Indian Public Sector Enterprises during post


India's approach to public sector reforms has been much more cautious than that of other developing countries. Radical solutions such as outright privatization of commercially viable units and closure of unviable units, which have been attempted elsewhere, were eschewed to begin with, in favour of a much more cautious approach. In the 1980s public sector reforms focused on increasing the functional autonomy of public sector organizations to improve their efficiency. In the 1990s, this was combined with 'disinvestment' involving sale of a portion of the government equity in public sector enterprises while retaining majority control with the government. Unlike privatization a la Margaret Thatcher, which was driven by the conviction that government control makes public sector units inherently less efficient and privatization therefore improves economic efficiency and is good for the consumers, the policy of disinvestment in India was initially motivated largely by the need to raise resources for the budget. Partial privatization can be legitimately criticized on the grounds that it is unlikely to yield the efficiency gains associated with full privatization including transfer of management. However, it needs to be recognized that even the induction of minority private shareholders makes some difference. It rules out budgetary subsidies to the enterprise, which is an important improvement in the incentive system. Public sector managers in partially privatized public sector enterprises become much more conscious of market indicators of performance such as earnings per share, dividends and share price, and this creates greater commercial orientation. Many public sector units also acquired international portfolio investors by making fresh issues of equity in international markets for the purpose of raising funds for their expansion programmes. The presence of private investors and especially international investors has helped create a climate in which public sector enterprise managers are able to extract greater de facto autonomy from the government.   

Over time, insistence on maintaining government control in public sector enterprises was steadily diluted, and a broader consensus evolved towards eliminating government control in some areas. The United Front government in 1996, established a Disinvestment Commission and specifically requested the Commission to identify units in 'non-strategic and non-core' areas where government stake can be reduced to a minority or even to zero. The Commission has examined fifty public sector enterprises and recommended disinvestment of a majority stake, with transfer of management control, in several cases. Implementation of these recommendations has been slow, but effective privatization in a few PSEs, with private investors being offered a majority stake and effective management control now appears very likely in the near future. This clearly heralds a very different approach to public sector reform and this approach has been further reinforced by the BJP government's announcement that government stake in public sector enterprises will be reduced to 26 per cent 'in the generality of cases'.







The area of public sector reforms where very little has been done relates to the treatment of chronically loss-making public sector enterprises. While some of these units can be turned around, many have been making losses for a very long period of time and are unlikely candidates for revival.[1] Summary closure of these units was ruled out in the early years of the reforms and the government decided instead chat the scope for reviving each unit would be carefully examined. Only those units where revival was found to be economically feasible would be revived while others would be closed down. The feasibility of revival was to be determined by the Board for Industrial and Financial Reconstruction (BIFR) and government would take a decision based on the Board's recommendations. Several public sector units have been identified as fit for closure through this process, and the government has even decided on closure in many cases, but no unit has actually been closed because the decision has been challenged in courts by labour unions. The BJP government in its first budget announced a generous retrenchment package to be offered in cases of closure in order to overcome labour opposition.








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