 6 9 per cent ~n 1995-95 Dunng the per~od Sixth plan, the publ~c of sector's
wing
1s declined to 10 8 per cent dunng the perlod of the Seventh Plan Another element of contnbutlon of Publ~c Sector to ewnomlc development
IS ~
Capltal Forrnat~on (GDCF) whlch has gone up from about 40 per cent dunng 1970-75 to about 52 p r cent dunng the Seventh plan penod22 Hence. the Publlc Sector has played tbrmat~on ofthe count5 tbr the past five decades a postll\r: role for the cap~tal
L6.6
--
- -
Transportation and Communication facilities, and basic and heavy indushies, the process of industrialisation cannot be sustained. lndia had inherited an undeveloped basic infrastructure from the colonial period. After Independence, the Private Sector neither showed any inchnation to develop itself nor d ~ d has any resources to make this 11 possible It was comparatively shy both financially and technically and was incapable of
establishing a heavy Industry immediately. This has forced the state's participation in
~ndustnal~sat~on essential, as the state could enforce a large wale mobilisation of capital, the co-ord~natlovof ~ndustnalconstruction and tralnlng The Publlc Sector has not only lrnproved the road, ra~l,alr and sea transport system, but also expanded them in manlfold l'hus. the Publlc Sector has enabled the economy to develop a strong
infrastructure for the further economic growth. At the same tlme. private sector also has benefited immensely from these projects undertaken by tht: Public ~cctor".
1.6.7
.4ehicvcment of Balanced Regional Development The (;overnment of lndia tned to use 11s power of senlng up of newer
industries as a means of removing regional dlspanties in industrial development. In the pre-Independence period. much of the industrial progress of the countN was llmited In and around the port towns like Mlimbai (Bombav). Calcutta and Chennat (Madras) All other pails 01' thc count9 lagged far behlnd Through the Inlnatlon of the Plannlng
Commlsslon In the country by 1951, the Government of lndia has pad pamcular anentlon to thls problem and has set up industries in a number of areas hitherto neglected
by the Private Sector. Thus, a major p r o m o n of Public %stor
drected towards backward states and backward regions of the country For instance, all
U R.Nagaraj. "Public Sector Performance In the Eighties", Economic and Political Weekly. December 14. 1991, p.877
the four major steel plans In the Publ~c Sector, namely, Bh~lat Steel Plant, Rourkela Steel Plant, Durgapur Steel Plant and Rokaro Steel Plant, were set up In the backward States Further, ~t 1s bel~evedthat the senlng up of large scale Publ~cSector projects In the backward areas would unlash a propuls~vemechan~sm 111 them and cause economlc development of the hlnder-land Hence. these conslderatlons also y ~ d e d locat~on the of
machinery and machlne tools factones, aircraft, transport equipment and fert~l~ser plants,
1.6.8
Import Substitution and Export Promotion Ava~lab~l~ty fore~gnexchange reserves often emerged as a senous of
Ihr
constraint appeared In a rather strong way In lnd~adurlng the Second plan and the
subsequent plans On account of these cons~derat~ons, such ~ndustnesthat help In all Import subst~tut~on of crucial Importance for the economy are The establ~shmentof
1.1rnlted (BEL), Hlndustan Bharat Heavy blectncals Ltmtted (BHEL), Bharat Electron~cs Ant~b~otlcs L~m~ted (HAL), Inman 0 1 Corporat~on (10C). 0 1and Natural Gas 1 1 Comm~ss~on (ONGC),etc In the Publlc Sector I S of spec~al Importance from t h ~ s polnt of V l P W Moreover. several Publ~cSector Enterpnses have also played a v~talrole In expand~ng exports of the country The H~ndustan the Steel L ~ m ~ t e d (HSL), Hlndustan Mach~neTools Ltm~ted (HMT), Bharat ElecbPn~cs L~m~ted (BEL), State Trad~ng Corporat~on(STC) and Metals and Mnerals TraQng Corpomhons (MMTC) were establ~shed t h ~ purpose for s
.-
-- 2 . 4
--
I3ureau of Publ~c Enterpnses, "Public Enterpnses Survey". M~n~strv of New Delh~. Vol 1, 1994-94, p 10 Industry. Government of ind~a,
1.6.9
Development of Ancillary and Small Scale Industries An important constituent of governments' industrial policy the
IS
development of small scale and anctllary ~ndustnes help the achtevement ot soc~oto economlL ohlecttve\ such as generatlon of einplovmcnt, reduction In dlsparittes of Income, promotton of balanced regtonal development and decentralisation of industrtes over large areas For thts purpose the Publtc Sector enterprises \pelt out the steps to be taken hv them to accelerate the growth ot anctllaq industnes through huvtng their tnput lequlrernents
d\
1he I'uhllc \ e ~ t o r Enterprtses mndc \~gntficant and ebenttul record In term5 ot turnobcr output promotton ot ekports contnbutlon to the exchequer, generatlon ol r.rnplo\msnt opp~rtunit~es de\elopment of anclllan and small scale sector Hut the financial standlng and profitah~litkot most of these untts are not very much \att\faLton2' An analysls of the worbtne result\ of Central Ciovemment It is true that the
cftictenc\ of Puhltc Sector Enterpnses cannot he measured tn terms of profitabtlln done Ilo\\s\er other crtterton llhe their capacct\ to contnhute to the puhl~c exchequer pcnerdtiotl of cmplo\ment opportunities earntngs throct~h loreign e\pnrt\ reg~onal
n Mohammed Talha. "Publtc Undertaktng White Elephants", Vol 30, No 17, September 16-30. 1986, p IS. Bhapat, L Ci , "What is Wrong w t h the Publtc Sector", Y, o September 16-30, 1982, p 22
Bureau of Publtc Enterprises. "Public Enterpnses S u n e l Industrl (;overnment of lndla, New Delhi, Vol 1 1990-91 p 27
16
'
Minlstrv of
the evaluation of their performance. But in our country, where there is a paucity of funds. profit is no doubt of paramount important criteria. If an enterprise fails to make protit, ultimately it leads to the erosion of its share capital and if t h ~ ssituation is regard. ~t is an important to prolonged further the enterpnses ceases to existz7 In t h ~ s recall that the Planning Commission expected a min~mwnreturn of at least 1 1 to 12 per cent on investment made in Public sectorm. Therefore, planned profits are a must for the estahlishinent ~ I ' s t ~ i a l i s tpattern of s o c ~ e h ~ ~ ic I>unng 1975-76 and 1995-96, the Investment in the Central Government Fntcrprizes pre\\ h \ more than 17 69 times from Rs 9.006 crores in 1975-76 to
Rs 1.73,874 crores In 1995-96 registering an annual growth of 16.32 per cent as can be
sccn (iom thc '1 able I 5 . I h e gross margin from the operation5 of'these enterpnses ha\.e
alw Sro\rm o\er the \ear\ at the rate of 19 per cent wh~ch1s larger than the rate of
in\cstmmt in these enterpnses Besides. the size of gross prolit after depreciation also enhanced of the rate of 19.08 per cent per annum. The s ~ z e of g o s s margin and gross s profit when compared to that of the capital employed are show~ng proportion ranglng a from 1 1 20 p r cent in 1975-76 to 17.83 per cent In 1993-94 and 7.42 per cent and 1 1 57 per cent respectively
1 hese rates of protitablilt! would leave anything towards
ni.1 prt)fit ~I'onc cons~dcrs adinlnistrati\c and other c\pendirurc hlan! studiesm ha\e the ctmcludcd lhat the present lcvel of growth In gross prolits absolutely negligible to earn an! sartstactoq rate of return on capital employed
.-
--
S S Marathc. "Rc-assessing the Public Sector". Indtan Management, March 1995, p 22 ?lannlng Comm~ssion, "Fourth Five Year Plan
A Draft Outline", Government
27
of, p 88 1966.
" ~ e i r .Gerald, M , I.ea&nr Issues in Economic Develovment, Oxford tlnlverslty Pre\\. tlong Kong. 1975, pp 393-398 Accountant. "4baidullah. Md , "Pnuattsation March 1990, pp 68 1-683 Through L>is~nvestment", The Chartered
Table 1.5
I
I
I
.-
--
--
--
--.- --, i
(Rs In Crores)
Percentage of Cmrs Profit to Capital Employed
/
Cross protit PmTax i Pmlit (after / Percentage of setting o T I Gross Margin E losscs of loss 1 to Capital Employed
Gross Margin -r
i-
'
Dcprccim-tion '
Number of ~ n t e r p h
Capitnl p l o
and DRE
i
A
y;h;
1
'
r-
~+
i Taxea I I - 4 i I
I
8
1
I
'
/
'
160 185 225 19 1025 1542 I480
.
11
1
'
1
1
,
i1
1
1
'
1
,/
, ,
1
9006 11057 12065 13969 lo182 18207 21915 26526 29851 36382 52965 1972 55617
1014 1490 1489 1766 2055 2401 4012 5184 5771 7386 8270 9897 11082 17478
345 467 574 695 826 983 1758 1720 2205 2758 2983 3382 4142 4866
'
18312 22223 25227 27600 31846 37 177 1899 7210 8548 9270 9162 92 16 9189 1 8 8 0
'
1
1
I8 83
125 149 155 159 169 168 188 193 201 207 211 214 220 226 233 276 237 239 240 2173 3095 3357 4405 5293 3501 4003 5076 6544 9768 14065 17 4 9
::::
i
1
1
!
1975-76 1976-77 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 9 8 5 1986-87 1988-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 668 1028 915 1071 1229 I418 ?654 7465 7565 4628 5287 65 I2 6940 8572 10622 1 1 102 13675 15957 18478 22670 27988 1908 763 607 755 886 1004 1799 1630 1927 2086 2529 3115 3416 7587 4167 5729 7601 9673 1088 1 1 1894 12862 13927 2016
:
j
' ---CGR --
CCR :Compound ~ r G R a t ~ h
1672
[ _
17 33 1960 21 38 2 30
Source: Bureau o f Publlc E n t e r p r ~ ij'ubllc Lntemnses Suney Mlnlqtn ut Itidurtr) Go\enllnent of Indl* UCHDelh~ Vol 1 1995-96, Chapter 1 ~~
L7
that, in relatlon to the capital employed, the level of profits have been too low. Even the Government oiIndia has cnticised the performance of the Publlc Sector Enterprises. For Instance, the Eighth Five Year Plan notes that the Public Sector has been unable to generate adequate resources for sustalrung the growth process-J1. Moreover, the poor performance o i Publ~cSector Enterpnses is due to a host of problems which may be classlfied into financial and non-financial problems based on various studies. Some of the problems can be enlisted as follows:
I.
Under unlisat~on of installed capaclty is a major reason for the low level of profitablily and poor performance In Public Sector Enterpnses pan~cularlyIn case of capital lntenslve unlts. A large number of these enterprises have operated at less than 50 pn cent of thelr capaclty for a number of yean. It affected the operational efficlenq of the enterprisesx
i ~ . General]!. pnces are determlned at a level that would cover total cost (includng
taxes) and provide a sufficient net return over &I above thls. As against h s , the , pncing policy is determlned by the politicai and social objectives rather than financ~al objectives" Lack of rational pncing policy has resulted in poor
profitabll~y and has left leaving little profits for financing the expansion
''~lannin~ Comm~ssion, "Eight Five Year Plan", a , p. 108. t Vol.11, ''~ija? Kalkar. "Public Sector Measures to Impart Efficiency", The Economic -,Januq3. 1991.p.11. *lansung Commission, " ~ a t h uN.D., "Profitability in Public Enterprises", Lot Udvog, Vol.XIU, No. I. April 79, pp.3-27.
m.
III
Most Publlc Sector Enterprises are over-capitaltsed and hence productiv~tyof capital
I S lowJSdue
J xces\lve dependence on external sources of fund\ and Loncequent Interest pdymenl obllgations affected the comrnerc~al vlab~llty of most Publlc Sector cntcrprlses The poor generation of Internal source5
1s
Poor planncng nnd dcla) In tmplemcntatlon ol project5 resulted in a r a w In the cost of the prqectn Cost escalat~onwas due to changes In project utes some times due to a bclatcd recognition of product rnlx that
IS
conJ~t~on\ Sldrllng the proleclr behlnd t h ~ schedule 1s Ieadtn~to make nlost p r o l ~ ~non \ lahlc'. t\
\I
I he tailure to glbc adequate return on the huge Public k c t o r lntcstrnent has been a
lnyor contrlhutlng factor towards the recent fiscal and forelgn exchange crlsls ibhlch has put severe stralns on the lndlan econornj"
VII
"lhd\cr~ h l Kc\tructur~ngthe Ualan~eSheet\ o Publli Scctor L.nterprl.;es f and I'r~\atl\atlon I'ldns Publlc E.ntcr~rtsesVol 4 Nos 1-1 1994 p 6 ; "~crlhat.l C halam (I and DAsh~narnunh\ t) Poor Return5 and l o\+ ener era ti on of l,unds in the lndlan Publlc Sector Publlc Enternrises Vo19 No 1 1989 P 49 37 Pram11Chaudhiry, 'The Indian Economj New L)elh~,1989, p 157 and Frank C Slngh. "Publ~cSector Problems The Cost of Delay", C M New Delhi, No 17, 1980 p 4
J Y ~ ~ l m a d hMohanty 'Public Sector Fnterprises In lnd~a Need for Baslc ap Kelorms Public Cntemnses, Vol 14. Nos 3-4, 1994 p I 0
ministries reduced the flexibility in taking up commercially viable decisions and thereby inclrrred large amount of oppo~tunitylosses39 Thus, it is evident that Public Sector Enterprises were incurring losses conttnuously due to the presence of numerous financ~aland non-financial p1:)hlems f3es1des, one essential cause for the losses incurred by these enterprises in the poor
operating and linanc~alperformance of these enterprises
makers, bureaucrats. managers and also researchers have not given due weightage and imponarlcc on this prohlem dimen~ion Hence. this present study is planned to explore ~ n t o thts
1.8
that the (io\ernmcnt to 'ensure that the Publtc Sector 1s run on bus~nessl ~ n e s ' The ~ nc\r economic pol~c\of 1991 stressed the follo\\mg four measure< to reform the Puhl~c Sector enterprises in lndia
I
Keduction In the number of ~ndustnes reserved for the Public Sector from 17 to 8
I
rc~luc.cJI<) 0 Inlsr o t > anJ the ~~~rroduction t ' s e I ~cornpetltton in the rc5enr.d ~ ~~ ~t~\c
areas.
39
Uapat. N t i , "l.ossrs In Publrc Sector Enterprises Government should not Interfere Into Day-to-Day Affatrs". m a . December 29. 1979, pp9-10 and Summtt Chaharavarthb. "Autonomy to Publlc Sector for Rev~tal~satton". Apnl 16-30. 1987. p 17
K V~swanathanand S Roy Chaudhaq. "Kestructunng the Publtc Sector The Prlvattsatton Opt~on",Public Enter~nser, Vol 14, Nos 1-2, 1994, p 49
29
u l
ii. The d~sinvestmentof shares of a select set of Public Sector Enterprises In order to ralse resources and to encourage equity participation cf general public and workers of in the ownersh~p Public Sector Enterprises;
11i
The policy towards sick Public Sector Enterpr~sesto he the same as that for the Private Sector. and
IV.
An improvement of perfbrmance through an MOU system by wh~chmanagement are to he granted greater autonomy but held accountable for specltied results"". In
add~tion. there was a draqtic rcduct~on in the b u d g c t a ~ support to sick and potent~all\. ~ c k s Publ~c Sector tnterprises
I'he ne\v ~ndustrlalpol~cy had reduced the 11stof reqerved industries to the Publ~c qector from 18 In 1956 to 8 in 1991 The! are
(
1 ) Arms and
Mln~ngof Iron Ore, Manganese Ore, Chrome Ore. Ciypsom. Sulphur, Gold and Diamond. (6) M~ncngof Copper, Lead, Z~nc.Tin, Molyblenom and \hlolfi-am, (7) Mlnerals specified In the schedule to the Atomlc Energy (Control of product~on and use order, 1953,. and (8) R a ~ lI'ransport In 1993. Items 5 and 6 \\.ere deleted from the
reser\cd 11st As of no\\. onl? h lndustrles are rcscned for the Puhl~c Sector Thus. of the 18 ~ndustr~es reserved for the Publ~c Sector slnce 1956, as many as 12 are now open
1.82
The lndustr~alPollcy of July 24, 1991 marked a s ~ g ~ f i c a n t departure from the concept of a command economy toward\ a market drlven economv in w h ~ h l~beralmarket-based economlc pollc~es cons~deredas the major stlmul~to boost the are growlh and development of the lnd~an n d u s t r ~ e d ~ ~ Hes~des, pollc) has suggested the the Sector status of Publ~c Sector unlts to be on par 1 ~ 1 tthe Pnvate Sector unlts Publ~c h I-nterpr~ws have al\o heen brought iv~thln l u r ~ s d ~ c t ~ o the Board for Indu5trlal and the of n k~nnnc~al Keconstructlon (BIFK) The UlFK that w ~ l dec~de l whether a s ~ c k Publlc Sector unlt bc cfli.ct~\cl)restructured or 11 has to be closed do\sn As on December 21, 1995, 138 cases of puhllc sector unlts (59 belong to Central Government and 79 belong to
State\) \\ere rcferrcd tcr
RIrR
r e \ ~ \ a l\chcme \\a\ sanctioned for 29 caws, ~ h t l e ~ n d ~ n g was recommended to the w up con~crncd l ~ g h I Courts In I4 caw5 ( 5 Central
\
and 4 State\
enterprises
has
naturall) caused \\idespread resentment rn the \rorhtng class as the danger of retrenchment of labour now looms large 1 o solve thls problem, the government has set up a National Renekral Fund (NKF) for retralnlng and redrplo)ment ofretrcnchcd labour
1.8.3
IS
l n d ~ aand the new lndustr~al Pollcq of July 1991 which stsls to make 11an effectlbe
-41
- -
--
- --
Sun11Khatn~and Kasto Macus", Strateg~c Opt~ons Restwtunng the Publlc for Sector In Ind~a",Publ~c Enter~nse. Vol 14, Nos 1-2, 1994, pp 3-19 U~aL.esh Mohan, ..Puhl~c Sector Reform In the New lndustnal Policy'.. Public Entemnse. Vol 14, Nos 3 4 , pp 240-242
mechanism for performance improvement by prov~dinggreater management autonomy to Publtc Sector Enterprises and at the same time making them accountable by various means. Furthermore, a MOlJ is an instrument whtch defines the relationship of the Publtc Enterprise wtth the government (Adm~nlstrat~ve ~ n t s t and clarifies their M ~) respective roles In order to achieve better performance The emphasis \s on achleving
the ncgottatcd and agecd targets rather than ~nterfcrlng the da! to day affalrs In When the Moll s>stem cornmenccd In the year 1987-88 \\hen only four unlts s~pnad perfi~nnancecontracts by the end of the year 1994-95. the number of such
enterprises had gone upto 99
the performancc of 39 as excellent and of ?h ah \cr! good Onl? the prrformancc of two were rated pnor ichtle e\,aluation for 16 i s pendtng. I'hus. the financial performance of these cnterprtses was better than what \\as targeted for In the hlOl!\
1.8.4
Disinl estment
The
and to
realtgn filth the economtc pol~ctes pursued bv the government Rased on the suggestions of Rangarajan Comm~ttee 1993. the rattonale beh~nd d~s~nvestment In the programme
IS
to r a w non-tnflattonary form of finance to meet the budgetary needs whtch Include requlre~nents of development actlvltles and scx~al ohl~gattons This probvamme commenced In 1991-92 and by December 31. 1995, the gwernment had d~s~nvested a
part of its equity in 40 Public Sector Enterprises and had raised an amount of Rs. 10,500
crores through the various rounds of disinvestment during July 1, 1991 to December 3 1. 1995 The shares were initially offered to select financial institutions and Mutual Funds. But slnce 1992-93, 11 ey are being offered to the public as well The government planning to oWer shares of Public enterprises to the workers of these enterprisesu. Thirty one PSlls were selected Ihr dlslncestment In the first phase of 1991-92 in the arcas of Petrolcum, Fcrtiliscrs, C'omrnunlcation. Flectron~cs and Iqeav! Chernlcals, Computers and
IS
also
public enterprtses tn lndla can take place c~ther through o\\ncrsh~p transfer or manageincnt transfer or financial transfer, thc frarncwork oluhlch
IS
given below
1.8.4.1 Ownership Transfer The ownersh~p transfer has alreadv taken place In the case of some PSUs cn lndta I or In\tance In llnar Pradesh IJP Auto Tractor\ 1.1mlted has k e n handed o\er
to Mi+ Clpanl Automotrres 1 lmlted In Andhra Pradech the AIIwyn Nlssan Llm~ted has
l.U.4.2 Wanagement Transfer Management transfers have taken place In State Owned Publlc Enterprises of Kajasthan. A sodium sulphate plant of a departmental enterprise has k e n dec~ded to
be glven on l e a x basis. U
--
Busmess Standard, Frlday 17. Apnl 1992 and Nand Dhamaja, "PSU Dls~nvestrnent.Concepts and Practices In Ind~a", Product1\15, Vol 36, No 4, Januac March 1996, pp 620-672
Financial transfers are gaining the greatest momentum. The pnvat~sation of Marut1 lldyoy 1.imited is a case In point where~nthe government has become a minor~ty shareholder Ilowevcr. thc privatisation
IS
succinct lnrrnnrr
IS
"
in
V~CH of
non col~s~dzrcd prlrnc factor Tor much ncedcd soc~aland ccunomlc change US
~rnplic that pr~\a~isntion ha\.c to he \,ie\vcd essentially as the best possible means of \\ill achlevlng pre-dctcrm~nedtargcts and ensurlng that 11 does not d~ston parameters of the such end.;"
I'\~hl~cattctirltw In our countn ha5 hcrn tclcu\cd on ,o nitlch prlormancc i ~ f C'c.ntmll\ sponsored Publ~cUndertallngs In order the
:>ri
thc
stand and prospects In chang~ngeconomic environment In t h ~ s sectlon an attempt made to revlew the existing l~teratureIn evaluating the operating and
IS
financ~al
performances 01 Publ~c Sector Enterprises w t h a vlew to ~dent~fq gaps that exlst the
different researchers and agencies are examined in the following paragraphs An early attempt has been made by Professor ~amanathan" on "Finances o f Public Enterprises", In 1971 wherein hc has examined and analysed
d~fferent aspects o f financing o f public enterprises While focussing his attention on the profit and prof~tahilitccriteria, he has explored Into the impact of pricing policies on the public sector linancing. ~harma" has h~ghlightedthe problems o f fiwnc~ngthe operations of publli cntcrprlses at different stage< such ah gestation. operation and expansion. It 1 s ohsen cd from the qtud! that thc go\,ernment was the malor pro\ ~der f finances o f these o cnterpriwh The p;~ttc.mof financing dur~ng perlod \\a\ sim~lar the gestatlon ~ r l o d to
The contr~bution internal funds was far beh~nd of the potential mainly due to the poor
operating profits \\hlch led to thc dcpcndenic on horrcl\\cd funds in the total capital
structure t~fthesr. tnterprlses slnghU has made an exploratory stud) on the performance o f publlc cnterpnses dunng the pcrlod o f ten years endlng 1979-SO lit. has ~dentlfied number a o f reason\ for poor performance o f public cntcrprws gestation perlid. These include. the long
adoptinn of administered pnce p>licles. managerla1 ~nefticiencies lack o i a c c ~ u n t a b ~ l ~ t ~01' ~ ~ ) I i t ~ c i dI ~: I I I ~ ! role . In) I mah~ng. ctc.
4 IIIJII~;.ICIICC\.
%amanathan. V.V. Finance o f Publ~cEntemses, Asla Publishing House, Bombay, 1971. "~harma B.S.,Financ~al Plannlnn i n Indian Public V i h Publishing House. New tklhi, 1974.
m,
U ~ i n g h K.R. "Publlc Sector Enterpnxs An December 1-15, 1981, pp 9-14 Southern Econom~st.
Evaluat~ono f
Performance",
Enterprises in India against the explicit and implicit objectives during the period of 1976 and 1985. He has apprec~ated the performance of these enterprises in respect of their efficiency in generation of employment and their contribution to the net domestic savings in lndra He lamented on the non-implementation of different recommendations made by the different Committees for the betterment of the efficiency of these enterprises tie has pleaded for restructuring the management styles and
accountability aspects of these enterprises ~harra" has made a rc\iebr on d~fferent studres relating profitabrlrt! prfonnance 01' concluded that the to the
puhlrc entcrpriqes The stud~es rebrewed by hlrn have deteriorating performance of public
~rakash" had made an attempt to find out a su~table criteria for measuring the efficiency of Public Sector Enterprises in India. After a careful analysis of the rvorks of different authors lrke Sargent Florance, Grlber Walker, Om Prakash, Keshav and others, he suggested a set of d~ffcrent financral measures to eialuate the eflicrcnc) of l'ublrc Sector Enterprises namcl! protir bcfore ti . \ He has identified c e m n financial ratios,
to salcs. profit h-forc ta\ to nct \ror!h. \slur: of production ro ratios as better rndrcators of performance
Ilowcver, he has admitted that the measurement of el'ficiency of public enterprises 15 not always possible as against multiple objectives for which they are established. %agchi. K.Amiya, "The Role of Public Enterprises in lndia". Asian Develo~menl Review, 1982. pp.89-100. -~hatia B . S , "Researches on Profitabil~ty of Publ~cEnterprises". RBI &c~ Pamrs, 1983. pp.32-39. -S S ~ O M ~ "~rakash. J.. "Measuring the Efficrency of Puhlic Enterprises". The Journal of Institute of Public Enterwises. April-June 1983.
Another study in the same pattern is that of the ~ansal". He has tried to identify the financial measures of perfomance in Public Sector Enterprises by constructing 91 different types of ratios. He has employed the 'factor analysis' to consider different sets of variables Enterprises ~ a o " of Reserve Bank of India has evaluated the performance of nonfinancial non-departmental enterprises in Public Sector coverlng a period o f two decades ending 1980-81 tie observes good capital-output ratios and capital formation rates durlng thls period. He has evaluated the productiv~ty In operations b. !
employing
Cobh-Douglas production funct~onsbetween operating surpluses and the fixed assets turnover ratlos tic found that the entire capital formation is financed through
brrow~ngs either from government or other institutional agencies He has observed that the h~heIn inflation rate has been reducing the operatlns surpluses to the extent of
0 92 per cent with every one per cent rise in Price Index
~rinivasan" has made a study on some of the recent trends in financing Public Sector Enterprises in Indra. He observes that the role of equity has been
decl~nrn!; In publlc enterpnses from 26 4 per cent to 20.6 per cent and interest beanng funds habe been cxcupylng 30 3 per cent to 33 6 per cent of thc total capital structure dur~ng1975 and 198: Thcsc \hlftz together
\ \ I I ~ lncrraslng
up the interest burden of the enterpnses and have adversely affected the financial
---- - - "~ansal S C "Financ~alMeasures of Performance In Publlc Enterprises", lndlan Journal of Commerce, Vol 141, No 4, December 1984, pp 107-130 %machandra Rao, K S., "Profitab~l~ty Non-F~nancial Non-Depamnental of Enterprises in Publlc Sector 1%142 to 1980-8 I", RBI Staff Occass~onal Pawrs, 1984, pp 83- 125 u~r~nrvasan C.V., "Some Recent Trends In the F~nancingof Public Sector Enterpnxs". I.ok Udvog, June 1985
.
viability. This is contrary to the perfomuvlce of pnvate sector enterprises who were able to bring down the share of costlier bank loans during the same period. He suggested for adopting a more realistic approach in the preparation of financing plans and adoption of innovative modes of financing, considering the debt capacity and the available operating surpluses in Public Sector Enterprises. ~apad~a"%as made a study to find out the contribut~on of 'takcnover' units In the poor financial surpluses earned by Public Sector Enterprises during 1978-83 He observes that the taken-over units account for 18 per cent of total
Investment. 22 per cent of total sales turnover and much higher 45 per cent of emplovmcnt of all Central Iiovernment unlts are In red during the entire
SIX
enterprises.
Rs 936 crores He suggests for no-more tahe-obers of s~ck lndustnal unlts just for the ~8I.e protecting the employment ot these unlts subsequently behaclng as rel~ef of undemh~ngs most of these arc non-v~ableto ach~cbethe cornrnerc~alresults from and them Chalam and ~ u r t h v - have made a study on the performance of Publlc Sc~torEnterprises In lnd~aand the? have annhuted the poor financ~al performance to the e*cessl\e use of external source\ In the~r (Public Enterpnges) cap~tal structure Tt:;; have ~;.alu;ltc.! :A; ;flec~s of heavy esternal finances cn net tnconicb and on short-tern1 I ~ q u ~ d ~ t ? p)sltlon, In turn ellirct~ngthe uorhny funds ava~lablr:for successful operation I'he) haw suggested for allo\r ~ n g more pni ate
equity part~ciption;lncreastng the operating efficiency through controlling costs and improving the capacity utilisation and factors such alike
.. .--
"Public Sector's Poor Financial Returns: Place for Taken" " ~ a ~ a d ~M.S.. a. Over Units", , Nu.?. 1985. p.5. hala lam G.V and D a k s h i ~ Murthy D.. "Performance of Public Enterprises in India, Impact of Heavv External F~nancing". Public Enternrise. Vo1.6, No 2. 1985
~iswanathan"
has
evaluated the
performance
of Public Sector
Enterprises during 1979-80 and 1984-85 Among the two categor~es industrial unlts, of he observes that the production-oriented industries are faring in a bener way than the others In the I'ght of loosing entlre capital-base by some of the loss maklng
enterprise, he recommends for the adopt~on of Joln Stock concept by erring the
enterprtses on ra~ls. frlvedlv has made an analys~son the w o A ~ n g of Publtc 5ector Wh~le
J ~ u a r d ~ n g concept of profitah~llttas trad~tlonalcntenon on the grounds that t h ~ s the ~rlrerion suflcr< from the prohlsm of accounting I ~ ~ n ~ t a t ~ o n < wggested he ha\ multipl~crIndicator slmple
ratlcr of production
to
ltz capaclt\
Further he ha<
\ugge\ted an e~ght-\tep alwrnar~vc measure for e\aluat~ng the performance of a u n ~ t I'uhllc k c t o r III (;upraq* has made a stud\ to find out how thc Inbcstments In Central I'uhllc I ntcrprlws arc financed and the rccent twno\\ing\ promcnena
~ntercnterpnsc hrroulngs
V~swanathan, h K "Performance Appraisal of Publ~c Enterpnses", t ~ n a n c ~ a l I:xwess. Apnl 1986, p 5 Y n v c d t . Prajapathl. "Public Enterpnscs In l n d ~ a If not for Profit them for What')". Econorn~c and Poliocal Weehlg, Vol XXI, No 48. Fto\embzr 1986. pp 137148 (iupu I' Anand, "I ~ n a n c ~ a lI'ublic t.ntcrpnrs.\ ln\estment In Ind~a" t GoWmK &-l'ol~~~cal_WICWI~~. Vol XXII. N o 5 I . I k e m h e r 17. 1988. pp 2697-2702
n
*l
support has been declining during the recent past. This has made the enterprises to find sources for themselves on competitive lines. venkatachalamU has made a study on the performance o f Public Sector Ikterprises espec~ally cons~deringthe trends a ~drelative roles of external and lnternal sources. covenng a pertod o f nineteen years from 1960-61 to 1978-79 He has cvaluatcd the financing pattern o f Public Sector Enterprises and found that these cnterpriscs werc Increasingly dependent upon external sources of finance The
horrow~ng\ from government and semi-government agencies continuously increasing. I l c has ohxrvcd that the Imbalances In the tinanc~al structure caused by heavy d o c~l'dcht capttal ha\ created the Interest burden and 11is constituting In its own ~ for the pcwr findnc~al prrfonanu: tie has suggested for lmproblny the panlclpt~on,re-organlzatlon o f
\\a
operat~ng ct'tic~cnr! through allo\r~ng prl\atc equit! cap~tal\tructurc and ratlonal~sat~on pnctng pol~c! of i'hattopd\a\"
1%9-70
to
Sector I ntcrprlws and c\alllittd that the Puh11c Sector un~tsto habe the potentla1 to reco~dIIIUC~~ better rcsultb. proilded the! are run on buslncss llncs by ma\trnlslng thc ~dtc I tcturn on cap~tiil ~ I ctnplovcd IL has put fomarded a number o f susestlons to e tInpr\)\c the \\\brL~ng01 thcx unltb. irwludlng the appllcatlon o f pnnc~ples of sound
-- --
--
In India Htmalayan
"~hattopadhavav. I' "Central Government Fnteqmses An Elghteen Year l'rohlc". l . a _ c ~ ~ ~ f Vol Y ~ No 9. March 1989 p 1 1-1') ~ - 10. ,
Shastri ~ e h t a " had made a survey on the existing literature on the working of Publlc Sector Enterpnses during the last three and half decades and feels that because of the interference from different quarters, from project approval to ~mplementat~on. leads to lack of accountabll~ty tie esttmates that the delays,
poor cmrdtnation, wrong decls~ons,wrong selectton of sltes, machinery and staff have costed the natlon to the extent of 10 per cent of total Seventh Plan outlay He suggests for w t l n g off the accumulated losses of some Publlc Sector undertaking and
~ I \ Ca
chance to Introduce a neu rcorl-culturc lor the futgre benerment In them Sankar and saiU have conducted a comparatne study on Pnvate and
I'uhllc Scctor entcrpr~w \r,~threspec1 to thelr financ~al etlicienc! dunng penod between 1986-87 and 1988-89 'The study ldent~fiesthat the Pnvate and Publtc Sector I.nterprc\rc di1'li.r In crrattng a surplus to the extent of 9 per cenl on Sales The Cap~tal emplo\ed In I'ubllc Sector Enterpnses s h o ~ e d bener performance a The profits
earned tn I'n\ale Sector IS three ttmes h~gher in sve of the eqult? than In the publtc wctor C'aplul Structuring strateg) and the accurnulat~on rexnes helped the pn\ate of
wctor to a h~gh financial efliclenc> Kao and lathaU have made stud! on the Ftnanclal Management and I'r~duct~vlty Publlc Sector Enterpnses covenng a penod of Ten years from 1975-76 to In 1085-Xh
(
)peratlonal and
mlerpnses
were
"~hastri Mehm, "Has Public Sector Lived upto Our k\pectatrons", m a , A p ~ 16-30. 1987, pp 12-16 l U~anLar. 7' 1. and Sal. S S I' . " h v e t e and Publlc %tor - A Comparative Study of ' l k i r F~nanc~al Eficlarcy dunng 1986-87 and 1988.89". The Journal of Insl~tuwof Public bntcrw~m. Vol 13. No4.291-316, D w m k r 1990 *~handrawkara Rao K and Madhavt Istha. k . !:~nanc~al Manawment ln !'ubIic . ~ t o r ~ ~ ~ eI > t~ c-o ~ r .Publlshlng Iioux. Nen I k l h ~ . - s v ~ 1991
capital-output ratio and slow growth rates in partial and total factor productivities as explanation for poor profitability in most public enterprises during the period. It was also noticed from the study that there exists wider fluctuat~onsin operating wst responsiveness. utilisation of resources and excessive investment on fixed assets of these enterprises, l'he study Identified lower profitabil~tyin these enterprises dunng the study period and suggests for improvement hq- allowing these cntcrprises wort in an entreprcneural atmosphere ~ a j u m d a r ' has eulmlncd a study on relat~ve pertbrmance of Public, Jo~nt I'n\ate Seclor\ In lnd~an and lndustn durtng the perlod of 16 \ears hettrzen 197374 and 1988-80
rate\
In 1 otal I ~ \ e dA\wts. \\orblnp capltal and human capital agalnst the output of
the rcyxctt\c sector5 ''e study results ~ndicate the joint sector firms are effic~ent (h that than gwcrnment wncd firms hut less ~.tl-ic~ent thosc. of In the prl\ate sector than Indrascna ~ c d d t - made a stud, on the performance of Publlc
1992-93
thcrc c\lrl> greater wope tor tunher Improvement of Value added ratlo.; ~f HHFI
h *
h h a n industry
All the studies, reviewed so far, present the different dimensions of problems associated with the poor financial performance in Public Sector Enterpnses While some of them are stressing on the removal of operational problems on the working of these enterprises like capac~tyutilisatlon, shortages, parliamentary control, etc., the others are explaining about the serious implications of borrowings from the Government and the required changes in polictes to be brought In for better management of these enterprises.
The recommendations of d~fferentstudies paved the way for the current
cxlsting yaps In thc opcrat~onal and financlal problems of Publlc Enterpnses In Ind~a \ch-ch arc !eft unattended b) Ciovernmcnt of Ind~a, excepting purtlng forth Irr
'prl\attwt~onplan< \ear-aner \car tor findnc~ng pan~all\the fiscal deficlts In Annual budget\
1.10
SEED FOR THE PRESENT STUD\ The studles referred above are prexnbng the performance of Publlc
tnlerpnses and the problems betng faced bv these enkrpnses w h u t maklng any ~n depth cnqvln ~ntothe tntcr-rclat~cinsh~p s u ~ ~ a l c d thecr consequent lmpct on a and linanc~al pcrforrnance Morrwbcr m c ~oCthe t u d ~ ha\e made an) s)stemattc anemp n ~ es to employ wphln~cated operattons, resemch tluhn~ques work out thc ex-tent of underto u t ~ l ~ w t oof r e s o w at h e cuncnt levels of eRic~cncy and capact9 utlllsat~on n further. w of financlal and management rarros 01 l~mlted u n k r , as are suggested h\ n Intemat~onallabour Organ~~rtlon (11.0) or ~ v r k l n pgroups.
IS
these studies. Hence, the present study was taken up to analyse the overall trends in operating and financial performance of select Public Sector Eiiterprises belonging to I-leavy and Medium Engineering groups, by appropriately linking up the relevant aspects of p r f o m a c e Bes~des.this study is intended to employ different sophlstlcated
statistical and econometric techniques before qualifying any aspect of performance for
and wider acccptahil~ty appreciation.
1.1 1
<'HAP'I'ER PLAN A broad picture about the performance of Public kctor Enterprises. the
financ~aland non-linanclal problems being faced b them. a hrlef re\ie\r of earher ! studre.: to e\aluatc the functlonlng of these enterprises and the need for the present stud) are p e n In thl\ Intrvduclon Chapter I C'hapter II, prov~desthe obja~ivesof the current stud) Methodology adopted Source\ of Data. 1.1mitatlons. Size of the sample unlts, Stat~stical and I.conometr~c tool\ employed and a bncf profile of the chosen sample units
IV h ~ crm1~1nr.d h c \ ~ re\ult\
<)Itnc
. ~ n ~ l \ \ r .o n d u ~ t e d rc\pr.a ~i In
of financial pcrfcmnance of the stud) unlts. the capital formation. sources of finance. mnds In select financial yardstlchs and the results of pnnc~pal component analcsis
1 s
examined by constructing
include the general performance, managerial performance and financial performance dimensions. The results are presented in Chapter V. Chapter VI provides the econometric results of different multiple regression equations fitted to establish the changes in various determinants in capital formation and financing. The final Chapter VII presents the broad findings and conclusions of the present s ~ u d \