1Public Sector Reforms in India

7/28/2019 1Public Sector Reforms in India

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PUBLIC SECTOR REFORMS

Presented By:

44. Mahesh Shringi

45. Mathew K.N.

48. Mohd Shahab Alam


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POLICY REFORM IN PUBLIC ENTERPRISES

Overview on Industrial Policy The Statement on Industrial Policy, of July 24, 1991, recognized the many

problems that have manifested themselves in many of the public enterprises

and sought to rectify these problems.

It noted that many public enterprises have become a burden rather than

being an asset to the Government.

Measures must be taken to make these enterprises more growth oriented

and technologically dynamic.

Units which may be faltering at present but are potentially viable must be

restructured and given a new lease of life.

The areas reserved for the public sector were reduced drastically from 17 to

8 and later to 6.

In manufacturing, the only areas which continue to be reserved for the public

sector are those related to defense, strategic concerns and petroleum.


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What Has Been Done So Far ???

1. De-reservation of the Public Sector and De-licensing In the manufacturing sector, the reserved areas for the public sector now

only include defense production and mineral oils.

In the case of mineral oils private investment & foreign investment is invited ,

but on a discretionary basis.

The other reserved areas are in respect of atomic energy, minerals related to

atomic energy, coal and lignite, and railway transport.

Mining of iron ore, manganese ore, chrome ore, etc., and mining of non-

ferrous metals, which was earlier reserved for the public sector was further

de reserved in 1993. Thus, from the original list of 17 now only 6 areas still

remain reserved for the public sector.


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All sick (bankrupt) public sector industrial firms now have to be restructured

through revival, rehabilitation, or closure if found to be unviable.

Once the bankrupt public sector firms are referred to the BIFR, the

government has, by necessity, to make decisions that result from the orders

of this Board.

Procedure of BIFR:

1. After referral to the BIFR the Board first has to decide whether a firm has been correctly

referred to them

2. If accepted firm is usually asked to put forward its own proposal for a restructuring program.

3. If this is not found to be satisfactory an operating agency (OA) is appointed in order to examine

its viability or otherwise.

4. After the operating agency submits its report recommending restructuring or closure, hearings

are held involving all the interested creditors, owners and labour.

5. A decision is given after all interested parties have been heard.

2. Referral of Sick PSEs to BIFR (Board of Industrial & Financial Reconstruction)


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3. The National Renewal Fund (NRF)The National Renewal Fund was established in 1992 to provide a social safety

net for workers affected by industrial restructuring.

Intentions of NRF:

1. to provide compensation to workers who would be affected by industrial

restructuring

2. to assist such workers in re-training and re-deployment

3. to provide resources for employment generation in areas affected by

industrial restructuring.

4. provision for compensating workers who opt to take voluntary

retirement from existing public sector enterprises.


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4. Dis-investment of Equity

Reasons of Dis-Investment:

a) offer a randomly structured portfolio of shares each with notional

reserve price based on a complex valuation procedure

b) to off-load the shares to institutional investors as a buffer between the

Government and the stock market.

Critic:

Criticism of disinvestment process has been that it has essentially been

seen as resource raising exercise by the government


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5. Greater Autonomy to Public Enterprises

It involves the setting of relatively detailed performance targets through

mutual discussions between the PSE, The Administrative Ministry and

Professional Consultants on an annual basis.

A grading system was introduced to rate PSU as Excellent",Very Good",

Good", "fair" and "poor to judge whether the PSE is to be referred as sick

or not on the basis of set targets.


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Need For Public Sector Reforms

Need of

Reforms

Conflict of

objectives

Loss or low

rate of

return

Lack of

professiona-

lism

Time and

cost

overruns

Underutilis-

ation

Political

Interference

Operational

inefficiency


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Conflict between financial and social objectives

Problem of losses or low rate of returns

Lack of Competition


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Lack of professionalism in management

Time and cost overruns in new projects

Operational inefficiency


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Underutilisation of capacity

Political Interference

Lack of sensitivity to customer need


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Changes after Reforms

Among the fastest growing economy

Now the share of private and public sector in the ratio 78:22

Only 3 sector confined under the Government

PSU starts gaining efficiency and making profit

Became the major part in the economic development


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Role of Public Sector In Growth of India

1. Maximizing the rate of economic growth.

2. Development of capital-intensive sector.

3. Development of Agriculture .

4. Balanced regional development.

5. Development of ancillary industries.

6. Increasing employment opportunities.

7. Model employer.

8. Preventing concentration of economic power.

9. Establishment of a Socialist pattern.


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Role of Public Sector In Growth of India

10. Import Substitution.

11. Production and Sales.

12. Mobilization of resources.

13. Research and Development.

14. Export promotion.


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1Public Sector Reforms in India