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College of Arts & Commerce, Zuarinagar.
Soon after India attained independence, it was, believed that without increasing the role of the state, it would not be possible either to accelerate the process of growth or to create an industrial base for sustained economic development of the country. In the Served Five Year Plan document it was stated that "the adoption of the socialist pattern of society at the national objective, as well an the need for planned and rapid development, require that all industries of basic and strategic importance or in the nature of public utility services, should be in the public sector. Other industries which are essential and require investment on a scale which only the state, in the present circumstance, could provide, have also to be in the public sector. The state has, therefore, to assume direct responsibility for the future developments of industries over a wider area" (Second Five Year Plan, 1956:29) The passage of the Industrial Policy Resolution (IPR) 1956, and the adoption of the socialist pattern of society as our national goal further led to a deliberate enlargement of the role of the public sector. The IPR 1956 assigned a strategic role to the public sector so as to fulfill the objectives of achieving socialism, increasing, self-sufficiency,enhancing national prestige, countering multinationals and mobilising resources for investment and regional development. Consequently, development of heavy and basic industries and provision of infrastructure were the main task of the public sector. In the IPR 1956 industries were classified into three categories: The 'Schedule A' industries were those which were to be an exclusive responsibility of the state, Seventeen industries; such as arms and ammunition, atomic energy, iron and steel were included in 'Schedule A'. The Schedule 'B' industries included those industries, which were to be progressively state-owned, and in winch the state-owned would generally net up new enterprises, but in which private enterprise would be expected only to supplement the effort of the state. Twelve industries like chemicals, fertilizers, road and sea transport were listed in 'Schedule B'.'Schedule C'included all the remaining industries whose future development would in general be left to the initiative and enterprise of the private sector. Despite the clear cut grouping of the industries, there categories were not water tight compartments. Though the State was to act as the senior partner in the process of development the public sector and the private sector were still expected to work together. The basic objective was to create a mixed economy. The public sector thus occupied the commanding heights of the economy. There is no doubt that the public sector established an industrial base for the economy which enabled the private sector on underrate investments in other areas, as infrastructural facilities were provided by the pubic sector. However the public sector spread over in too army areas. While the Government want on pushing ahead with more and more public sector undertaking,
This ultimately led to a massive system of controls. which Raigopalachari described as the ³License Quota Permit Raj´. While the public sector reform in many other countries have involved programmes of outright privatisation public sector units and closure of unviable units. Our national lenders. Reform of the public sector is a critical element in structural adjustment programme.were needed. the approach adopted by the Government of India is more limited. but the protests were sporadic and inarticulate. over-manning. We were pursuing a path of development in which the public sector was expected to be the engine of growth. Hence. when the new government came to power in June 1991. It was therefore felt that there was need to reconsider the policy towards sector enterprises. India thus followed a protectionist development strategy on the basis of the Nehruvian model of development with its advocacy of self-reliance through centralized planning and a mixed economy. over-capitalization. The paper is divided into three sections. The paper also highlights the need and rationale for disinvestment in the present context. However. such as low capacity utilization.there was considerable criticism about the poor performance and in some cases utter failure of government undertakings in the county. The Government has initiated a process disinvestment of government equity in public sector enterprises. rationing and price control. huge time and cost overrun. with government retaining 51% of the equity as also the management control. inequalities in the distribution of income and wealth. substantive reforms were introduced in the industrial and trade policies as also . under the able guidance of Pandit Jawaharlal Nehru advocated the policy of lifting our poverty stricken economy by strong state control measures. etc. became apparent. Reforms . By the mid-1980's the shortcomings and weaknesses of the public sector. lack of motivation. PUBLIC SECTOR POLICY IN THE POST-REFORM PERIOD When we attained independence we had just emerged from toe colonial war period economy of shortages. Section I analyses the changes in Public sector policy in the post1991 period. Finally. By the mid-1970's disenchantment with the public sector had started. concluding comments have been made and suggestion have been put forward in Section III. The Government of India thus adopted a new approach to public enterprise. . low efficiency. and poverty. despite four decades of planning. The New Industrial Policy 1991 emphasized the point that public sector enterprise have shown a very low rate of return on capital invested and have been able to regenerate themselves in term of new investments and development. large scale political and bureaucratic interference in decision making. I. In this Paper. an attempt is made to analysis the changes that have taken place in the government's policy towards public sector enterprises in India in the post reform period. delays in completion of projects inefficient management and political interference. Public sector enterprises faced many problems such as mounting losses. all over the world and has been included on India's reform agenda.essential reforms. our economy continued to be a low-income country saddled with the problems of high levels of unemployment. Section II analyses the need and rationale for disinvestment in India.
e. covering Petroleum Exploration. It aim at restricting the role of the public sector to Provision of physical and social infrastructure and to areas where security and strategic consideration Predominate. For instance. (iv) The disinvestment of shares of selected Public sector enterprise so as to raise resources and to encourage wider participation of the general public and workers in the ownership of public sector enterprises. Many critical areas have been opened up for private sector participation.. Out of these. only three industries are reserved exclusively for the public Sector. Air transport and the telecommunication sectors (that is. The NIP 1991 emphasized the following measures to reforms the Public sector enterprises: (i) Reduction in the number of industries reserved for the public sector from 17 to 8 (which was further reduced to 3). production and refining has also been opened up to the private sector. This involved changing the role of the state and replacing the earlier inward looking by an outward oriented growth strategy. The public sector has now been brought within the jurisdiction of the Board for industrial and Financial reconstruction (BIFR) As per the new policy. revival schemes Whereas were sanctioned for 39 cases and winding up was recommended in 47 cases (20 central and 27 state). Of the registered cases. The Government of India. 262 cases of public sector units were referred to the BIFR. The list of industries reserved for the public sector has been drastically pruned. 2001. 178 (i. by which managements would be granted greater Autonomy. But there: was a drastic reduction in the budgetary support to sick or potentially sick public sector enterprise (iii) An improvement of performance through an MOU (Memorandum of Understanding) system. On May 9. for certain services like cellular telephones) has also been opened up to the Private sector . the Government opened up the arms and ammunition sector also to the private sector. The hydrocarbon sector. electric power generation has been opened up for Private investment and foreign investment. Hence. Eleven public sector units (4 . therefore.monetary and fiscal policies with the objective of making the economy more efficient and competitive. the BIFR will now decide whether a sick public sector unit can be effectively restructured or whether it has in be closed down. 33 cases were dismissed as not maintainable. (ii) The policy towards sick Public sector enterprises to be the same as that for the sick private sector units. 76 Central and 102 State) were registered. ³Up to December 2001. thought of diluting the role of the public sector and started the process of opening more and more areas for the private sector. According to the NIP 1991. The New Industrial Policy (NIP) 1991 heralds a new approach to public enterprises. the sick public sector units were to be treated at par with those in the private sector. Many governments are actively negotiating with various foreign investors for establishing private sector Power Plants.
four public sector units signed MOUs. It was felt that this would ensure financial discipline and improve prformance. In accordance with this decision. Financial and operational autonomy was also accorded to some other profit malting public sector enterprises called µMiniratnas'. It decided to give enhanced powers to their board of directors so as to Facilitate their becoming global players these navratnas were given autonomy and operational freedom in terms of incurring capital expenditure entering into joint ventures effecting organisational restructuring. it started privatising the public sector enterprises in a phased manner. For this purpose. GAIL HPCL IOC.000 corore for its disinvestment programme while it could actually rise only Rs. which involves the sales of the public sector equity to the private server and the public at large. and so on. The NIP 1991 sought to bring all public sector enterprises under the system Of MOU with a view to improve the relationship between these enterprise and the administrative ministries It gives clear targets be the public sector units and ensure operational autonomy to them so an to achieve those targets. NRF is to be used for retraining and redeployment of retrenched labor as also to provide compensation public center employees seeking voluntary retirement. In 1997. 2001. the Government aimed at bringing down its equity in all non-strategic public sector undertaking to 26 percent or lower and close down those units which cannot be revived. in 2000-01 the government had kept a target of Rs.1869 crore worth of resources. setup a National Renewal Fund (NRF). By 2000-01 the number went up to 107. therefore. 20. For instance. 2002: 497) the decision to close down the sick public sector units has been resented by the working class as there is an inherent danger of retrenchment.Central and 7 State) have already been declared . The government has.10. As on March 31. raising capital ftrom the domestic and international markets. The disinvestment programme started in 1991-92. µno longer sick' on successful Completion of the rehabilitation scheme" (Misra. SAIL and BSNL. it adopted the route of disinvestment. the total realisation to the government from various rounds of disinvestment till 2000-01 was Rs. 46 Enterprises had been categorised as µMiniratnas' Government has decided to withdraw from the industrial sector. The table given fellow shows the trends in disinvestment of equity in public sector enterprises for the period of 1991-92 to 2000-01 Table 1 DISINVESTMENT OF EQUITY IN PUBLIC SECTOR ENTERPRISES (Rs in crores) Year 1991-92 1992-93 Target 2500 2500 Realisation 3038 1913 Cumulative 3038 4951 . In 1987-88. IPCL MTNL NTPC ONGC. the government identified 11 public sector enterprises as Navratnas namely BHEL BPCL.321 crore However the actual realisation from the disinvestment programme has generally been considerably less then the target.
Power and Telecommunication. This is what we call µdisinvestment µ. . namely. 1439. 1153. the New industrial policy 1991 aimed at introducing substantial reforms of the public sector as a part of the structural adjustment programme. The government of India has made several moves towards privatisation It is realized that without privatisation. 445 crore. public sector enterprises' equity is being unloaded in the market.68 crore. After the announcement of the NEW Industrial Policy in July 1991. In the Last Disinvestment of the financial year 2001-2002. Some of the measures undertaken by the Government includes ± 1) Permitting the entry of the private corporate sector in such core sectors as steel. 3587 crore. Lodhi Hotel in New Delhi. As a part of the on-going process of privatisation. II. This was followed by a few more disinvestments such as Centaur Airport Hotel in Mumabi. Table 7. the Government sold 24 percent stake to the Tata-owned Panatone Finvest for Rs.58 percent stake for Rs.1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-2001 3500 4000 7000 5000 4800 5000 10000 10000 0 4843 168 380 910 5371 1829 1869 4951 9794 9962 10342 11252 16623 18452 20321 Source: Government of India. This will lead to ± a] Dilution of government: equity is most public enterprises which decide. 2002 for Rs. The target for the year was Rs. the pace of liberalisation and marketisation of the' economy would not attain the take off stage. VSNL and IBP. The total receipts from the disinvestments programs in 2001.25 crore while. the government cleared the sale of 25% stake in Hindustan Zinc Limited (HZL) to Sterlite on March 27 th . the Government approved two big ticket disinvestments.2002 amounted to Rs. 2001-02. ports. Airlines. IOC won the bid for IBP's 35. THE NEED AND RATIONALE FOR DISINVESTMENT. 2) No fresh budgetary support for public sector enterprises. 5000 crore Thus. Economic Survey. ITDC's Qutub Hotel. Laxmi Vilas Palace Hotel in Udaipur. In the case of VSNL.6 In February 2002. in for new projects and expansions b] No new central public sector undertakings being set up in the country c) Issue of equity to the public by the identified public sector undertakings.
They are on follows: i]Public offer: In this model which was adopted in the early 1990's equity was offered to retail investors through domestic public issues. Its major features are ± . i] A part of the resources would be used to pay for the cast associated with the closure of comprises declared as terminally sick by the BIFR ii] A part of the revenues so raised would be used for restructuring those enterprises which are on the verge of becoming chronically sick but are as yet nor beyond redemption iii] A large part of the money raised from disinvestment would be used for retraining of the workers displaced or affected as a result of the closure and internal restructuring.What are the objectives of disinvestments ? On account of burgeoning revenue deficit year after year due to current revenue expenditure on items such as interest payments. chemical and pharmaceutical companies. The basic idea is to improve the strategic performance of public sector enterprises In order to fulfill the above-mentioned objectives different models of disinvestment have been implemented in India over the last decade. retains a 26 percent stake in the public sector enterprise. golden share and warehousing: In the case of cross holdings. government-owned financial institutions were expected to buy the governments' stake in selected Public sector enterprises and hold them until any third buyer emerged. consultancy Companies. Where as Government should be spreading on basic of education. giving merger returns. primary health and family welfare a large amount of resources are blocked in several an strategic sectors such a hotels trading campanies. the government is left with hardly any surplus for capital expenditure on social and physical infrastructure. ii]Cross-holdings. by lowering costs of production improving product quality and variety improving innovative behavior and fostering investment based on prospective profitability. The overall objective of the disinvestment policy is to raise resources from within the public sector so an to meet the following costs associated with transforming the Indian public sector namely. wages and salaries of government employees and subsidies. Under the model of warehousing. In the golden share model the governmental. Hence. this disinvestment of government stage in the public sector enterprises is absolutely imperative. it has to service a huge amount of outstanding debt before any money is available for investment in infrastructure. An important objective of disinvestment policy is to create condition which are conducive to raising productive efficiency that is. the government would simply sell a part of its shares of one public sector unit to other public sector units. The government is forced commit further resources for the sustenance of many non-viable public sector enterprises Above all. etc. but a lesser stake does not make it a minority stakeholder iii] Strategic sale: This plan is being currently pursed by the government.
. employment and tax revenues in the long-run. As a part of this strategy. It would also. Firstly. It would investors give investors easier exit options and help in establishing more accurate benchmarks and pricing. 1999 quoted in Ravichandran.the disinvestment of these shares will be delinked from the Union budget.a] Government: to offload above 51 percent in strategic sales. new cap fixed at 74 percent b] Disinvestment price to be marked determined and not pre-fixed. They may be stated as follows: i] Disinvestment would expose the privatised companies to market discipline.1999:35-36). The public sector enterprises selected for disinvestment will be freed from administrative control of the parent ministry and placed under a new body be to created for piloting the process. III. c] Structural mechanism to speed up the disinvestment process to be put in place. V} Consumers would be benefited as they would have more choices and would have access to cheaper and better quality products and services. the sale of public sector undertaking' shares will be under the newly Department for Disinvestment. Secondly . It would also relieve the government from intermediate pressures to offload the equity not withstanding the market realities.term disinvestment strategy as against an annual one hitherto pursued. This can already be seen in the telecom sector. important changes have been introduced recently. 'The emergence of private shareholders in public sector units and trading of public sector share in the stock markets are both expected to make public sector management's more sensitive to commercial profitability (Ahluwalia. facilitate the raising of finds by privatised companies for expansion in the future iv] Opening up the public sector to private investment would increase economic activity and have a positive impact on the economy. CONCLUDING REMARKS There is no doubt that several benefits would arise from the disinvestment policy. thereby forcing them to become more efficient and survive on their own financial and economic strength or cease They would able to respond to the market much faster and cater to them business needs in a more professional manner. Several benefits me expected to he derived from the disinvestment polity. Corporate governance would be introduced in the privatised companies ii] Disinvestment world result in wider distribution of wealth through offering of shares of privatised companies to investors and employees iii] Disinvestment would have a beneficial affect on the capital market. This would lead to a medium .
the total process of disinvestment should. need for a comprehensive strategy of disinvestment. The programme should benefit the public at large so a to generate the best responses. The salaries and wages of public sector enterprises are generally considered as one of the causes of unprofitability of the enterprises. It is only over the last two years that the disinvestment scene is changing fast. there is a concerted move at reduction of manpower through the Voluntary Retirement Scheme [VRS] before disinvestment or closure.However. that is. Hence. Employee's fears and apprehensions during the process of disinvestment must be suitably dealt with. disinvestment of public enterprises is inevitable. to provide a level . It is important that public sector enterprises be allowed to face the challenges of the maker to become much more efficient. covering all areas including determining the size of investment. thereby enhancing the competitiveness of the public sector enterprises in the liberalized scenario. The Rangarajan Committee recommended that the government should retain majority equity control in public sector undertakings operating in strategically important areas like defences and atomic energy. we are just at the beginning of the 21st Century. The government has redefines the role of the state in commercial activities. take place in such a manner so as to achieve the desired objectives. The public sector companies should be allowed to compete on par with the private sector in the market. As the Indian economy continues to liberalize further. There is therefore. In the rest of the public enterprises. Decision making is still centralised at the government level. Otherwise it my end up being a distress sale at throw-away prices. the process of liberalization and privatisation needs to be reinforced. the government could disinvest upto any extent. made profitable and then sold.playing field. disinvestment is likely to aggravate the problem of unemployment. there is an urgent need for going ahead with public sector reforms. . During the last few years. In order to be recognized as a growing and great economic power with its vast untapped potential India needs to catch up and keep pace with the developed economic We have no doubt adopted a progressive economic policy In order to maintains the tempo of economic progress. Under these circumstances. choice of technology and product mix. the disinvestment carried out so far has been half-hearted it has not been significant enough so as to affect either of the management or the working environment of the public sector enterprises. it is imperative. lakhs of people have been retrenched under VRS from public sector organisations. however. The future planar of the enterprises should be kept in mind while disinvesting. If at all the government is to extract good value for public sector enterprises. that they must be restructured. As privatisation proceeds.
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