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)
Organization of Public Sector

•Ministry ( Railway,Finance etc)

•Departmental Undertaking (Defence,Post &

Telegraph,Defence production unit)

•Statutory Corporation( LIC, AIR India,

IFC,RBI,ONGC,NTC etc..)

•Central Board (Bhakra Nangal, Hira Kund

,Nagarjun Sagar dam)

•Government Companies ( Ashok Hotels, ITI, HMT

Hindustan shipyard etc)
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

Follow the leader

Subsidized Prices

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 PSU’s enjoy monopoly The existing PSU’s will be forced
to go commercial and respond to the market discipline.
The Privatization movement
The move towards privatization has gained
momentum since 70’s. The following are
usually mentioned reasons

1 The emergence of conservative government

in principal industrial countries

2 The emergence of multinational entities

3 Technological changes
4 Emergence of local capital market and
entrepreneurship

5 Dissatisfaction with performance of public

sector

( 1960’s &1970’s 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)
Reason for Indian Privatization
1. Crippling Budget deficit
2. Spectacular growth by economies of
Korea, Taiwan, Malaysia in private
sector
3. Galloping cost of government
intervention I trade and industry &
procedural difficulty
4. Collapse of USSR& communist
government in eastern Europe
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)Firm’s cost reducing effort are higher under

competitive private ownership
Key obstacle to privatization
(i)Lack of strong and high level political
commitment to the privatization program

(ii)Inappropriate design of privatization

strategy( eg. In term of scope, technique
sector and institutional capability of the
government)
(iii) Unclear and weak institutional frame work-
decentralized or centralized.
( ministry and provincial level)
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)
(vi) Vested interest of manager,
employees and customer

(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
The said industries were grouped into

I. Strategic Group.
Arms and ammunitions and defense equipment
Atomic energy
Rialway transport.

II Core Group
ONGC,OIL,BRPL,SAIL,GAIL,AI,CONOR,PHL,NLC,SECFL,
WCFL,NALCO,IBP,NTPC,PGCL,NHPC,KIOCL.

III Non core

SCI,ITDC,IPCL,FACT,NFL,HCIL,HTI,ITI,MFIL,HLL,HEML,
HZL,MOIL
YEAR TARGET ACTUAL RECEIPT
RECEIPT
1991-92 2500 3083
1992-93 2500 1913
1993-94 3500 NIL
1994-95 4000 4843
95-96 7000 362
96-97 5000 380
97-98 4800 902
98-99 5000 5371
99-00 10’000 1829
00-01 10’000 1870
01-02 12’000 5632
02-03 12’000 3342
TOTAL 78’300 29’482
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
ADVISOR ASSIST IN ADVERTISEMENT IN NEWSPAPER
INVITING EOI

ADVISOR PREPARE INFORMATION MEMORANDOM WITH

PSU &SHORTLIST THE BIDDER ( GOI+ Rep of PSU+ BIDDER)

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