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Public and Private Sector in Public and Private Sector in IndiaIndia
SUNEEL GUPTASUNEEL GUPTA
ASSOCIATE PROFESSORASSOCIATE PROFESSOR
GHS-IMR,KANPURGHS-IMR,KANPUR
PUBLIC SECTOR
A public enterprise is an organization which is
i) Owned by public authorities including central state or local authorities to anextent of 50% or more
ii)It is established for achievement of a defined set of public purpose ,which may be multidimensional
Objective1. To help in rapid growth and
industrialization and create necessary infrastructure for economic development.
2. Promote redistribution of income & wealth3.Create employment opportunities 4.Promote regional balance development5. Promote import substitution save and earn
foreign exchange for country.6. Basic Infrastructure (STC, Railways, SAIL)
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),
Pricing Practice
Administrative Price : Price fixed by Government
No profit –No loss Price ( DVC, Hindustan antibiotics, Hindustan Insecticides)
Cost Plus Price – ITI, HAL, Bharat electronic
Competitive Price
Follow the leader
Subsidized Prices
Discriminatory Prices
Private SectorPrivate Sector Privatization: Transfer of ownership and Privatization: Transfer of ownership and
control of an existing public sector control of an existing public sector enterprise ,activity or service to the private enterprise ,activity or service to the private sector. Privatization may be full or partial. It sector. Privatization may be full or partial. It may be selective ie. Some function are may be selective ie. Some function are transformed to the private sector, which other transformed to the private sector, which other are retained in public sector.are retained in public sector.
The entry of new private sector could introduce competition The entry of new private sector could introduce competition where PSU’s enjoy monopoly The existing PSU’s will be where PSU’s enjoy monopoly The existing PSU’s will be forced to go commercial and respond to the market forced to go commercial and respond to the market disciplinediscipline..
The Privatization movement The move towards privatization has gained momentum since 70’s. The following are usually mentioned reasons
1 The emergence of conservative government in principal industrial countries
2 The emergence of multinational entities
3 Technological changes
4 Emergence of local capital market and entrepreneurship
5 Dissatisfaction with performance of public sector
( 1960’s &1970’s saw emergence of literature pointing out the inefficiency of Import substitution policies and gave rise to question that why government Should intervene in the market place when it does not have any information about market players)
Reason for Indian Privatization1. Crippling Budget deficit2. Spectacular growth by economies of Korea, Taiwan, Malaysia in private sector3. Galloping cost of government intervention I trade and industry & procedural difficulty4. Collapse of USSR& communist government in eastern Europe
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
Recent Reasons
•To STENGTHEN Competition
•To improve public finance•To fund Infrastructure Growth•Accountability of share holders•To reduce unnecessary interference•More disciplined Labour force
The main reason for increased efficiency gain as 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 discipline as opposed to government support
(iii)Firm’s cost reducing effort are higher under competitive private ownership
Key obstacle to privatization(i)Lack of strong and high level political
commitment to the privatization program
(ii)Inappropriate design of privatization strategy( eg. In term of scope, technique sector and institutional capability of the government)
(iii) Unclear and weak institutional frame work-decentralized or centralized.( ministry and provincial level)
iv) Lack of proper preparation of enterprise for privatization or divestiture eg. Accounting and auditing , treatment of losses, social and environmental safety net
(v) Insufficient transparency and flexibility in term of the method of privatization, balancing, ownership, and control ( corporate governance)
(vi) Vested interest of manager, employees and customer
(vii) Lack of appropriate legal frame work (eg. Property right, foreign ownershipbankruptcy law )
(viii) Underdeveloped capital markets
WAYS OF PRIVATIZATIONWAYS OF PRIVATIZATION DISINVESTMENTDISINVESTMENT
CONTRACTINGCONTRACTING
FRANCHISINGFRANCHISING
PREMITING PRIVATE SECTOR ENTER INTO PSU RESERVED PREMITING PRIVATE SECTOR ENTER INTO PSU RESERVED AREAAREA
LIQUIDATIONLIQUIDATION
LEASINGLEASING
DisinvestmentDisinvestmentLong Term strategy on disinvestmentLong Term strategy on disinvestment
1. Strengthen profitable PSU to promote greater 1. Strengthen profitable PSU to promote greater competitiveness to enable payment of higher dividends to competitiveness to enable payment of higher dividends to the government to enhance Valuethe government to enhance Value
2. Financial restructure and revive loss making PSU to invite 2. Financial restructure and revive loss making PSU to invite private capital for long term turnaround.private capital for long term turnaround.
3. Enhance government receipt by disinvestment in 3. Enhance government receipt by disinvestment in profitable PSUsprofitable PSUs
Initially 40 out of the 245 PSUs were referred to the Initially 40 out of the 245 PSUs were referred to the disinvestment committeedisinvestment committee
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
YEARYEAR TARGET TARGET RECEIPTRECEIPT
ACTUAL RECEIPTACTUAL RECEIPT
1991-921991-92 25002500 30833083
1992-931992-93 25002500 19131913
1993-941993-94 35003500 NILNIL
1994-951994-95 40004000 48434843
95-9695-96 70007000 362362
96-9796-97 50005000 380380
97-9897-98 48004800 902902
98-9998-99 50005000 53715371
99-0099-00 10’00010’000 18291829
00-0100-01 10’00010’000 18701870
01-0201-02 12’00012’000 56325632
02-0302-03 12’00012’000 33423342
TOTALTOTAL 78’30078’300 29’48229’482
DISINVESTMENT PROCEDURE
GOI CARRIES DISINVESMENT IN ACCORDANCE WITH PRESCRIBED PROCEDURE TO ENSURE TRANSPERENCY
PROPOSAL OF DISINVESTMENT IS BASED (OF PSU) RECOMMENDATION OF DISIN. COMMOSSION
CONSIDERATION OF CCD (CABINET COMMTTE.ON DISINV.) CCD CLEAR THE PROPOSAL & SELECTION OF ADVISOR IS DONE THROUGH COMPETITIVE BIDDING
ADVISOR ASSIST IN ADVERTISEMENT IN NEWSPAPER INVITING EOI
ADVISOR PREPARE INFORMATION MEMORANDOM WITH PSU &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 & ITS RECOMMENDATION ARE PLACED BEFORE CCD FOR FINAL APPROVAL
AFTER ALL TRANSACTION IS COMPLETE CAG EVALUATES FOR PLACING IN THE PARLIAMENT & RELESEING TO PUBLIC