Reforms

Public Sector Reforms- A Landmark achievement of Vajpayee Government

The context prevailing at the time India attained independence, necessitated State involvement in various commercial activities. Post war economic depression had dampened the spirit of the private entrepreneurs and the task of reconstruction could be best undertaken by greater involvement of the State. Therefore, the Industrial Policy Resolution of 1948 adopted by Government of India stated as under:
Ø Complete State monopolies in the following sectors:
· Manufacture of arms & ammunition;
· Production & control of atomic energy;
· Ownership & management of Railways;
Ø 6 Basic Industries- Steel, Coal, Aircraft & Ship, Telegraph/ Wireless apparatus- to be developed in Public Sector;
Ø Other areas to be left to Private Sector under State Controlled & Regulated Economy.

5 Public sector companies with equity contribution of R.29 crores from Government of India came into being by 1951. The 1956 Industrial Policy Resolution of Government of India had the following main features:
Ø Concept of Mixed Economy
Ø Industries categorised into three groups:
· Exclusive State preserves: In addition to the 6 sectors mentioned in 1948 Resolution, 3 more added, namely, Zink, Copper and Lead;
· Concurrent/Joint/Mixed-Alluminium, Fertilizers, Other Minerals, Machine tools, Chemical industries, Road & Sea Transport;
· Private sector under regulatory mechanism of the State.
Despite the concept of mixed economy, the growth in the number of public sector companies continued unabated (Figures in bracket indicates financial involvement of the Central Government)- 21 in 1956 (Rs.81 crores), 47 in 1961 (Rs.948 crores), 73 in 1966 (Rs.2400), 84 in 1969 (Rs.3900 crores), 122 in 1974 (Rs.6200 crores), 169 in 1979 (Rs.15000 crores), 215 in 1985 (Rs.42000 crores), 244 in 1990 (Rs.99000 crores), 246 in 1992 (Rs.1,35000 crores) and 240 as on 31st March, 2000 (Rs.2,52,500 crores). Owing to the leftist’s pressure, the phenomenal growth of public sector companies, both in terms of number and financial involvement, occurred during the regime of Indira Gandhi,. Apart from nationalization of Banks, there was a spate of creation of all kinds of companies in state sector many of which later proved great liability to the exchequer.

The serious financial crisis of 1990-91 forced the government to adopt the 1991 Liberlisation Policy having following features:
Ø Deregulation/End of License Raj;
Ø Focus public sector on strategic, hi-tech and essential infrastructure;
Ø Selective opening of ‘Exclusive State Preserves’ to private sector;
Ø List of industries reserved for public sector reduced from 17 to 8 (further reduced in 1993 to 6);
Ø De-reservation of mining activity- coal extraction permitted for captive use by user industries;
Ø Private sector investment permitted in oil exploration & refining, roads, telecom and power generation;
Ø Divesting 20% equity in selected Public Sector Enterprises;
Ø Involvement of Financial Institutions/Mutual Fund Institutions offering shares to employees at a discount.

The selective disinvestment of minority shares was undertaken from 1991 onwards as follows: In 1991-92, minority shares of 47 companies were sold by auction method in bundles of “very good”, “good” and “average” categories; In 1992-93, shares of 35 companies were sold separately (without bundling) by auction method; In 1993-94, equity of 7 companies sold by open auction; In 1994-95, shares of 13 companies were sold by open auction; In 1995-96, equity of 4 companies auctioned while piggy backed IDBI for the 5th company; During 1996-99, GDR issue for 9 companies done in international market. More than Rs.19,000 crores were realized in this entire sale process.

Consequent upon the acceptance of recommendations of the Disinvestment Commission, the strategic sale of 74% equity in Modern Foods Ltd. was completed in 1999-2000, followed by Lagan Jute (60%), BALCO (51%), CMC (51%), CMC(IPO-26.25%), HTL (74%), VSNL(25% out of 52.97% equity held by Govt.), IBP(33.58% out of 59.58% held by Govt.), IBP(IPO-26%), PPL(74%), HZL(26% out of 75.92% held by Govt.), JESSOP(72%), IPCL(26% out of 59.95% held by Govt.), IPCL(IPO-28.95%), 19 Hotels of ITDC(all loss making), 3 Hotels(2 loss making) of HCI (Air India subsidiary), Maruti(4.2% out of 49.74%) and IPOs of Maruti(27,5%), DCIL(20%), ONGC(10%), GAIL(10%), and NTPC(10.5%). More than Rs.28,000 crores were realized as a result of these sales till October, 2004. A notable point in this process has been that the Government could unlock about Rs.25,000 crores of its resources by sale of just 1% of its equity of Rs.1200 crores (out of Rs.1,09, 000 crores).
As per the data given in the PSE Survey Reports for the year 2004-05, the total capital employed in 227 public sector companies was Rs.5,04,370 crores and their net worth was Rs.3,41,544 crores. 143 of these companies made a profit of Rs.74,432 crores and 73 companies incurred a loss of Rs.9003 crores (despite infusion of Rs.5090 crores under restructuring process). 60% of the profit was earned by the petroleum & power companies. 77% of the loss was incurred by the Heavy Engineering, Textiles, Coals and Fertiliser companies. The Government equity as on 31-5-2005 in these companies was Rs.1,77,787 crores and the debt was Rs.2,33,568 crores. With share application money pendency of Rs.6494 crores, the total financial exposure of government amounted to Rs.3,57,849 crores.

The commonly known infirmities of the public sector companies are: Low rate of return; High expenditure; Resource crunch; Constricted growth; Complacency/Inefficiency/Indecisiveness; Political & Bureaucratic interference; More attention to procedural formalities than result achievement.

The disinvestment would provide the following advantages: Enable increased outlays to social & development sectors; Facilitate reduction of fiscal deficit; Boost domestic investment by putting downward pressure on interest rates; Improve depth & breadth of national capital markets; Strengthens commercial focus; Improve management discipline & efficiency; Generate competitive environment; Enable objective regulation & control by the government; Enable achievement of technological excellence; Enable achievement of higher growth rate, higher productivity and higher job growth; Enable national industries compete globally.

While steering the arduous programme of public sector reforms quite successfully, the Vajpayee government took due care to protect the interest of the employees and due to subsequent improvement of the financial health of the divested companies, the impending loss of employment could get averted. Unfortunately, the coming in of the UPA government put a complete halt to this process and currently the situation is so bad that many government companies are in queue with their financial restructuring demands because of heavy losses. The unlocking of substantial public resources during the Vajpayee regime had visible impact in the field of infrastructure development as well as in the social, health & education sectors which got terribly retarded during the current UPA regime. It will not be an exaggeration to say that the UPA government, comprising pseudo-economists, has reversed the process of ‘Reforms’ in India and to top it all has seriously added to the woes of common man due to ever rising inflation & price rise. The only silver lining now is the coming in of Advani regime which not only can ensure economic/social development but also can prevent the disintegration of the country due to internal & external threats, generated & boosted by the corrupt/weak Manmohan Singh government.