Public Sector

The country was facing problems like inequalities in income and low levels of employment, regional imbalances in economic development and lack of trained manpower. India at that time was predominantly an agrarian economy with a weak industrial base, low level of savings, inadequate investments and infrastructure facilities. In view of this type of socio-economic set up, our visionary leaders drew up a roadmap for the development of Public Sector as an instrument for self-reliant economic growth.This guiding factor led to the passage of Industrial Policy Resolution of 1948 and followed by Industrial Policy Resolution of 1956. The 1948 Resolution envisaged development of core sectors through the public enterprises. Public Sector would correct the regional imbalances and create employment. Industrial Policy Resolution of 1948 laid emphasis on the expansion of production, both agricultural and industrial; and in particular on the production of capital equipment and goods satisfying the b asic needs of the people, and of commodities the export of which would increase earnings of foreign exchange. . 1. 3 In early years of independence, capital was scarce and the base of entrepreneurship was also not strong enough.Hence, the 1956 Industrial Policy Resolution gave primacy to the role of the State which was directly responsible for industrial development. Consequently the planning process (5 year Plans) was initiated taking into account the needs of the country. The new strategies for the public sector were later outlined in the policy statements in the years 1973, 1977, 1980 and 1991. The year 1991 can be termed as the watershed year, heralding liberalisation of the Indian economy. 2- 1. 1. 4 The public sector provided the required thrust to the economy and developed and nurtured the human resources, the vital ingredient for success of any enterprise; public or private. 1. 2 GLOBAL TREND industrial revolution in Europe. With the advent of globalization, the public secto r faced new challenges in the developed economies. No longer the public sector had the privilege of operating in a sellers market and had to face competition both from domestic and international competitors.Further, in the second half of the 20th century in the developed economies, the political opinion started swinging towards the views that the intervention as well as investment by Government in commercial activities should be reduced to the extent possible. 1. 2. 1 The Public Sector emerged as the driver of economic growth consequent to the 1. 2. 2 Many eminent economists argued that Government must not venture into those areas, where the private sector could undertake job efficiently.Lot of emphasis was laid on market driven economies, rather than State controlled and administered economies. The collapse of socialist economy of the Soviet block convinced the policy planners, around the world, that role of the State should be that of a facilitator and regulator rather than the pr oducer and manager. It may be worth mentioning that, in various countries, the turn towards liberalism including deregulation and decontrol also led to discontent amongst some sections of population as its benefit did not flow down to the weaker and disadvantaged sections of society. . 2. 3 Today, both Public Sector & Private Sector have become an integral part of the economy. There may not be much difference in working of these sectors in advanced countries, but in developing countries, the performance of Public Sector has considerable scope for improvement. It is also observed that Pay packages are almost similar in both sectors in developed countries, but large differences exist in remuneration in the two sectors in developing countries, like ours. -3- 1.3 Economic Scenario and Role of Public Sector in India – General perspective 1. . 1 Government of India, as part of its national agenda to promote growth, increase in efficiency and international competitiveness, has been continuously framing policies for industrial growth, fiscal, trade and foreign investment to achieve overall socio-economic development of the country. As a result of exceptionally severe balance of payments and fiscal crisis in the year 1991, the government decided to shift to a liberalized economy with greater reliance upon market forces, a larger role for the private sector including foreign direct investment. 1. 3. The Government realized that a strong and growth oriented nation could be built if India grows as part of the world economy and not in isolation. Thus, liberalising and deregulatory steps were initiated from the year 1991 onwards, which aimed at supporting growth and integration with the global economy.Since then, the thrust of New Economic Policy has been on progressive reforms such as reduction in the scope of industrial licensing, reforms in the Monopolies and Restrictive Trade Practices (MRTP) Act, reduction of areas reserved exclusively for public sector, disinve stment of quity of selected public sector enterprises (PSEs), enhancing limits of foreign equity participation in domestic industrial undertakings, liberalization of trade and exchange rate policies, rationalization and reduction of customs and excise duties and personal and corporate income taxes, promoting FDI, investments from NRIs (Non-Resident Indians), extension of the scope of CENVAT, implementing the VAT regime in States, taking steps to switch over to goods & services tax system w. e. f. 01. 04. 010, e-governance and simplification of various procedures, rules and regulations etc. 1. 3. 3 Since the setting up of World Trade Organization (WTO) in the year 1995, as an apex body at the international level, to which India is a signatory, the world trade has definitely grown thereby giving indications that international trade reforms do play an important role in boosting economic development of various countries. 1. 3. 4 Industrial policy has seen a sea change with most Central Government industrial controls being liquidated.The Central Public Sector Enterprises (CPSEs) were classified into ‘strategic’ and ‘non-strategic’. Strategic CPSEs were identified in -4- the areas of (a) Arms & Ammunition and the allied items of defence equipments, Defence air-crafts and warships; (b) Atomic Energy (except in the areas related to the operation of nuclear power and applications of radiation and radio-isotopes to agriculture, medicine and non-strategic industries); and (c) Railway transport. All other CPSEs were considered as non-strategic.Further, Industrial licensing by the Central Government has been almost abolished except for a few hazardous and environmentally sensitive industries. 1. 3. 5 The main elements of the present Government policy towards Public Sector enterprises as contained in the National Common Minimum Programme (NCMP) are reproduced below: i) To devolve full managerial and commercial autonomy to successful, profit making companies operating in a competitive environment ii) Generally , profit-making companies will not be privatized ii) Every effort will be made to modernize and restructure sick public sector companies and revive sick industry iv) Chronically loss making companies will either be sold off, or closed, after all workers have got their legitimate dues and compensationv) Private industry will be inducted to turn-around companies that have potential for revival vi) Privatization revenues will be used for designated social sector schemes vii) Public sector companies and nationalized banks will be encouraged to enter the capital market to raise resources and offer new investment avenues to retail investors. . 3. 6 The Government has made a clear commitment to empowering the CPSEs and their managements. It was recognised that public enterprises could not compete effectively with private entrepreneurs without freedom to function and operate -5- commercially. Thus, the concept of Navratna and Mi ni-Ratna was introduced with greater delegated authority, both financial and managerial. Government has realized that ‘Navratnas’, ‘Mini-ratnas’ and other CPSEs are required to grow and deliver on the promises they have made to their stakeholders.Other reforms have also been announced, such as professionalisation of the Boards of Directors of public sector enterprises and evaluation of performance of CPSEs through Memorandum of Understanding (MOU). 1. 4 Performance Status wide range of activities in the manufacturing, engineering, steel, heavy machinery, machine tools, fertilizers, drugs, textiles, pharmaceuticals, petro-chemicals, extraction and refining of crude oil and services such as telecommunication, trading, tourism, warehousing, etc. and a range of consultancy services.