publicandprivatesectorinindia-090522055926-phpapp02

8/2/2019 publicandprivatesectorinindia-090522055926-phpapp02

1/21

Public and Private Sector in

IndiaSUNEEL GUPTA

ASSOCIATE PROFESSORGHS-IMR,KANPUR


2/21

PUBLIC SECTOR

A public enterprise is an organization

which is

i) Owned by public authorities includingcentral state or local authorities to anextent of 50% or more

ii)It is established for achievement of adefined set of public purpose ,which

may be multidimensional


3/21

Objective

1. To help in rapid growth andindustrialization and create necessaryinfrastructure for economic development.

2. Promote redistribution of income & wealth3.Create employment opportunities4.Promote regional balance development5. Promote import substitution save and earn

foreign exchange for country.6. Basic Infrastructure (STC, Railways, SAIL)


4/21

Organization of Public Sector

Ministry ( Railway,Finance etc)

Departmental Undertaking (Defence,Post &Telegraph,Defence production unit)

Statutory Corporation( LIC, AIR India,IFC,RBI,ONGC,NTC etc..)

Central Board (Bhakra Nangal, Hira Kund,Nagarjun Sagar dam)

Government Companies ( Ashok Hotels, ITI, HMT

Hindustan shipyard etc)


5/21

Pricing Practice

Administrative Price : Price fixed by Government

No profitNo loss Price ( DVC, Hindustanantibiotics, Hindustan Insecticides)

Cost Plus Price ITI, HAL, Bharat electronic

Competitive Price

Follow the leader

Subsidized Prices

Discriminatory Prices


6/21

Private Sector

Privatization: Transfer of ownership andcontrol of an existing public sectorenterprise ,activity or service to the privatesector. Privatization may be full or partial.

It may be selective ie. Some function aretransformed to the private sector, whichother are retained in public sector.

The entry of new private sector could introducecompetition where PSUs enjoy monopoly The existing

PSUs will be forced to go commercial and respond to

the market discipline.


7/21

The Privatization movement

The move towards privatization has gainedmomentum since 70s. The following are

usually mentioned reasons

1 The emergence of conservative governmentin principal industrial countries

2 The emergence of multinational entities

3 Technological changes


8/21


9/21

Reason for Indian Privatization1. Crippling Budget deficit

2. Spectacular growth by economies ofKorea, Taiwan, Malaysia in private

sector3. Galloping cost of governmentintervention I trade and industry &

procedural difficulty4. Collapse of USSR& communist

government in eastern Europe


10/21

5. Changes in China6. Emergence of professional

management7. IMF & World Bank extended arm

to capitalism8.Gulf crisis9.Lack of demand in economy10.Integration of world trade11. Developed local capital market

and Financing Institution


11/21

Recent Reasons

To STENGTHEN Competition

To improve public financeTo fund Infrastructure GrowthAccountability of share holders

To reduce unnecessary interferenceMore disciplined Labour force


12/21

The main reason for increased efficiency gainas a result of privatization are attributed to

(i)Less political interference in decision making

(i)Staff remuneration is more closely linked to

productivity and profitability

(ii)Firm are exposed to financial market disciplineas opposed to government support

(iii)Firms cost reducing effort are higher undercompetitive private ownership


13/21

Key obstacle to privatization

(i)Lack of strong and high level politicalcommitment to the privatization program

(ii)Inappropriate design of privatization

strategy( eg. In term of scope, techniquesector and institutional capability of thegovernment)

(iii) Unclear and weak institutional frame work-decentralized or centralized.( ministry and provincial level)


14/21

iv) Lack of proper preparation ofenterprise for privatization or

divestiture eg. Accounting and auditing, treatment of losses, social andenvironmental safety net

(v) Insufficient transparency andflexibility in term of the method of

privatization, balancing, ownership,and control ( corporate governance)


15/21

(vi) Vested interest of manager,employees and customer

(vii) Lack of appropriate legal framework (eg. Property right, foreign

ownershipbankruptcy law )

(viii) Underdeveloped capitalmarkets


16/21

WAYS OF PRIVATIZATION

DISINVESTMENT

CONTRACTING

FRANCHISING

PREMITING PRIVATE SECTOR ENTER INTO PSURESERVED AREA

LIQUIDATION

LEASING


17/21

DisinvestmentLong Term strategy on disinvestment

1. Strengthen profitable PSU to promote greatercompetitiveness to enable payment of higher dividends tothe government to enhance Value

2. Financial restructure and revive loss making PSU to invite

private capital for long term turnaround.3. Enhance government receipt by disinvestment inprofitable PSUs

Initially 40 out of the 245 PSUs were referred to thedisinvestment committee


18/21

The said industries were grouped into

I. Strategic Group.Arms and ammunitions and defense equipmentAtomic energyRialway transport.

II Core GroupONGC,OIL,BRPL,SAIL,GAIL,AI,CONOR,PHL,NLC,SECFL,WCFL,NALCO,IBP,NTPC,PGCL,NHPC,KIOCL.

III Non coreSCI,ITDC,IPCL,FACT,NFL,HCIL,HTI,ITI,MFIL,HLL,HEML,HZL,MOIL

YEAR TARGET ACTUAL RECEIPT


19/21

YEAR TARGETRECEIPT

ACTUAL RECEIPT

1991-92 2500 3083

1992-93 2500 1913

1993-94 3500 NIL

1994-95 4000 4843

95-96 7000 362

96-97 5000 38097-98 4800 902

98-99 5000 5371

99-00 10000 1829

00-01 10000 1870

01-02 12000 5632

02-03 12000 3342

TOTAL 78300 29482


20/21

DISINVESTMENT PROCEDURE

GOI CARRIES DISINVESMENT IN ACCORDANCE

WITH PRESCRIBED PROCEDURE TO ENSURETRANSPERENCY

PROPOSAL OF DISINVESTMENT IS BASED (OFPSU) RECOMMENDATION OF DISIN. COMMOSSION

CONSIDERATION OF CCD (CABINET COMMTTE.ONDISINV.) CCD CLEAR THE PROPOSAL &SELECTION OF ADVISOR IS DONE THROUGHCOMPETITIVE BIDDING


21/21

ADVISOR ASSIST IN ADVERTISEMENT IN NEWSPAPERINVITING EOI

ADVISOR PREPARE INFORMATION MEMORANDOM WITHPSU &SHORTLIST THE BIDDER ( GOI+ Rep of PSU+ BIDDER)

THE FINAL AGREEMENT ARE THEN VETTED BY MIN. OF LAW& APPROVED BY GOVT.

THE BIDS ARE EXAMINED & ANALYZED BY IMG & ITSRECOMMENDATION ARE PLACED BEFORE CCD FOR FINAL

APPROVAL

AFTER ALL TRANSACTION IS COMPLETE CAG EVALUATESFOR PLACING IN THE PARLIAMENT & RELESEING TO PUBLIC

publicandprivatesectorinindia-090522055926-phpapp02

Documents