Public And Private Sector In India

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Public And Private Sector In India

  1. 1. Public and Private Sector in India SUNEEL GUPTA ASSOCIATE PROFESSOR GHS-IMR,KANPUR
  2. 2. PUBLIC SECTOR A public enterprise is an organization which is iv)Owned by public authorities including central state or local authorities to an extent of 50% or more vi)It is established for achievement of a defined set of public purpose ,which may be multidimensional
  3. 3. Objective 1. To help in rapid growth and industrialization and create necessary infrastructure for economic development. 2. Promote redistribution of income & wealth 3.Create employment opportunities 4.Promote regional balance development 5. Promote import substitution save and earn foreign exchange for country. 6. Basic Infrastructure (STC, Railways, SAIL)
  4. 4. 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. 5. 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
  6. 6. Private Sector  Privatization: Transfer of ownership and control of an existing public sector enterprise ,activity or service to the private sector. Privatization may be full or partial. It may be selective ie. Some function are transformed to the private sector, which other are retained in public sector. The entry of new private sector could introduce competition where PSU’s enjoy monopoly The existing PSU’s will be forced to go commercial and respond to the market discipline.
  7. 7. 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
  8. 8. 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)
  9. 9. Reason for Indian Privatization 1. Crippling Budget deficit 2. Spectacular growth by economies of Korea, Taiwan, Malaysia in private sector 3. Galloping cost of government intervention I trade and industry & procedural difficulty 4. Collapse of USSR& communist government in eastern Europe
  10. 10. 5. Changes in China 6. Emergence of professional management 7. IMF & World Bank extended arm to capitalism 8.Gulf crisis 9.Lack of demand in economy 10.Integration of world trade 11. Developed local capital market and Financing Institution
  11. 11. 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
  12. 12. The main reason for increased efficiency gain as a result of privatization are attributed to (iv)Less political interference in decision making • Staff remuneration is more closely linked to productivity and profitability • Firm are exposed to financial market discipline as opposed to government support • Firm’s cost reducing effort are higher under competitive private ownership
  13. 13. Key obstacle to privatization (iii)Lack of strong and high level political commitment to the privatization program (v)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)
  14. 14. 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)
  15. 15. (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
  16. 16. WAYS OF PRIVATIZATION  DISINVESTMENT  CONTRACTING  FRANCHISING  PREMITING PRIVATE SECTOR ENTER INTO PSU RESERVED AREA  LIQUIDATION  LEASING
  17. 17. Disinvestment Long Term strategy on disinvestment 1. Strengthen profitable PSU to promote greater competitiveness to enable payment of higher dividends to the 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 in profitable PSUs Initially 40 out of the 245 PSUs were referred to the disinvestment committee
  18. 18. The said industries were grouped into III. Strategic Group. Arms and ammunitions and defense equipment Atomic energy Rialway transport. II Core Group ONGC,OIL,BRPL,SAIL,GAIL,AI,CONOR,PHL,NLC,SECFL, WCFL,NALCO,IBP,NTPC,PGCL,NHPC,KIOCL. III Non core SCI,ITDC,IPCL,FACT,NFL,HCIL,HTI,ITI,MFIL,HLL,HEML, HZL,MOIL
  19. 19. YEAR TARGET ACTUAL RECEIPT RECEIPT 1991-92 2500 3083 1992-93 2500 1913 1993-94 3500 NIL 1994-95 4000 4843 95-96 7000 362 96-97 5000 380 97-98 4800 902 98-99 5000 5371 99-00 10’000 1829 00-01 10’000 1870 01-02 12’000 5632 02-03 12’000 3342 TOTAL 78’300 29’482
  20. 20. 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
  21. 21. 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

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