PUBLIC SECTOR REFORMS

Presented By: 44. Mahesh Shringi 45. Mathew K.N. 48. Mohd Shahab Alam

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.

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 nonferrous 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.

What Has Been Done So Far ???

2. Referral of Sick PSEs to BIFR (Board of Industrial & Financial Reconstruction)
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. 3. If accepted firm is usually asked to put forward its own proposal for a restructuring program. 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.

What Has Been Done So Far ???

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.

What Has Been Done So Far ???

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

What Has Been Done So Far ???

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.

Need For Public Sector Reforms

Conflict of objectives Operational inefficiency Loss or low rate of return

Need of Reforms Political Interference

Lack of professionalism

Underutilisation

Time and cost overruns

Need For Public Sector Reforms

Conflict between financial and social objectives Problem of losses or low rate of returns Lack of Competition

Need For Public Sector Reforms

Lack of professionalism in management Time and cost overruns in new projects Operational inefficiency

Need For Public Sector Reforms

Underutilisation of capacity Political Interference Lack of sensitivity to customer need

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

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.

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.