Public Enterprise Policy and Issues in Management

Public enterprise policy Class notes

Sqn Ldr(Retd) Ravindra

Public Enterprise Policy and Issues in Management

Introduction
This document is being made to bring out the points that were brought out during the
Lecture on this topic on Monday (14 Sep09).The intention is to bring out what all topics
were covered and are the points as understood or perceived by me. So this is basically
dependent on my memory and to add content, where data is available, I will be using
Links and notes as sent by our Colleague Mr. Anand Prem Raj.

Thereby please use this document as guide to topics covered, rather than as class
notes (absolute facts).I am using and recommend this type of “first person addressing”
whenever one of us is posting a note, where no copy of slides etc. is available.

Approach
The approach used by Dr. Trivikram in this lecture was to cover the development /
evolution of the Indian public sector/Government Industrial policy right from our/Indian
independence (1947), but to give a foundation for the world economy after the great
industrial crash (1929) was also referred to.

The lecture

PUBLIC ENTERPRISE: Any company that has a paid up equity of more than 51% is
called a public sector enterprise.

After/ around 1929 when the great crash in the world market took place, two major
types of economies emerged namely the capitalistic economy lead by USA and the
socialistic (communistic) economy lead by USSR. With the socialistic type being
surprisingly very effective in a short span of time. India after its independence was a
poor economy and had to plan or direct the growth in a way that was most suitable to
our India.

Any industry that was required to regenuvate an economy, like that of India post
independence required four(04) Factor ( remember these as 4L’s or L4 ), namely

• Lumpy Investment- A large sum of investment

• Lots of risk factor- high risk bearing capacity
• Low rate return- Being able to sustain a low rate of return.
• Long gestation period- A long time to break even or get a profit

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Public Enterprise Policy and Issues in Management
Public enterprise policy Class notes
Sqn Ldr(Retd) Ravindra

Because of either a very low private sector presence or because of not being ready to
take up the 4L’s, the Government was to take this initiative. Wherein a policy was
created for sort of public utilities etc. such the Road transport cooperation act-
1950(RTC act), state electricity boards, Indian telephone industries, the state
warehousing corporation, national mineral development cooperation etc. Though I have
mention most of these from the service sector as we may call it now, but initially the
government were laying a major emphasis on the Manufacturing sector let it be in the
agricultural sector or the industrial sector, to put it into official language

“A dynamic national policy must, therefore, be directed to a continuous increase in

production by all possible means, side by side with measures to secure its equitable
distribution. In the present state of the nation’s economy, when the mass of the people
are below the subsistence level, the emphasis should be on the expansion of
production. Both agricultural and industrial.” (Taken from some document from the links
provide by Anand).

The rationale and significance of public enterprise in India was that the GDP could
be distributed to the society and hence foreign direct Investment (FDI) could be
appreciated or increased, a lot of other factors like, most of India other than a few
places such as Calcutta, Chennai etc had any industry in that period ( the ambassador
car was from Calcutta). Any private industries did play a part a part but a minor few
such as the Birla’s, M&M etc.

The history of M&M as to being formed by Mahindra and Mohamed initially, by seeing
the need for the military jeeps would be an ideal vehicle for the under developed road
system, prevalent in India (no proper roads etc), they had started off by taking a
franchise of “Willy’s Jeep” in the year 1949. During the partition of India and Pakistan,
Mohamed moved over to Pakistan as its finance minister and the company became
Mahindra & Mahindra. Please read the Article on M&M history, using the Link below

http://mahindra.com/Heritage/History.html (if you have problems see Anand Prem rajs

post)

(It was also mentioned that a few questions on dates such the Independence Day,
republic day etc (Year) have been frequently asked in the exams, hence this history as
taught in the class has a lot of relevance.)

India had mixed economy of the economically backward/weaker and poor etc, planning
of the development was started by way of five year plan. The first five year plan was
signed by Nehru on 25 July 1951 ( note all of the numbers add up to seven, because it
was considered a auspicious day)

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Public Enterprise Policy and Issues in Management
Public enterprise policy Class notes
Sqn Ldr(Retd) Ravindra

Russia was the first country to introduce a five year plan in 1929.

It was understood that the private sector was for profiteering (at least at that time) and
the PE was for profitability

To absorb the price of commodity, by absorbing the variations in International prices,

the Govt alone could do that.

Hence it was felt the govt. alone could create the facility. Also a mention of
nationalization of various industries/industrial sectors was carried out. The foreign
acquisition and national act was formed. To explain this, the examples of Burma Shell
oil nationalization to Bharat petroleum and banks were explained.

The Ist industrial policy resolution was formed by the government in 1948,

BRIEF COMPENDIUM OF THE IMPORTANT POINTS OF INDUSTRIAL POLICY

RESOLUTION 1948

State enterprise vs the private enterprise- It was stated that the state (called the govt. in
India or PARASATA in Africa) must play a progressively active role in the development
of industry.

The ability to achieve the main objectives should determine the immediate extent of
state responsibility and the limits to the private enterprise. And so the state should
contribute more quickly to this effect.

The following industry was defined in this act, for 100% government, or to what extent
government would control (predominantly govt. control, or just controlled sectors)

100% Govt control (MONOPOLY)

1. manufacture of arms and ammunition

2. the production and control of atomic energy
3. ownership and management of railway transport

In the case of the following industries, the state which in this context, includes Central,
Provincial and State Governments and other Public Authorities like Municipal
Corporations will be exclusively responsible for the establishment of new undertakings,
except where

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Public Enterprise Policy and Issues in Management
Public enterprise policy Class notes
Sqn Ldr(Retd) Ravindra

1. Coal (the India Coalfields Committees proposals will be generally followed).

2. Iron and Steel.
3. Aircraft manufacture.
4. Shipbuilding.
5. Manufacture of telephone, telegraph and wireless apparatus, excluding radio
receiving sets.
6. Mineral oils.
There are certain basic industries of importance, apart from those mentioned in
paragraph 4, the planning and regulation of which by the Central Government is
necessary in the national interest. The following industries whose location must be
governed by economic factors of All-India import, or which require considerable
investment of a high degree of technical skill, will be the subject of Central regulation
and control:

1. Salt
2. Automobiles and tractors
3. Prime movers
4. Electric engineering
5. Other heavy machinery
6. Machine tools
7. Heavy chemicals, fertilizers and pharmaceuticals and drugs
8. Electro-chemical industries
9. Non-ferrous metals
10. Rubber manufactures
11. Power and industrial alcohol
12. Cotton and woolen textiles
13. Cement
14. Sugar
15. Paper and Newsprint
16. Air and Sea transport
17. Minerals
18. Industries related to defense
Further in any emergency, the Government would always have the power to take over
any industry vital for national defense or in the national interest.

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Public Enterprise Policy and Issues in Management
Public enterprise policy Class notes
Sqn Ldr(Retd) Ravindra

The industrial policy resolution ,1948 is also called the 3-6-18 combination and the
100% govt industry are 3, the next are 6, and the last are 18 as listed above.

This is considered as the curtain raiser for the public sector.

http://www.smallindustryindia.com/policies/iip.htm#Indus1 (for details check this link by

Anand )

INDUSTRIAL POLICY RESOLUTION 1956

It has two schedules namely schedule A and Schedule B, This was the period of the
real birth of Public sector as will be evident once you read the resolution

http://www.smallindustryindia.com/policies/iip.htm#Indus2

INDUSTRIAL POLICY STATEMENT 1977

This was the phase when the Janata party came into power and largely concentrated on
the SME’s and many a Public sector started going into losses the case in point as
explained was of ECIL, which later on the govt. being reverted to the congress has done
better and presently is supposed to be cash rich.

http://www.smallindustryindia.com/policies/iip.htm#Indus3

In this policy the stress was on small scale and Tiny scale Industry. However this was
changed in the next policy of 1980. (As soon as congress took over govt.).

http://www.smallindustryindia.com/policies/iip.htm#Indus4

with this the class was concluded.

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