ECONOMIC

ENVIRONMENT
OF
BUSINESS
07

2011

BRAIN TEASER
One way to tell an insect from
a spider is to count its legs.
All insects have six legs,
and all spiders have eight legs.
So if some insects and spiders
went to a dance,
and there were 48 dancing legs,
how many insects and
how many spiders were at the
dance?
PUBLIC
SECTOR
IN
INDIA




1 DIVISION OF THE ECONOMY INTO
PUBLIC AND PRIVATE SECTORS

AFTER INDEPENDENCE THE PUBLIC SECTOR EXPANDED

INDUSTRIAL POLICY RESOLUTIONS 1948, 1956
THE PRIVATE SECTOR WAS ASSURED
INDUSTRY DIVIDED INTO DIFFERENT CATEGORIES
SOME EXCLUSIVE FOR THE PUBLIC SECTOR
SOME FOR BOTH
SOME EXCLUSIVE FOR THE PRIVATE SECTOR

WHY?


INDUSTRIAL PROGRAMMES AFTER 1955 BUILT AROUND
TWO HYPOTHESES:

1 PRIVATE INVESTMENT IN RELATIVELY SMALL GOODS
WOULD BE PROMOTED BY SHUTTING OUT IMPORTS
AS WELL AS THROUGH EXCESS CAPACITY AT HOME,
WITH A CONSEQUENT BOOST TO PROFITS.

2 PUBLIC INVESTMENT, BEING AUTONOMOUS OF
PROFITS, WOULD TAKE PLACE IN BASIC AREAS
WHICH HAD LONG GESTATION PERIODS, LOW OR NO
PROFITS, A LARGE FOREIGN EXCHANGE COMPONENT,
COMPLEX TECHNOLOGY AND EQUALLY COMPLEX
PROBLEMS OF COORDINATION.


2 FORMS OF ORGANIZATION OF PUBLIC
SECTOR UNDERTAKINGS

2.1 DEPARTMENTAL UNDERTAKINGS
RUN AND MANAGED BY THE CONCERNED
DEPT OF THE GOVT.
UNDER DIRECT CONTROL OF THE CONCERNED
MINISTER

RAILWAYS, P&T, ATOMIC POWER, ORDINANCE
FACTORIES, SECURITY AND CURRENCY PRESSES,
MINT, ELECTRICITY.

SOCIO-ECONOMIC OBJECTIVES
LACK PROFESSIONAL MANAGEMENT
NOT FOCUSSED ON CONSUMER
POLITICAL INTERFERENCE

2.2 PUBLIC CORPORATIONS

A PUBLIC BODY INCORPORATED UNDER A SEPARATE
STATUTE WHICH DEFINES ITS POWERS, DUTIES
AND PRIVILEGES AND PRESCRIBES THE PATTERN OF
MANAGEMENT.

EXPECTED TO RUN ON COMMERCIAL PRINCIPLES
MGMT. CAN TAKE QUICK AND INDEPENDENT
DECISIONS.
PEOPLE- EXPERIENCED AND PROFESSIONALLY
QUALIFIED.
POWER TO RAISE FUNDS

FINANCIAL CORPORATIONS
LIC, UTI, IFCI, SBI, Nationalized Banks, NABARD

NON-FINANCIAL CORPORATIONS
DVC, ONGC, AI, IA, IAAI

IN REALITY, POLITICAL INTERFERENCE
2.3 GOVERNMENT COMPANY

ESTD. BY COMPANYS ACT 1956
MORE THAN 51% PAID UP CAPITAL BY THE GOVT.

MINING, MANUFACTURING, REFINING
STC, GENERAL INSURANCE CO..
MADRAS FERTILISERS

IN 2004 1309 GOVT. COS.

THE STATE CAN CONDUCT THE BUSINESS ON THE
LINES OF THE PRIVATE SECTOR

MORE EFFICIENT THAN THE OTHER TWO


2.4 HOLDING COMPANY

THE OBJECTIVE WAS GENERAL DEVELOPMENT OF
RESPECTIVE SECTORS.

TO END FRAGMENTATION OF THE INDUSTRY
TO INTEGRATE THE SECTORS

REDUCED GOVT. CONTROL

IRON & STEEL
ROURKELA, BHILAI, DURGAPUR, BOKARO

THEN THE STEEL AUTHORITY OF INDIA WAS
FORMED

2.5 SUITABLE FORM OF ORGANIZATION

RECOMMENDATION OF THE STUDY TEAM ON PSUs

1 THOSE PSUs WHICH PROVIDE SERVICES TO THE
ENTIRE COMMUNITY (RAILWAYS, P&T) DEPARTMENTAL
FORM OF THE ORGANIZATION IS MOST APPROPRIATE.

2 PUBLIC UNDERTAKINGS IN THE INDUSTRIAL AND
MANUFACTURING FIELDS SHOULD BE ORGANISED
IN THE FORM OF A PUBLIC CORPORATION. EACH
COVERING A NUMBER OF UNITS OPERATING IN THE
SAME INDUSTRY.

3 IN THE CASE OF PSUs IN AREAS WHERE PRIVATE
SECTOR ALSO OPERATE, THE PREFERRED FORM IS
A GOVERNMENT COMPANY.

3 ROLE OF PUBLIC SECTOR IN THE INDIAN
ECONOMY

3.1 PUBLIC SECTOR AND CAPITAL FORMATION
PUBLIC SECTOR REDUCED IN THE FYPs
A PRIVATE SECTOR FOCUS
2003-04 PUBLIC SECTOR SAVING WAS Rs 9429 cr

3.2 DEVELOPMENT OF INFRASTRUCTURE
ROAD, RAIL. AIR, SEA TRANSPORT SYSTEM
THE PRIVATE SECTOR ALSO BENEFITS

3.3 STRONG INDUSTRIAL BASE
IRON & STEEL, HEAVY ENGG., COAL,
HEAVY ELEC. MACH., PETROLEUM & NATURAL GAS,
CHEMICALS, DRUGS, FERT., etc.

THE PRIVATE SECTOR BENEFITS
REDUCES DEPENDANCE ON IMPORTS

3.4 ECONOMIES OF SCALE
INDUSTRIES, WHERE FOR TECHNOLOGICAL
REASONS, PLANTS HAVE TO BE LARGE
REQUIRING HUGE INVESTMENTS

EVEN IN USA, UK, FRANCE

3.5 REMOVAL OF REGIONAL DISPARITIES
PRE-INDEPENDENCE PORT TOWN FOCUS
MUMBAI, KOLKATA, CHENNAI
STEEL SECTOR A BACKWARD AREA FOCUS

3.6 IMPORT SUBSTITUTION AND EXPORT PROMOTION
FOREIGN EXCHANGE PROBLEMS
BHEL, BHARAT ELECTRONICS,
HINDUSTAN ANTIBIOTICS, IOC, ONGC
MANUFACTURED IMPORTED GOODS,
MOVED TO EXPORTS ALSO

3.7 CHECK OVER CONCENTRATION OF ECONOMIC
POWER

IN THE PVT. SECTOR POWER CONCENTRATES
IN A FEW HANDS
PUBLIC SECTOR HELPS IN REDUCING INEQUALITIES
- WELFARE PROGRAMMES FOR THE POOR
- PRICE DIFFERENCE TO SMALL AND LARGE
COMPANIES
- WAGES HIGHER
- LABOUR WELFARE



4 EXPANSION OF PUBLIC ENTERPRISES

4.1 PUBLIC AND PRIVATE COMPANIES IN INDIA

PUB PRIV PUB PRIV
Companies Paid-up Capital
Rs Cr
60-61 142 26,007 547 1271
80-81 851 64,706 11,443 4914
91-92 1180 2,49,181 56,481 22,415
2000 1257 5,41,051 95,842 1,72,056
2003 1279 6,04,490 NA NA

5 PERFORMANCE OF THE PUBLIC SECTOR

5.1 THE QUESTION OF PROFITABILITY
JUDGE NOT BY PROFITS, BUT BY THE TOTAL
ADDITION THEY MAKE TO THE FLOW OF GOODS
AND SERVICE IN THE ECONOMY.

5.2 EMPLOYMENT AND LABOUR WELFARE
OVERALL EMPLOYMENT SITUATION IMPROVED
DEVELOPMENT OF TOWNSHIPS

5.3 PUBLIC SECTOR AND FOREIGN EXCHANGE
EARNINGS
1 THROUGH DIRECT EXPORT OF ITEMS PRODUCED
2 THROUGH SERVICES RENDERED
3 TRADING AND MARKETING SERVICES THROUGH
WHICH EXPORTS ARE CANALISED
5.4 THE QUESTION OF EFFICIENCY

TRANSFORMATION OF THE INDL. STRUCTURE
MODERNISATION
HIGHER LABOUR PRODUCTIVITY

HIGHER PROPORTION OF VALUE PRODUCED IS
REALISED OUTSIDE THIS SECTOR

CRUCIAL ROLE IN INDIAS DEVELOPMENT
6 PROBLEMS OF PUBLIC SECTOR ENTERPRISES

6.1 PRICE POLICY OF PUBLIC ENTERPRISES
THE PUBLIC UTILITY APPROACH
NOMINAL RATE OF RETURN APPROACH

6.2 UNDER UTILISATION OF CAPACITY
INDUSTRY STAGNATION 65-80
TAKE OVER OF PRIVATE SICK UNITS

6.3 PROBLEMS RELATED TO PLANNING AND
CONSTRUCTION OF PROJECTS
1 SELECTION OF SITE NOT BASED ON DETAILED
SOIL INVESTIGATION
2 SERIOUS OMISSIONS AND UNDERSTATEMENTS
3 ACTUAL COSTS EXCEEDED ORIGINAL ESTIMATES
4 MUCH LONGER TIME TO COMPLETE
5 INAPPROPRIATE TECHNOLOGY
6.4 PROBLEMS OF LABOUR, PERSONNEL AND MGMT.

SENIOR APPOINTMENTS BY POLITICAL
CONSIDERATIONS

IAS NOT PROFESSIONALS

WORK ETHIC OVER OCCUPATION WITH FILE-WORK

DELAY IN DECISION MAKING

OVERSTAFFING OF UNSKILLED LABOUR
7 CONTROL OVER PUBLIC ENTERPRISES

7.1 COMMITTEE ON PUBLIC UNDERTAKINGS
1 EXAMINE REPORTS AND ACCOUNTS
2 EXAMINE REPORTS OF AUDIOTOR GEN.
3 EXAMINE MGMT. APPROACH

7.2 BUREAU OF PUBLIC ENTERPRISES
1 EVALUATE FEASIBILITY
2 CONTROLLING EXPENDITURE
3 UNIFORM SERVICE TO EMPLOYEES
4 DATA BANK OF INFORMATION
5 PERIODICAL REPORT TO PARLIAMENT
6 TRAINING
7 ADVICE WHEN REQUIRED

7.3 THE QUESTION OF AUTONOMY

THEY ARE DEMANDING:
- MORE AUTONOMY
- LESS CONTROL AND ACCOUNTABILITY

GOVT. HAS ACCEPTED
- REDUCE QULAITY OF CONTROL
- GRANT MORE AUTONOMY
- IMPORVE QUALITY OF ACCOUNTABILITY


8 POLICY TOWARDS PUBLIC SECTOR SINCE 1991

8.1 DERESERVATIONS
FROM 17 TO 8

8.2 POLICY REGARDING SICK UNITS
BOARD FOR INDUSTRIAL AND FINANCIAL
RECONSTRUCTION (BIFR)
NATIONAL RENEWAL FUND (NRF)

8.3 MEMORANDUM OF UNDERSTANDING

8.4 POLICY FOR NAVARATNAS
11 PSUs IDENTIFIED AND GIVEN ENHANCED
POWERS

8.5 DISINVESTMENT OF SHARES

8.6 BOARD FOR RECONSTRUCTION OF PUBLIC SECTOR
ENTREPRISES (BRPSE)
THANK YOU