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1. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
Economic and Social Issues
RBI – Grade B Exam
Phase II - Descriptive

2. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
RBI – DESCRIPTIVE – SUPER NOTES
Economic and Social Issues

3. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
Contents
- Growth and Development
- Measurement of Growth: National Income and Per
Capita Income
- Poverty Alleviation and Employment Generation in India
- Sustainable Development and Environmental Issues.
- Economic Reforms in India
- Industrial and Labour Policy
- Monetary and Fiscal Policy
- Privatisation
- Role of Economic Planning
- Globalisation
- Opening up of the Indian Economy
- Balance of Payments
- Export-Import Policy
- International Economic Institutions
- IMF and World Bank
- WTO
- Regional Economic Co-operation
- Social Structure in India
- Multiculturalism
- Demographic Trends
- Urbanisation and Migration
- Gender Issues
- Social Justice: Positive Discrimination in favour of the
Under Privileged
- Social Movements
- Indian Political System
- Human Development
- Social Sectors in India
- Health and Education.

4. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
PRIVATISATION
x.

5. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
Privatisation
Transfer of
ownership/management
from the public to
private sector
Transfer of
ownership/management
from the public to
private sector
Withdrawal of state
from an industry
Withdrawal of state
from an industry
Opening up of an
industry reserved for
public sector to private
sector
Opening up of an
industry reserved for
public sector to private
sector

6. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
Problems with State Owned Entities
Economic InefficiencyEconomic Inefficiency
• High production costs
• Lack of innovation
• Supply delay
Ineffectiveness in provision of goods and servicesIneffectiveness in provision of goods and services
• Diversion of benefits
• Political interference
Rapid expansion of bureaucracyRapid expansion of bureaucracy

7. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
Ways of Privatisation
ESOPs to staffESOPs to staff
Divestiture –
Privatisation through
sale of equity
Divestiture –
Privatisation through
sale of equity
De-nationalisation/ Re-
privatisation
De-nationalisation/ Re-
privatisation
Contracting –
Outsourcing of services
Contracting –
Outsourcing of services
Franchising –
authorising delivery of
certain services in
designated geographical
areas
Franchising –
authorising delivery of
certain services in
designated geographical
areas
Withdraw from
provision of goods and
services
Withdraw from
provision of goods and
services
Privatisation of
management – through
leases/contracts
Privatisation of
management – through
leases/contracts
Liquidation
• Formal: Closure of an
enterprise
• Informal: Suspending the
operations
Liquidation
• Formal: Closure of an
enterprise
• Informal: Suspending the
operations

8. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
Obstacles
Govt. wants to sell
least profitable
enterprises
Govt. wants to sell
least profitable
enterprises
Political opposition
from employees
Political opposition
from employees
Undeveloped
capital markets
Undeveloped
capital markets

9. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
Conditions for Success
Commitment of
political leadership
Commitment of
political leadership
Institutional
arrangements should
not stifle competition
among suppliers
Institutional
arrangements should
not stifle competition
among suppliers
Freedom of entry to
provide goods and
services
Freedom of entry to
provide goods and
services
Specific or
measurable outcome
of services to be
privatised
Specific or
measurable outcome
of services to be
privatised
Link between cost
paid by consumers
and services received
by them
Link between cost
paid by consumers
and services received
by them
Privately provided
services should be
less susceptible to
fraud
Privately provided
services should be
less susceptible to
fraud
Equity of benefits to
the various
stakeholders
Equity of benefits to
the various
stakeholders

10. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
Benefits of Privatisation
Reduces fiscal burden of
the state
Reduces fiscal burden of
the state
Enables government to
mop up funds
Enables government to
mop up funds
Trims the size of
administrative
machinery
Trims the size of
administrative
machinery
Enables government to
concentrate on
essential state functions
Enables government to
concentrate on
essential state functions
Attracts resources from
private sector for
development –
accelerates the pace of
economic development
Attracts resources from
private sector for
development –
accelerates the pace of
economic development
Better management of
the enterprises
Better management of
the enterprises
Encourages
entrepreneurship
Encourages
entrepreneurship
Makes enterprises
subject to more public
vigilance
Makes enterprises
subject to more public
vigilance

11. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
Arguments against Privatisation
Public sector developed
with some noble
objectives
Public sector developed
with some noble
objectives
Will encourage
concentration of
economic power
Will encourage
concentration of
economic power
Substitution of
monopoly power of
public enterprises by
monopoly power of
private enterprises
Substitution of
monopoly power of
public enterprises by
monopoly power of
private enterprises
Acquisition of national
firms by foreign firms
Acquisition of national
firms by foreign firms
Privatisation of
profitable enterprises
means foregoing income
by government
Privatisation of
profitable enterprises
means foregoing income
by government
National interests may
be harmed by
privatisation of strategic
and vital sectors
National interests may
be harmed by
privatisation of strategic
and vital sectors
Quality of management
is important, not the
sector
Quality of management
is important, not the
sector
Capital markets not
developed well enough
Capital markets not
developed well enough
Often half-hearted
measures, therefore,
expected results may
not be achieved
Often half-hearted
measures, therefore,
expected results may
not be achieved
Vested InterestsVested Interests

12. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
Sins and Pitfalls of Privatisation
Lack of proper
strategy
Lack of proper
strategy
Ambiguity of
objectives
Ambiguity of
objectives
Connivance
(Garage sales
of PSUs)
Connivance
(Garage sales
of PSUs)
Wrong TimingWrong Timing
Lack of
political
consensus
Lack of
political
consensus
Wrong labour
strategies
Wrong labour
strategies
Lack of
political will
Lack of
political will
Poor financial
strategies
Poor financial
strategies
Wrong
Environment
Wrong
Environment
Prevalence of
monopoly
elements
Prevalence of
monopoly
elements
Problem of
cultural
change
Problem of
cultural
change

13. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
Privatisation/Disinvestment in India
Disinvestment Policy
Intial PhaseIntial Phase
Chandrashekhar Govt. (‘91-’92)
• 20% of govt. equity
• Objective – to further market discipline to performance of
public enterprises
• Modified Objective – to raise resources, encourage wider
public participation and promote greater accountability
Committee on Disinvestment in PSEs setup (‘93)
with C Rangarajan as chairman
Disinvestment Commission (‘96)
• United Front Government
• Recommendations on 58 PSEs
Second PhaseSecond Phase
‘98- ‘99 Budget – Govt. holding 26% stake in
generality of cases
’99 – ’00 Budget – Obj: To strengthen strategic
PSUs, privatise non-strategic PSUs through
gradual disinvestment or strategic sale
‘00 – ’01: Govt. stake below 26% in non-
strategic areas, if required
‘02: Obj: To put national resources and assets to
optimal use and in particular to unleash the
productive potential inherent in PSEs

14. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
Privatisation/Disinvestment in India
Rangarajan Committee Report
Need for substantial
disinvestment
Need for substantial
disinvestment
Holding 51% or more
recommended for only 6
strategic cases
Holding 51% or more
recommended for only 6
strategic cases
Best Method for
disinvestment:
•Offering shares to general public
through general prospecting
•Temporarily auction method with
wide participation
Best Method for
disinvestment:
•Offering shares to general public
through general prospecting
•Temporarily auction method with
wide participation
Clear action plan should be
evolved
Clear action plan should be
evolved
Stages and sales shall be
staggered to get best
possible price
Stages and sales shall be
staggered to get best
possible price
Following steps to be taken:
•Corporatisation of PSEs
•Restructuring of finance
•Independent regulatory
commission for the sector
Following steps to be taken:
•Corporatisation of PSEs
•Restructuring of finance
•Independent regulatory
commission for the sector
Preferential offer of shares
to workers and employees
Preferential offer of shares
to workers and employees
10% of proceeds from
privatisation set apart for
lending to PSEs
10% of proceeds from
privatisation set apart for
lending to PSEs

15. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
Disinvestment Commission
• Public Sector Disinvestment Commission – 23/08/1996
• Various functions as stated by the GOI
• Advisory body to advise govt. on disinvestment of PSEs
• Carry out activities related to DI as prescribed to it
• Final decision vests with GOI

16. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
UPA Govt.’s stand
• Case by case approach
• Against privatisation of profit making enterprises
• Decided to wind-up Ministry of DI

17. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
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18. RBI – Descriptive – Super-Notes© M S Ahluwalia Sirf Business
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M S Ahluwalia, amongst other things, is a visual artist, blogger,
blog designer, MBA, CAIIB (First Class with
Distinction) and Ex-Banker from New Delhi, India.
To know more visit : Estudiante De La Vida