Do you agree that disinvestment in public sector undertakings lead to self-reliance PSUs?

Answer 1

The public sector has played a pivotal role in the planned economic and industrial development of the country. For the purpose of planning and national accounting, public sector in India includes all activities funded out of Governments budget. The objectives of the industrial policy were derived from the Directive Principles of State Policy in the Constitution of India. It states that the objective of the State was to promote the welfare of the people by the creation of a social order based on social, economic and political justice. One of the fundamental decisions that Jawaharlal Nehru took after he became the Prime Minister was structuring the economy on a mixed pattern in which both the public and private sectors participated and had their roles demarcated.

The Public Sector Undertakings (PSUs) evolved in India after the attainment of Independence in 1947. The Railways, the Post and Telegraph Department, the Port Trusts, the Ordnance and Aircraft Factories and a few State managed undertakings, like the government salt factories, quinine factories, etc., were some of the public sector undertakings. At the time of independence, India had an agrarian economy with a weak industrial base, low level of saving and investment and near absence of infrastructure facilities. Towards this endeavor, nationalization of some of the industrial, banking and insurance units was undertaken. The expansion of the public sector was undertaken as an integral part of the industrial policy in 1956. The Industrial Policy Resolution stated that the State will progressively assume predominance and direct responsibility for setting up new industrial undertakings and for developing transport facilities.

The essential characteristics of development are social justice with a view to eradicate poverty and reduce income inequalities, self-reliance to avoid the dictates of the developed countries, planned utilization of the limited resources of the country, and a mechanism to carry out the plans, irrespective of profit considerations. To ensure this, in March 1950, the Planning Commission was set up by the Government to formulate a plan for the most effective and balanced utilization of the country's resources. The Second Five- Year Plan envisaged the adoption of the socialistic pattern of society as the national objective, as well as the need for planned and rapid development, requiring 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 large scale which only the State, in present circumstances, could provide also have to be in the public sector.

There has been an appreciable growth in investment in the public sector over the years. In 1951, total investment in five Central Public Sector Enterprises was Rs. 290 million. This increased to 2,74,1140 million in 242 enterprises as on 31 March, 2001. The contribution of Public sector enterprises during 2000-01 in the country's total production of lignite was 100 per cent, in coal about 97 per cent, in petroleum about 81 per cent and in non-ferrous metals about 80 per cent. The PSUs intended to bring about an end to the semi-feudal class division in India. They intended to protect the workers from exploitation by the private monopolists. They were also set up to stimulate exports, substitute imports and promote self-reliance. The objective of the public sector is to accelerate the economic growth and industrialization by creating the necessary infrastructure. The public sector has contributed to the goal of self-reliance both by impressive import substitution and export promotion. However, establishment of large units without matching growth of small scale and ancillary units results in lopsided6 growth. Public sector enterprises review, from time to time, their production programs with a view to vacating such areas which can be left to the small scale sector.

In the PSUs, the Government, through the concerned minister, decides the price policy while the managers of the respective PSU decide the price structure within the general framework of the price policy of the Government. Besides providing direct employment to about two million people, the PSUs incurred gross expenditure amounting to Rs 37940 million on township maintenance, administration and social overheads. In 1997, the Government had identified 11 PSEs as Navratnas and decided to give enhanced powers to the Board of Directors of these PSUs to facilitate their becoming global players. These enterprises are BHEL, BPCL, GAIL, HPCL, IOC, IPCL, MTNL, NTPC, ONGC, SAIL and VSNL. IPCL and VSNL were privatized and only 9 Navratnas were there as in August, 2002. The Government recognized as Mini ratnas, the other profit making enterprises and granted them a package of financial, operation and managerial autonomy. As on 31 March, 2002, 41 enterprises have been categorized as Mini ratnas.

One of the major initiatives towards public sector as outlined in the new industrial policy of July, 1991 was to bring all public sector enterprises under the system of Memorandum of Understanding. During the year 2000-01, SO PSEs were rated as excellent, 28 PSEs as very good, 9 PSEs as good, 14 PSEs as fair and 5 PSEs as poor. There has been on impressive improvement in the financial performance of the Memorandum of Understanding signing PSEs, which is reflected in their improved Gross Margin.

The government has drawn up a plan for disinvestment of various PSUs as part of its privatization program. A five-member Disinvestment Commission was set up in August, 1996. It had to prepare a long-term disinvestment program to determine the extent of disinvestment in each PSU and to monitor the process. The Commission under the chairmanship of G.V. Ramakrishna proposed to empower the board of directors of a PSU to hive off a portion of its assets, either as an independent subsidiary or as a joint venture entity without being dependent on the Government's decision making process. It felt that no permission should be required for a PSU to form a joint venture with Indian or foreign companies, in which the partner holds less than or equal stakes.

It is now being increasingly realized that privatization is not the panacea for all ills. The PSU privatization has received a set back as the Supreme Court stayed the sale of the oil companies, BPCL and HPCL. The big public sector companies have made news because of their recent performance. Their huge profits have boosted the stock markets and their shares have surged. They recorded 10.5 per cent growth in their sales during the quarter ending March 2003 while the private sector's sales increased by only 4 per cent. Public sector still remains the biggest employer in the organized sector and has a better track record in smooth industrial relations than the private sector. When the private sector takes over public enterprises, the main fear is loss of jobs. New owners often resort to retrenchment without any sensitivity to the social costs and try to turn such enterprises into profit-making ones by trimming the payroll. Often the public sector offers avenues through which people from ordinary backgrounds can get jobs with good career prospects.

For India to reach 8 per cent GDP growth, both public and private sectors have to grow together. The public sector enterprises that perform well should be encouraged. This would help to increase public sector savings which can be invested for infrastructural development. On an optimistic note it can be said that sincere efforts of the Government will in long run lead to better state of affairs in the public sector.