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Public and Private Sector in India: Suneel Gupta Associate Professor Ghs-Imr, Kanpur
Public and Private Sector in India: Suneel Gupta Associate Professor Ghs-Imr, Kanpur
PUBLIC SECTOR
A public enterprise is an organization which is i) Owned by public authorities including central state or local authorities to an extent of 50% or more ii)It is established for achievement of a defined set of public purpose ,which may be multidimensional
Objective
1. To help in rapid growth and industrialization and create necessary infrastructure for economic development. 2. Promote redistribution of income & wealth 3.Create employment opportunities 4.Promote regional balance development 5. Promote import substitution save and earn foreign exchange for country. 6. Basic Infrastructure (STC, Railways, SAIL)
Pricing Practice
Administrative Price : Price fixed by Government No profit No loss Price ( DVC, Hindustan antibiotics, Hindustan Insecticides) Cost Plus Price ITI, HAL, Bharat electronic Competitive Price
Discriminatory Prices
Private Sector
Privatization: Transfer of ownership and control of an existing public sector enterprise ,activity or service to the private sector. Privatization may be full or partial. It may be selective ie. Some function are transformed to the private sector, which other are retained in public sector.
The entry of new private sector could introduce competition where PSUs enjoy monopoly The existing PSUs will be forced to go commercial and respond to the market discipline.
4 Emergence of local capital market and entrepreneurship 5 Dissatisfaction with performance of public sector ( 1960s &1970s saw emergence of literature pointing out the inefficiency of Import substitution policies and gave rise to question that why government Should intervene in the market place when it does not have any information about market players)
5. Changes in China 6. Emergence of professional management 7. IMF & World Bank extended arm to capitalism 8.Gulf crisis 9.Lack of demand in economy 10.Integration of world trade 11. Developed local capital market and Financing Institution
Recent Reasons
To STENGTHEN Competition
To improve public finance To fund Infrastructure Growth Accountability of share holders To reduce unnecessary interference More disciplined Labour force
The main reason for increased efficiency gain as a result of privatization are attributed to (i)Less political interference in decision making (i)Staff remuneration is more closely linked to productivity and profitability (ii)Firm are exposed to financial market discipline as opposed to government support (iii)Firms cost reducing effort are higher under competitive private ownership
iv) Lack of proper preparation of enterprise for privatization or divestiture eg. Accounting and auditing , treatment of losses, social and environmental safety net (v) Insufficient transparency and flexibility in term of the method of privatization, balancing, ownership, and control ( corporate governance)
(vii) Lack of appropriate legal frame work (eg. Property right, foreign ownershipbankruptcy law )
(viii) Underdeveloped capital markets
WAYS OF PRIVATIZATION
DISINVESTMENT
CONTRACTING
FRANCHISING PREMITING PRIVATE SECTOR ENTER INTO PSU RESERVED AREA
LIQUIDATION
LEASING
Disinvestment
Long Term strategy on disinvestment
1. Strengthen profitable PSU to promote greater competitiveness to enable payment of higher dividends to the government to enhance Value 2. Financial restructure and revive loss making PSU to invite private capital for long term turnaround. 3. Enhance government receipt by disinvestment in profitable PSUs Initially 40 out of the 245 PSUs were referred to the disinvestment committee
YEAR
TARGET RECEIPT
ACTUAL RECEIPT
DISINVESTMENT PROCEDURE GOI CARRIES DISINVESMENT IN ACCORDANCE WITH PRESCRIBED PROCEDURE TO ENSURE TRANSPERENCY PROPOSAL OF DISINVESTMENT IS BASED (OF PSU) RECOMMENDATION OF DISIN. COMMOSSION
CONSIDERATION OF CCD (CABINET COMMTTE.ON DISINV.) CCD CLEAR THE PROPOSAL & SELECTION OF ADVISOR IS DONE THROUGH COMPETITIVE BIDDING
THE FINAL AGREEMENT ARE THEN VETTED BY MIN. OF LAW & APPROVED BY GOVT. THE BIDS ARE EXAMINED & ANALYZED BY IMG & ITS RECOMMENDATION ARE PLACED BEFORE CCD FOR FINAL APPROVAL AFTER ALL TRANSACTION IS COMPLETE CAG EVALUATES FOR PLACING IN THE PARLIAMENT & RELESEING TO PUBLIC