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1. Public Sector Enterprise:
Role, Rationale and Lacunae:
The government set up huge manufacturing capacities, especially in the core sector industries like power, steel, aluminum, copper, mining, heavy machinery, paper, etc. with the objective of making India a self-reliant economy.
These were also industries involving large investment, long gestation periods in project implementation and consequent long periods of waiting for securing returns on investments made.
In an era in which availability of long-term capital was abundant at low interest rates through bilateral credits and/or grants, commercial considerations were not important, the overriding objective having been to make public sector attain commanding heights at almost any cost.
Performance and Problems:
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At the time of independence, India had a weak industrial base, low level of savings and investment and hardly any infrastructural facility worth the name. Serious imbalances existed in employment opportunities and income levels. The public sector enterprises (PSEs) have provided direct employment to over two million people. They have also been instrumental in providing basic infrastructure, a technological base and a considerable degree of self-reliance to the country.
They are also incurring heavy recurring expenditure on maintenance of townships, administration and social overheads like education, medical and cultural facilities. Much of the regional imbalance in industrial location has been removed by the setting up of PSEs in remote and backward areas. To an extent the PSEs have helped to dilute the concentration of wealth in a few hands.
However, the public sector did not become all that was visualised by the 1956 policy. (1) It began imposing an increasing burden on the budget for its investment needs, primarily because of its failure to generate adequate resources on its own, and (2) due to overall inefficiency, the basic inputs that public sector enterprises produce, for example, steel, coal and power, have had to be priced high, thus escalating costs of production all along the line.
The PSUs have had to work under many forms of control. They have been subject to direct ministerial supervision, through formal or informal directives, government nominees are present on their boards. A looser form of supervision, which does not perhaps seriously affect operational autonomy, is parliamentary scrutiny.
Further, statutory authorities such as the Central Vigilance Commission and the Comptroller and Auditor- General of India maintain a jurisdiction over these enterprises. The PSEs come under Article 12 of the Constitution and are subject to all the limitations and obligations of the ‘State’; they are thus subject to the writ jurisdiction of the courts.
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In the early years of their inception, the PSEs operated in an environment of monopoly. They were not seriously hurt by the guidelines that operated to control them. Once the winds of liberalisation began to blow, the PSEs found it difficult to adapt themselves to the changed situation of competitive economics, however minutely manifested.
The lacunae in their operation showed up: inefficiency due to a lack of continuity at the top management level; conflict between political ideology and good management practices leading to low productivity, bad quality and mismanagement of resources; dominance of political leadership affecting effective economic functioning. Something had to be done to improve the performance of the PSEs for huge investments had been sunk in them and they had built up large assets.
The new industrial policy sought to reduce the role of the public sector in the industrial development of the country. On the whole, government strategy towards PSEs now comprises a judicious mix of strengthening strategic units, privatising non-strategic ones through gradual disinvestment or strategic sale and devising viable rehabilitation plans for weak units.
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Strategies to improve PSE performance in the long term include:
(i) Revival through the process of the Board for Industrial and Financial Reconstruction (BIFR);
(ii) Financial restructuring wherever appropriate;
(iii) Formation of joint ventures;
(iv) Rationalisation of manpower; and
(v) Proper governance through strengthening of boards/management.
The first serious policy changes directly affecting the PSEs were not so much concerned with improving their performance as with overcoming budgetary stringencies. A programme of disinvestment of public sector shares was started in 1991. The curtailment of budgetary allocation for the PSEs’ annual plans, which had begun in the Seventh Five-Year Plan, gained momentum.
With a view to improving the capacity utilisation and productivity, which in turn would reduce cost of production thus making the public sector companies more competitive in the domestic market as well as international markets, emphasis was laid on renewals and replacements, besides upgradation of technology and diversification into new areas.
The PSEs were increasingly compelled to raise their resources from external sources in the forms of share capital, long-term and medium-term loans and cash credit from banks besides internal sources generated by the companies from their retained profits, depreciation, etc. The government also decided to allow public sector companies to go to the market and raise resources directly in the form of bonds to finance their new projects and also to meet the working capital requirements. During 1992-93, the finance ministry took a radical decision to make the public sector bonds more attractive.
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In 2005, new guidelines were issued by the government for giving more operational autonomy to PSEs. Earlier, the concept of Memorandum of Understanding had been introduced to allow PSEs to be made more accountable for achieving set targets and to ensure non-interference from the administrative ministries.
In 1997, the government took the initiative of giving autonomy to select profit-making PSEs. These units are called Navratnas and Mini-ratnas, depending on the degree of autonomy granted.
The Navratnas, subject to certain guidelines, enjoy full freedom to make capital expenditure, decisions about joint ventures and setting up subsidiary offices abroad for technological and strategic alliance.
Enhanced financial, managerial and operational autonomy has been granted to some other profit- making PSEs which have been categorised as Mini-ratnas. The criteria: profits earned continuously for the last three years; positive net worth; not seeking budgetary support or guarantees from the government; no default in repayment of loans or interest to government.
In December 2009, mega public sector undertakings ONGC, SAIL and NTPC got greater financial and operational autonomy after the government accorded the Maharatna status to these firms. The main objective of the Maharatna Scheme is to empower mega Central Public Sector Enterprises to expand their operations and emerge as global giants.
The public sector has contributed much to the hi-tech areas—atomic energy, space, and defence programmes; the private sector would not have been up to the job. Social responsibility is almost entirely borne by the public sector banks in providing credit on a preferential basis to the small-scale sector and farmers. In the petroleum sector, the private sector gains in advantage in cornering export credit including tax concessions, while the public sector carries the burden of distribution and subsidies.
Efficiency and profitability are possible in public sector just as inefficiency and losses are there in the private sector. In the post-liberalisation period since 1990-91, the public sector has made striking progress.
Towards the end of the Tenth Plan, there were 244 Central Public Sector Enterprises (CPSEs) under the administrative control of various ministries/departments with a cumulative investment of Rs 4,21,089 crore. The largest investment was in the “industrial sector” comprising electricity, manufacturing, mining and (construction sectors, which was about 62.58 per cent of the total financial investment. There were 16.14 lakh (excluding casual workers and contract labour) persons employed in the 244 CPSEs.
Even if some of the PSEs have become ‘sick’ and have had to be closed, many others have done well even after liberalisation of the economy.
2. Private Enterprise:
Some industrial houses in India have played a major role in industrialisation of the country. They are often cited as examples of successful entrepreneurs hip in the country. Though some have existed since the pre-independence time, others have come up later. Successful diversification has been an important feature of operation of the industrial houses).
The Tatas:
One of the oldest industrial houses in the country, the Tatas are the pioneers in iron and steel and automobile (heavy) industries in India. They have diversified over the years into cement, pharmaceuticals, power, publishing, finance, insurance, hotel, telecommunications, software development and export, non-durables and other consumer sectors. The Tata Consultancy Services is one of the largest software services companies in India. The Tatas launched ‘Nano’— the smallest and the lowest priced car in the Indian automobile segment.
The Modi Group:
The Modi group is one of the oldest industrial houses. It has established itself in textiles, garments, tyres and tubes, pharmaceuticals, hospitality, carpets and other industries.
The Birlas:
The Birlas are a well-established industrial house. They have been traditionally associated with paper, textiles, cement, paraffin, aluminium and automobiles . But they have also diversified into machine tools, telecommunications, pharmaceuticals and consumer durables and non- durables sectors.
The Bajaj Group:
It has been associated with scooters and bikes but has diversified into other areas like electric and home appliances and entertainment.
The Godrej Group:
A leading group of long standing, it is associated with detergents, refrigeration, furniture, air- conditioning and security systems industries.
The Reliance Group:
The group has undergone divisions but it has been traditionally foremost in paraffin and synthetic yarn. It ha is diversified into power, petroleum, hospitality, pharmaceuticals, telecommunications, banking, insurance and software.
The Sarabhai Group:
The Sarabhais are among the leading groups in the drugs and pharmaceuticals industry.
Wipro:
An example of a successful sunrise industry, the Wipro group is famous in the area of software development and export. It is a leading group in business process outsourcing.
The Kirloskars:
The group has specialised in the heavy and light machine tools industries and locomotion. It makes farm implements as well. It emerged with the earliest, reliable farm tractors and diesels pump sets in the country. It has also entered the automobile industry.
The Singhania Group:
One of the earliest industrial houses, it is active in the textiles, tyres and tubes, pharmaceuticals and consumer durables and non-durables sector.
The Goenka House:
The Goenkas have business interest in power generation and distribution, textiles, pharmaceuticals, machine tools, and entertainment sectors.
The Sriram Group:
An industrial group of long standing, the Sriram group has operations in numerous industries including textiles, garments, electric appliances, generator sets, hospitality, pharmaceuticals and fertilisers.
The Bharati Group:
Bharati is renowned for its success in mobile telephony (‘Airtel’ brand). It has diversified into agriculture, hospitality, insurance, trading as well.
Ranbaxy:
Ranbaxy is one of the foremost drugs and pharmaceuticals companies in India.
Hamdard:
The Hamdard industrial house preserves the Unani tradition of medicine. It is famous in the areas of beverage (Rooh Afza) and child tonic (Shinkara) manufacture.
Dabur:
Famous for its attempts to preserve the Ayurvedic tradition, this in dustrial house has diversified into the sectors of fruit-based drinks, hair oil, shampoo and toilet soaps.
The Oberoi House:
The Oberois are foremost in the hospitality industry in India, with a chain of the finest hotels in India and abroad.
Escorts:
The Escorts group has been involved in the manufacture of bikes (‘Rajdoot’) and tractors (‘Eicher’) and hospitals catering to heart problems.
The UB Group:
One of the oldest and leading industrial groups, it has been traditionally associated with the alcoholic drinks sector. It has also diversified into the areas of hospitality, airlines, infrastructure and real estate.
Jaypee:
The Jaypee Group is a major real estate and construction (road and bridge projects) company.
The Ansals Group:
One of the oldest real estate developers in the country, the group has operations in many urban settlements in India.
Associated Cement Company:
One of the largest cement manufacturing companies in India, the ACC is basically a conglomerate of cement manufacturers.