PRIVATISATION, EMPLOYMENT AND EMPLOYEES THE INDIAN EXPERIENCE Shri P.K. Basu India OECD CONFERENCE on Privatisation, Employment and Employees 10-11 OCTOBER 2002 Ataköy, Istanbul Turkey


Central Government owned Public Sector Undertakings Particulars No. Profit/Loss for the year 2000-01 (US $) Profit making PSUs Loss making PSUs No profit or No loss Total number of PSUs Total Investment 122 111 1 234 (+) 5936 (-) 2675 0 (+) 3261 57107  4 .

1997 No. Profit making PSUs Loss making PSUs Non functioning PSU PSUs not submitted accounts Total number Total Investment (US$ million) 54 551 241 100 946 24533  5 .State Level Public Sector Undertakings in India Particulars as on 31st March.

Employment and Average Annual Emoluments in PSUs Year Number of Employees (In million) Average annual per capita emolument (Rs.0 180.) 1998-99 1999-2000 2000-2001 190.2 147482 168339 219546  6 .6 174.


  The disinvestment policy of GoI can be seen to be implemented broadly in 2 phases The recommendations of the disinvestment commission set up in 1996. which formed the backbone of the Phase I of disinvestment.The beginning of the Disinvestment Process Phase I – 1991-92 to 1997-October 1999. Trade sale B. Culmination of Phase I was in the form of the report of the disinvestment commission set up in 1996. can be summed up as : Mode of disinvestment recommended A. Involving no change in ownership / management Offer of shares C. Disinvestment deferred 2. Involving change in ownership / management 1. Closure / sale of assets Grand Total Number of PSEs 29 8 5 11 1 4 58 8 . No change 1. No disinvestment D. Strategic sale 2.

restructuring of PSEs and retiring public debt 9 .The Disinvestment Policy revisited Main Features of the current Disinvestment Policy were laid out in the 2000-01 budget speech.  Phase II – October 1999 onwards. Bold initiative to close unviable PSUs which cannot be revived. The main feature of the policy can be culled out from the 2000-2001 budget speech as follows : – To restructure and revive potentially viable PSEs – To close down PSEs which cannot be revived – To bring down Government equity in all non-strategic PSEs to 26% or lower. by setting up a new Ministry of Disinvestment – To emphasise increasingly on strategic sales of identified PSEs – To use the entire receipt from disinvestment and privatisation for meeting expenditure in social sectors. if necessary – To fully protect the interest of workers – To put in place mechanisms to raise resources from the market against the security of PSEs' assets for providing an adequate safety-net to workers and employees – To establish a systematic policy approach to disinvestment and privatisation and to give a fresh impetus to this programme. Emphasis on maximising value realised from sale. outlined.

Disinvestment Process & Role of MODI Selection of PSU by MODI Approval by CCD Formation of IMG & Selection of Global Advisors 2-3 months Submission of Expression of Interest Submission of Initial Technical Proposal Due Diligence / Commercial negotiations 3-6 months Finalise Shareholders Agreement (SHA) & Share Purchase Agreement (SPA) Financial bids 1 week Selection of strategic partner & signing of SHA & SPA 10 .

Planning Commission and Administrative Ministry and any other Department as may be required – The Core Group directly supervises the implementation of the decisions of all strategic sales – The Core Group monitors the progress of implementation of the Cabinet decisions – The Core Group makes recommendations to the CCD on disinvestment policy matters  Inter-Ministerial Group – The Inter-Ministerial Group is chaired by the Secretary. Department of Public enterprises Administrative Ministry and the CMD of the Public Sector Enterprise concerned – The Inter-Ministerial Group is responsible for day-to-day implementation of the disinvestment decision  Department of Disinvestment – The Department of Disinvestment (later. Industry. Cabinet Committee for Disinvestment (“CCD”) – The Core Group of Secretaries is headed by the Cabinet Secretary and comprises of Secretaries from Ministries of Finance. including restructuring – Implementation of disinvestment decision. including appointment of advisors pricing of shares and other terms and conditions of disinvestment – All matters relating to the Disinvestment Commission Core Group of Secretaries (“CGS”) Inter Ministerial Group (“IMG”) Working Group 11 . CD. Department of Disinvestment. – Business allocated to Ministry of Disinvestment – All matters related to disinvestment of Central Government equity from Central Public Sector Undertakings – Decisions on the recommendations of the Disinvestment Commission on the modalities of disinvestment. Ministry of Disinvestment)was set up vide Notification No. MODI is helped by the relevant ministry and various other Government departments and ministries during the process.Main Constituents  Cabinet Committee on Disinvestment (CCD)  Core Group of Secretaries on Disinvestment The Cabinet Committee on Disinvestment is the apex decision making body in the disinvestment process The Ministry of Disinvestment is the key constituent and manages the routine functioning of the disinvestment process.551/99 dated the 10th of December 1999. Ministry of Disinvestment and comprises of officers of Ministry of Finance.

crores) in crores) 2.000 362 380 902 5.371 1999-00 2000-01 2001-02 Total 3 4 12 47* 10.738 •12 Disinvestment13022002 Disinvestment till date . HTL.500 3.230 26.843 Methodology Minority shares sold by auction method in bundles of "very good".000 5.000 1995-96 1996-97 1997-98 1998-99 5 1 1 5 7. ITDC. "good" and "average" companies Bundling of shares abandoned.000 12.000 4. in wchih NRIs and other persons legally permitted to buy. GAIL. HZL. hold or sell equity.038 1.800 5. ONGC & IOC GDR (Gail) in international market & MFIL's strategic sale. allowed to participate Equities of 4 companies auctioned and Government piggybacked in the IDBI fixed price offering for the fifth company GDR (VSNL) in international market GDR (MTNL) in international market GDR (VSNL) / Domestic offerings with the participation of FIIs (CONCOR.e.300 1. GAIL). in re ce ipts (Rs. MFIL.829 1. JESSOP.870 6.Year No. KRL (CRL) & MRL through strategic sale / acquisition Strategic sale IBP.000 66. PPL.000 10.500 3.500 2. Shares sold separately for each company by auction method Equity of 7 companies sold by open auction but proceeds received in 1994-95 Sale through auctionmethod. of PSEs in w hich equity sold The financial year 200203 has started off well with the closure of the Maruti and IPCL divestments Targe t receipt for Actua l the yea r (Rs.913 Nil 4. HCI 1991-92 47 (31 in one tranche and 16 in other) 1992-93 1993-94 1994-95 13 35 (in 3 tranches) 4. CMC. VSNL domestic issue BALCO. Cross purchases by 3 oil sector companies i. VSNL.

Hotel Bodhgaya Ashok.. 2000 Mar.. 2002 Feb. 6. 2002 Jul. Juhu Beach. Kovalam Ashok Beach Resort .. 2000 Jul. Bangalore. 2002 PSU/Asset Sold Modern Food Industries (India) Limited Lagan Jute Machinery Limited Bharat Aluminium Company Limited HTL .Hotel Manali Ashok Total 1 2 3 5 8 9 15 19 9. Centaur Rajgir Hindustan Zinc Limited . 2002 Jun.. Mumbai. 2002 Mar. 2002 21 22 23 26 13. Aug. New Delhi.. 7.. Hotel TBABR Mamallapuram.Pace of Disinvestment S. Mumbai Maruti Udyog Limited Indian Petrochemicals Corporation Limited Hotel Airport Ashok Kolkata . 2001 Oct. Lodi Hotel.. Apr. Centaur Hotel Airport. 3. 2002 Hotel Khajuraho Ashok.No 1. 11. Paradip Phosphates Limited . Luxmi Bilas Hotel Udiapur Qutab Hotel. 8. 2002 May. Centaur Hotel..... 2001 Nov.. 4. Videsh Sanchar Nigam Limited . Hotel Varanasi Ashok 28 13 . 2. 2001 Jan. 5. Madurai IBP . 10. 12. New Delhi . CMC Hotel Ashok. Month Jan. Hotel Hasan Ashok Hotel Ashok. Hotel Agra Ashok.

000 11.955 202 1.3790 8.517 4.450 182 14.055 5.The Government has fared well in most instances and has got a substantial premium over the suggested reserve price.5 .908 Bid Price (Rs/Share) 4.520 550 14.23. Name of PSU Lagan MFIL Balco CMC HTL VSNL IBP PPL HZL JESSOP IPCL Reserve Price (Rs mn) 20.393 11.967 4. In the case of the Paradeep Phosphate (PPL) divestment it displayed its flexibility by selling at a price lower than the suggested reserve price.551 474 41 3 231 Sale P/E Loss making Loss making 19 12 37 19 63 Loss making 26 Loss making 57 The government has performed exceptionally well on the divestments undertaken till date  14 Disinvestment13022002 Disinvestment Scorecard .490 490 1.537 1.9 786 5144 1089 388 12184 3770 1761 3532 120 8450 Reserve Price (Rs/Share) 3240 .559 46 141 350 171 507 550 32 2 131 Bid Price (Rs mn) 25 1.515 1.


01) Rural: Urban: Total: Government: Private: Total: About 269 million 86 million 355 million 20 million* 7 million 27 million 2 million Rs. Central / State / Semi Public Sector) 16 . Total workforce in CPSEs 4. and no privatisation until 1999.Work Force – in India 1. the PSUs workforce is declining. Investment supporting retention of this workforce (as on 31. ( *Includes Central / State / Semi Government.114 cr. Despite these investments.3. Total workforce in organised sector 3. Total workforce in India (Source NSSO 1997) 2. 274.

06 2.96 1. of employees (millions) 2.Employment in Central Government owned Public Sector Undertakings Year 91-92 92-93 93-94 94-95 95-96 96-97 97-98 98-99 99-2000 2000-01 No.18 2.15 2.80 1.74  17 .07 2.90 1.05 2.00 1.

c.a.c.03% p.c.  1994-2000 – increased at the rate of 0.a.c.a.05% p.87% p.during 1983-94 and by 1.52% p. Public Sector Employment Growth  1983-1994 – increased at the rate of 1.  1994-2000 – increased at the rate of 1.c.c.a. Labour Force Labour force increased at the rate of 2.Growth in Employment Growth rate of employment during the past decade  1983-1994 – increased at the rate of 2.03% p.a.a.98% p.  1994-2000 – declined at the rate of 0.a.45% p.a.04% p.c. Private Sector Employment Growth  1983-1994 – increased at the rate of 0.c. during 1994-2000  18 .

04 1994-2000 1.03 0.Gap in Employment Avenues 1983-1994 (%) Growth in labour force Growth in employment in organised sector 2.05 2.98  19 .

employees stock options.  Apart from discussion at the national level. severance scheme.  This approach has had a huge impact and resulted in smooth transfer of companies. past liabilities. are discussed in detail and suggestions received from the labour incorporated as best as possible. pension benefits.  Such interaction with the labour unions are then followed up at regular intervals as the disinvestment process proceeds.  Disinvestment has been one of the important topics discussed in such conferences with wide and active participation of national level labour unions. even at the cutting edge level tremendous support has been received from labour unions and now there is increased consensus and support at the State levels as well.  The concerns of the labour regarding their service conditions. in each case of privatisation. One such forum is the Indian Labour Conference held annually. discussions are initiated with labour unions of the company at the beginning of the process in which the disinvestment policy.  The disinvestment process has been supported by prominent national level Labour Unions such as the Indian National Trade Union Congress (INTUC). if any. the rationale behind it and the various safeguards built into the agreements are elaborately explained to the labour unions.ROLE OF LABOUR UNIONS IN IMPLEMENTING PRIVATISATION  The disinvestment policy and procedure has been discussed and debated at several levels with the national level Labour Unions. 20 .


pay scales and other service conditions are also addressed.7 million even without any privatisation or strategic sale.3 million to 1. Companies that have been privatised have not retrenched even a single person. namely.  22 .Protection of Employee Interests Protection of employee interest is one of the predominant aspects of privatisation. “Best efforts” clause is also incorporated in SHA mentioning the benefits given by the Government to physically challenged persons and members of social disadvantaged categories of the society stating that the Strategic Partner shall use its best efforts to cause the company to provide adequate job opportunities to such persons. retrenchment from duty. The concerns among the employees. Reduction in the workforce is a continuous process as during the last 10 years the workforce in PSUs has reduced from 2. Voluntary Retirement Scheme (VRS) given by the disinvested PSUs are at scales which are normally higher or equal to the VRS given by the Government to Central Public Sector employees. Suitable provision related to employees interest provided for in the Shareholders’ Agreement (SHA).

in their township. PSUs – As a model employer provided housing facility to the employees and other essential community facilities like health care.3. education.2000 31.Complete freedom for wage settlement with unionised staff.2001 US$ 1446 million US$ 1637 million US$ 1367 million  Recurring expenditure on township maintenance.3. shopping and creation centres etc.   Capital expenditure on township incurred by PSUs 31.3. administration and social overheads.PSUs – Social Benefits and Amenities  PSUs . 1998-99 1999-2000 2000-2001 US$ 689 million US$ 731 million US$ 790 million  23 .1999 31.

Compensation :.2001 in PSUs. VRS will be extended as Voluntary Separation Scheme (VSS) already approved by the Government.3.2000.277 employees opted for Voluntary Retirement Scheme (VRS) till 31. New liberalised scheme of VRS notified on 5.69. VRS in Profit Making PSUs May frame their own schemes of VRS and make it attractive enough for employees to opt for it. VRS in Marginally Profit or Loss Making PSUs Permitted to introduce an improved VRS scheme.5. VRS in Non-Viable Enterprises In the non-viable enterprises facing closure.Severance Package Voluntary Retirement Scheme (VRS) Model Voluntary Retirement Scheme notified by the Government was in force since 1988 till April. 2000 and was uniformly applicable to all public sector enterprises.  24 .35 days salary for each completed year of service and 25 days per year of service for the balance of service left till retirement subject to the condition that such compensation will not exceed the salary for the balance period of service left. 3. Compensation:-60days salary for every completed year of service may be offered subject to the condition that such compensation will not exceed the salary for the balance period of service left.

 25 . Redeployment Social Safety Net is an integral part of the Economic Reform Progress Government of India set up the National Renewal Fund (NRF) in February.2001 and out of which 19. Of the 73.458 have been redeployed. Department of Public Enterprises has taken up a fresh scheme for PSUs from the year 2001- 02 with a budget provision of Rs.3.194 workers counseled. 55.1992.374 workers were retrained upto 31.Social Safety Net – Retraining. 80 million with a target to benefit about 800 people under the Counseling. Retraining and Redeployment Scheme.

paid.Experience in Employee matters post disinvestment Case Study (A) Bharat Aluminium Company Ltd.37.9 million per annum. (BALCO)  Introduced Voluntary Retirement Scheme (VRS) : 1675 employees applied for.  In spite of losses of Rs 200 crore due to the strike.Rs. but granted to only about 400 employees working in units that have closed down.per employee.  Workmen get a guaranteed benefit @ 20% of basic pay. 1600/. (C) Paradeep Phosphates Ltd.  Additional financial burden . (MFIL)  Wages increased by an average of Rs. ex gratia payment of Rs 5000 per employee  Long-term wage agreement for a period of 5 years on 7. Contd … Successful integration of labour union with the new management 26 .10.2001. (B) Modern Food Industries (India) Ltd. (PPL)  Average emolument of the employees increased by 30% within one month of taking over of the management control by the Strategic Partner. VRS higher than Government VRS offered to the employees.

have been restored. (HZL)  Employees’ benefits which were withheld in the year 2001-2002. These labour laws are applicable to the company irrespective of whether it is a public sector undertaking or is in the private sector. Successful integration of labour union with the new management 27 .Experience in Employee matters post disinvestment Case Study (D) Hindustan Zinc Ltd.  It is pertinent to note that as long as a venture is an ‘industrial establishment’ the protection provided to the employees under the various labour laws continues.

VRS etc. are settled. do involve budgetary allocations by the Government which is worked out in consultation with the Administrative Ministry and Ministry of Finance.  Mostly.THE EFFECT OF STATE-OWNED ENTERPRISE PENSION CONSIDERATIONS ON PRIVATISATION  In all cases of privatisation through strategic sale route. 28 . liberal severance pay has been offered pre privatisation. where the employees favoured voluntary retirement before sale.  The existing service conditions of the employees are protected including any pension obligations which the company may be having .  At the beginning of the process itself. the strategic partner has also undertaken to meet past liabilities related to employees.  In many cases. That the Government has so far got high value for the companies sold. the protection of employee interest has been of paramount consideration.  Payment of past liabilities.  In several cases. These are fine tuned through further discussions as the disinvestment process proceeds.  It has been the experience that the value of enterprise is considerably enhanced as a result of resolution of these issues before hand. one of the reasons is perhaps this. discussions are held with employees and all issues relating to service conditions. past employees liabilities etc. past liabilities of the employees are settled prior to disinvestment.

29 .  The agreements also envisage that Government could offer stakes to employees from its balance shares in future as well.  The protection to the employees built into the agreements with the strategic partner are evolved after discussion with the employees at several stages.  There is protection against retrenchment. these are under negotiation in several cases and the structure being worked out.EMPLOYEE PARTICIPATION IN PRIVATISATION TRANSACTIONS: POLICIES AND PERFORMANCE  In every PSU selected for disinvestment the employees are involved right from the beginning and therefore the privatizations so far have been smooth. protection of retirement benefits including medical facilities post retirement etc. employees are offered the company’s shares at a substantial discount to the strategic sale price/market price.  As an incentive.  A great amount of transparency has been achieved in the whole process regarding the employees. severance pay in case of rationalization. protection of service conditions. Though employee buy outs have not been successful so far.

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