CHAPTER I

PUBLIC SECTOR ENTERPRISES IN INDIA: THE BACKGROUND

Public Sector Enterprises have been playing a dominant and unique role

In lndustnal growth and development of Indian econom!. In order to dismantle the

accumulated problems of unemployment, disparities of rural, urban, ~nter-regional and

lnterciass dlsparltles and technological backwardness and to set up a soclallsnc pattern

of society In the country1 establishment of Public Entemrtsdxive been conce~ved .- Public t.nterpr~tes haw become the temples of modem lndla2 Thls I S the \Ision of

i'andlt Jawaharlal Nehm. who la~d the foundat~on for Modem lndra W~th hls slncere

efforts and ~nltratlves, lndla now has the bas~c and strategic industnes ltke Coal, Steel,

M~nerals, Petroleum, Heavy En~neenng, Chemicals, Fertilizers, Pharmaceuticals, etc.,

and has emerged as the major rndu~trial base of the world'

I'ubl~c l.nlerpr~ses Here prwlalmed to*ards galnlng control over the

command~ng heights of the natlon and for promonng cntical developments in terms of

- - -- - - -- ---

'I nvedi, Pnajapau, "Publ~c Enterpnses in lnha If not Profit then for What9", Economic and Politrcal Weekly, Vol 1, No 48, November 29, 1986

'lndrasena Reddy, P , "Performance Appmsal In Publlc Enterpnses Through Value Added Approach, The Journal of Inshtute of Publ~c Enterprises, Vol 18 (3 & 4), Apnl-June, 1994, p 164

3~umaramangalam, S Mohan. "Public Sector Yesterday, Today and Tomorrow", Mainstream. May 1987. p. 13

social gain and strategc value and to generate cornmercral resources for capital

formatron Besldes, they are considered as powerful instrument$ of b n n ~ n g a b u t

soclo-economlc transformatron In our country On the contrary to the expectatrons, the

performance of mo5t Publrc Sector 'nterprlses ha5 been a below the planned targets

Many enterprises have accumulated deficlts over a penod of trme causlng conslderable

dram on the cxchequer4 Thrs trend has attracted the attention of policy makers.

politrr~dns, bureaucrats, academicrans, researchers and the publrc to find out the reasons

for such \hen fall In performance not onlv agalnst the stated objectives but also thelr

stand o n adoptrng sound wmmercral pnnclplcs of viablllty Thus. there 1s a conslderable

nccd to c\arnlne and dnalyse the operat~onal aspect\ of select Publ~c Sector Fnterpnses

w h i ~ h dominate the entrre lndustnal base of our country

1.2 (;RO\VTH OF PlIB1,IC SECTOR IN INDIA

At the tlme of Independence, lndla was basically an agricultural economy

with weah industrial base, low levels of savrngs and Investment and lacks rnfrastructure

A vast majortty of populat~on was extremely poor. There were considerable inequalities

in Income. employment opponunltles were low, senous reg~onal lmbalances were

noticeable In LTonomic attainments It was felt obvlous that if thc .ouiiti?. ~ i i s to sp..d

up 11s ccullLmlc growlh and malntain 11 In the long run dl a stead\ le\rl, a big 'push' \nth

State lnltlativc as an essentral pre-requ~s~te"

'~enkatachalam, C., Financing of Publrc Entemnses in lnd~a, Himalay Publishing House, Bombay. 1986. p. I.

'~akmi Narain, Principles and Practice of Publlc Enternrise Manapement. S.Chand and Company Limited, New Delhi, 1994. p 32

Besides, the Industrial Policy Resolution, 1948 laid down that the

manufacture of arms and ammunition, the production and control of Atomic energy and

ownership and management of Railway Transport should be In the exclusive monopoly

of the Central Government By doing so, it has sown the seeds for the grow h of Public

sector6

I he Const~tut~on of Indla, adopted on 26U' January 1950, directs the State

as per Artlcle of 39(b) and (c) to secure "that the ownersh~p and control of the matenal

resource\ of the community are so d~stnhuted a\ best to subserve the common good" and

'that system does not result In the concentration of wealth and means of product~on to

the common detriment'. Attainment of these objectives 17 fundamental to the growth of

I'ubl~c Scctclr t ntemnsr.5'

1.3.1 First Five Year Plan (1951-S6)

I he Flrst Five year plan presented to the government bv the Plann~ng

Comm~\ \~on In December, 1952 lndlcated the need for "a raprd expansion of the

cconomlc and social re%pons~b~l~ties of the State to satlsfv the legt~mate expectabons of

thc people I he (~overnment and rulers were real~sed that these would he achleved

through the c\tabl~shment of l'ubl~c Sector

Owing to the small size of the First Plan, insuffic~ency of funds

' ~ p a w a l . A N.. H.O. Vanna and R.C Gupta India - Economlc Lnformation Year Book. National Publishing House, New Delh~. 1989, 9.279.

7m.. p 3 2

and greater urgency of agricultural development because of serious shortage of food and

industrial raw materials, the First plan did not make any big provision for industrial

development However, 11 a ~ m e d at budding up the bas~c services like Power and

Irrigation so that lndustnalisat~on may be facilitated ' f i e Public Sector outlav on p w e r .

transport communicat~on and ~ndustry were Rs.260 crores, Rs.520 crores and Rs.120

crores respect~vc~y~

I>ur~ng thls plan penod, several new products came to be manufactured

for the fir\t tlmc A numher of ne\s ~ndustnes icere establ~shed for example Petroleum

retinaw, S h ~ p bu~ld~ng. Manufacture of A~rcraft, Rallwav wagons, Penc~ll~n and D D T

However the temp) of ~nduztnallzat~on dunng the F~rst plan was \lo\\

1.3.2 Second Five Year Plan (19%-61)

Ihe Second F ~ v e year plan enb~saged the Publ~c k t o r In accordance

w t h the Soc~allct pattern ot soclety as the g u ~ d ~ n g pol~t~cal ph~lowphy Further, the

Publ~c Sector I \ expected to work as an Instrument for chechlng concentration of

economlc power9 Bes~dec, the Second plan has been huly called the ~ndusmal plan It

aimed at lavlng the ven foundat~on of industrial development in the countn b\ bu~ldlng

3 numher ot Inq-JOrtant lleavv and Bas~c ~nd-tnes The Publ~c Sector outlav allocated to

~ndu\trlal wcror \\a\ In lhC order ot Ks 1080 crores Ihc actual In\estmcnt In the Publlc

Sector on organ~sed lndutry waz edlmated at Rs 870 crores

- - - - - -- - - - - -

' ~ l a n n ~ n g Cornmiss~on. "Second Five Year Plan: A Draft Outline, 1956, p.93

9 ~ C h a l a m , F~nanc~ng. of Publ~c Entemses In Lnd~a, H~malaya Publ~sh~ng I-louse, Bombay, 1988, p 3

A spectacular ach~evement of the Second plan was the remarkable

expanslon of Iron and Steel Industry through the senlng up of three huge Steel plants In

Publ~c Sector, v17, Rourkela, R h ~ l a ~ and Durgapur steel plants Hec~des, an apprec~able

expanslon of heavy tndustrles l ~ k e Heavy Englneenng, Chem~cal, Mach~ne tool\, Cement

and Fert~ll~ers has taken place In short, the Second plan could be regarded as the first

long-term planned ~n~tlatlve of the Publlc Sector to bu~ld up the base for the

~ndu\tr~al~\atton of the country

1.3.3 Third Five Year Plan (1961-66)

The plan emphas17ed on the "rap~d development of Publ~c Sector" to

\ c n e a tho-fold oblect~ves of removlng certa~n base d e f i c ~ e n ~ ~ e \ In the economlc ~nfra-

\tructure and reduce the scope for accumulat~on of wealth and ~ ~ o w t h of monopol~st~c

tendencies In prlvate hands1' The raisoo d' etre ot such an rxpanslon of Publlc Sector

could be found In the followng statement of the then lnd~an Pnme Mln~ster, late Smt

lnd~ra Gandh~. "We advocate publ~c sector for three reasons to galn control over the

command~ng helghts of the economy, to promote cntlcal development In terms of soc~al

galn and \tratcglc balue rather than pr~manl) on cons~derat~on of profits and to problde

commcrc~al ~ u r p l u ~ e \ ~ ~ t h nhlch to finance further cconornlc d e i e ~ o ~ m c n t ~ ~

The Publlc sector outlav on ~ndusmal de\elopment was Rs 1970 crores of

whlch the Investment component was around Rs 1700 crores The Private sector

Investment during t h ~ s plan penod was about Rs 1300 crores Substantla1

"lb~d - , p 9

" ~ a g a d ~ s h Prakash and Nageshwara Rao, Adm~n~stratlon of Publ~c Entcmnses In w a , H~malaya Publ~sh~ng House, Bombay, 1991, p 62

additions to capacity were made for the manufacture of Machine tools, Coal mining

machinery, Steel making machinery, Paper machinery, Cement maclunery and Cotton

machinery during this plan period. However, the progress in several crucial sectors wa5

far from satisfactory In case of special steels, aluminum and ferttllzers.

In short, during Third Plan, a vast base for future industnal~sation

emerged as a result of the completion of projects In areas of Heavy mach~nes, Heavy

chemicals and Steel and the annual growth rate of industrial output waz in the v~cinity of

clght per cent

1.3.4 Fourth Five Year Plan

The Fourth plan emphastsed the need for achievement of self-reliance tn

Industry Accord~ngly. ~t has proposed for faster expanston of ~ndustnes produc~ng

cap~tal equipment. petroleum products, chemtcals and metals. It IS also aimed at

devclop~ng ~ndtgenous technolog~es, des~gn and enyneenng skills and to reduce the

Import of fore~bm trchnolog~es Besldes, ~t ha l a d panlcular stress on the development

of lndustnes In the backward reglons and preventing further concentration on industrial

act~vity However. the plan targets were fulfilled with a Public Sector's outlay Rs.3.630

crores and Private Sector investment during this plan period was Rs 2,250 crores.

Moreover. the plan envisaged for Puhl~c Sector "as the domlnant and

effectlvc area of the economy so that 11 may take charge of the commandmg

heights in the production and distribution of basic consumer goods12. The actual

I2 Government of India, Draft Filth Five Year Plan 1974-79, Planning Comm~ss~on, Delhi, Vol. 1, p. 134.

6

performance during the plan was however disappointing. The annual growth rate was

hardly five per cent as against the plan target of elght per cent

1.3.5 Fifth Five Year Plan (1974 -79)

The Fifth plan assrgned a very Important place to the development of

lndustrles with a vlew to achlevlng self-rellance and soc~al just~ce Dunng t h ~ s plan

pclrod, rt IS planned to Invest substantially In lndustrlal sector so that the country

becomes self-sufficient and to have self-sustained gowth Also, the plan focussed or the

henerrnent of econom~cally weaker sectrons of society, so that the gap between the nch

and the poor IS narrowed down The total expendrture under the Fifth plan amounts to

Rs 39,426 crores of whlch the share of the Publlc Sector was Rs 8,989 crores worklng

out to 22 8 per cent The plan envisaged the follow~ng panern of Investment and

productron

I Rapld gowth of the core sector slnce thev were v~tal for sustained growth on a

long-term bass (Accordingly, hlgh pnonty was attached to expansion In steel, non-

ferrous metals, femllzen. mineral 011s. coal and rnactune burldlng);

I I Raprd dlverslficatlon and development of lndustrlal expons.

I I I Suh5tantlal Increase In the production of mass consumption goods Ilke Cloth.

Edlhle oils, Sugar, Eletctncals, and

I V Restram on the producuon of non-essenaal goods llke luxunes and comforts l3

The average rate of indusmal growth dunng this plan was targeted at 8 1

per cent per annum. However, the actual rate achieved was 5 2 per cent per annum.

--

'3Government of Inda. "Draft Slxth Flve Year Plan - Job Generatron a Challenge". The Econom~c Tlmes, Vol VII, No 160, September 2. 1980, p 89

7

U . 6 Sixth Five Year Plan (1980-85)

While making a review of industrial development over the thlrty years of

planning, the Slxth plan noted that industrial production had increased by about five

tlmes. More Important than thi! quantitative Incraw In output, the dlversificat~on of

mdustrial structure covering broadly the entire range of consumer, intermediate and

cap~tal goods. IS commendable.

The successwe plans have stressed the increasing role of Publ~c Sector In

the removal of unemployment and under-employment and enhance the standard of llv~ng

through the provlslon and distribution of essential commodities and prov~ding infra-

structural fac~llties However, the pattern of industrial development was not sufficiently

gu~ded hv cost cons~deratlons Most, ~ n d ~ t n e s have tended to get established at sub-

optimal capacltles lead~ng to a hlgh cost of mdustnal structure

In the light of the above, the Sixth plan has emphasized on optimum

utilisation of exlstlng capacities and Improvements In productivity, enhancement of

manufactunng capacity, specla1 attenoon to the caprtal goods ~ndustry and electronics

industry, Improvement in energy efficiency, d~spersal of industry, such alike. Of the

total expcnd~ture of Rs 1.09.292 crores proposed under this Plan, the share of Publ~c

Sector was marked at Rs 15,002 crores which comes to 13.7 F, ieni. The per id tht.

Slit11 plan saw ~ ~ d e range of changes In the lndustr~al pol~cy of the government. The

industrial and trade policies were substantially Ilberallsed. As a result, Industrial

production s t a n d picking up but it has also created certain ~stortions".

I4 Rewrt of the Economic Adminishative Reforms Commission. on Government pf Publlc Sector Entenmses. B P E., New Delhi, 1985

The role of Public Sector is also clearly stated in the industrial policy of

1980 with a major stress on the o@murn ut~lisation of installed industrial capacity,

reduction in production, development of the export orientation and import substitution

industnes and also to establ~sh the industnes whlch reduce the r:gional imbalances.

R ~ J I V ' S government had marked new thrust towards liberalisat~ons, inter aha through

large scale delicenslng, broad bandcng of industries which remained within the ambit of

licensing and h~gher endorsements for capactty expansion. The fields like

telecomcnunccat!on. oil exploration, o ~ l refinery and c~vcl avcarion, which were

csclusivcl!: rcscrved for the Publlc Sector, now t h r o w open to thc Pnvate sector'"

1.3.7 Seventh Five Year Plan (l98S-90)

I he Sevcnth five year plan has re-emphas~sed the need for restructunng

the Public i nterpnres and stressed on then consol~dahon, lmprobement and

rncdemcutlon rather than on large scale expansion of capaclty except when ~t IS

crnperatnr I he plan justified Pr~vare enterpnxs' growth bb stating that the cndusmal

economy vlsualcsed in the Industrial Pollcy Resolution, 1956, 1s charactensed by a

svmbol~c and complementary relatconsh~p b e e n the Publlc and Pnvate sectorI6

The Seventh plan has envisaged for an annual growth rate of 8 7 per cent

of industrcai productcon The lotal investment of Rs 19.708 crores was expected to be

invested In the Public sector to promote industrial development. This target was

sought to be achreved through the increase in efficiency, productivity and upgradation of

'"inarain, Publlc Enterprise Mmxuement, S.Chand and Company L~mited, New Delhi. 1994. p.37.

I 6 s S . ~ . ~ l s h r a and V.K. Pun, I d a n Economv. Its Develooment Ex~erience, l-limalaya Publishing House, Bombay, 1996, p 601

technology It rs heartemng to note that the Seventh plan 1s deemed to have achieved the

targeted lndustnal growth rate of 8 5 per cent It has been made possrble because of

adequate ~nfrastructure pollcles of the govemmentI7

lndustr~al Pol~cy Statement of 1991 IS a total reversal of the ex~stence of

Publ~c Sector In lndla The statement adrnltted that many Publ~c enterpnses have

become burden rather than the assets to the government and therefore, the government

has to adopt a new approach to P u b l ~ ~ enterprises In the new economlc scenano The SIX

dlrnenc~on of approaches were suggested These ~nclude.

I Publ~c enterpnses to focus on strategic, h~gh-tech and essential infrastructure Items,

I I Chron~callv s ~ c h Public cnterprlses to be referred to the Board of lndustnal and

flrlanclal Recon\tructlon (RIFR) wh~ch w~l l suggtsl rcmedle5 for :he11

rehabllltatlon or recommend for closure

I I I A part of the Publlc enterpnses' equlty be offered to Mutual funds Flnanc~al

lnstltutlon general Puhl~c and Emplovees

IV Publ~c Fnterpnses Boards to be made more professional and be given greater

autonomk and power

v Performance for improvement to be secured through the Memorandum Of

I lnJcr\l.ind~ng ( h l 0 I 1 ) and

VI The (iovernment should ensure that the Publlc enterpnses are run on bus~ness lines

as envlsaged In the lndustnal Pollcy Resolution of 1956 "

"L Naraln, "New Econom~c Pol~cy and Publlc Sector Reforms", The Economic Tlmes of lnd~a, July 167, 1992

I8 Government of Ind~a, Draft Seventh Flve Year Plan, 1985-90, Plannlng Comm~ss~on. Delh~. Vol I . p 136

1.3.8 Eighth Five Year Plan (199297)

The E~ghth plan IS all set for managtng the trans~tlon from centrally

planned economy to market-led ewnomy The plan alms at roll~ng back the Pubi~c

sector can move sector Investment from those sectors of the economy where the pnvat-

In The problem affl~ct~ng Publ~c enterprises IS strategic, h~gh tech and essent~al

~nfrastructure wll be squarely addressed wth a vlew to maklng the sector strong and

more dynamlc Bewdes, the thrust of new economtc pol~cy IS towards creatlng a more

COmpetlhVe environment In the economy as a means to Improve the product~v~ty and

eflic~ency of the Publlc sector and generates the necessary surpluses as was ongnally

envrsaged If 1s only an eftic~ent Publ~c enterpnce system that can enable the

(iovemment to meet ~ t s soc~al ohl~gat~on"

Moreover, the Eighth plan env~saged a annual growth rate of 8.0 per cent

In industr~al prcduct~on The first year of this plan has rr~tncsscd 2 3 per cent growth

wh~ch hac ~ncreased to 4 1 per cent In the second year of the plan Thus, during 1992-93

and 1993-94, the Industrial growth rates fell short of the targeted ~ ~ o w t h rate It was due

to the factors like, the ~ m p of recession However. ~ndustnal growth rate has sharply

picked up to 8 0 per cent in the rest of the plan period.

1.4 I,IBERAI,ISKI'IONS AND PUBLIC SECI'OR POLICY

The change in economic policy of the Govemment has brought new

challenges before the Public Sector Enterprises in India. Raj~v Gandhi's Govemment

brought out a sea change in terms of liberalisatjon ofllcensing policy in favour of large

- - - -- - - -- - -

C Rmgarajan, "Econornlcs Framework of the E~gth Plan,', m. August 15, 1992

busmess houses, particularly, In terms of maklng them free from the provlslons of MRTP

Act and FERA Thls attltude of the government has created new awakenings on

management of Publ~c Sector Enterpnses whlch are expected to fulfill the~r objectives on

par w t h Pnvate Sector Enterpnses Different new approaches were pursued by the

government dunng late 1980sZ0 The Industrial Pollcy announced by the Congress (I)

government, led by Mr Naras~mha Rao, on 24" July 1991 marked a s~gn~ficant departure

from the concept of a command economy towards a market dnven economy In wh~ch

liberal market based economlc pollcles were cons~dered as the major stlmul~ l~kely to

hoost the development of the lnd~an economy Bes~des, the new pollcy also marked

s~qlf icant departure from the trad~t~onal command approach to Publlc Sector Pol~cy and

redefined 11s o b j ~ ~ t l v e as one whlch will ~nduce greater effic~ency, productlvlty and

competltlrenes\ In the Publlc Sector

7'hl~ pollcv a~mcd to shed the load of the Publ~c enterpnses whlch

have showm a very low rate of return or lncumng losses over the years Therefore

the government has adopted a new approach to Publlc enterpnxs Units wh~ch may

be faltering at present but are potentially v~able must be restructured and glven a

new lease of l~fe" Further, the government wII strengthen those publlc enterpnses

whtch fall tn the reserved areas of operation or In hlgh pnonty areasor generating

good ~ r l d rc,isonahlc prolit\ Such enterprise\ v.111 hc prov~ded a much greater degree

of management autonomy through the system of Memorandom Of ljnderstandlngs

(MOUs) At the same tlme, there are a large number of chmnlcally slck publlc

"~ranoma Ray. "Llberallsatlon and Modernity Some Management Issues'., MDI Management Journal, Vol6, No 1 , January 1993

" ~ u d d a r Dan and Sundaram, K P M , lndlan Ecnomy, S Chand and Company l .~m~tcd. New Delhl. 1998, p 171

enterprises incurring heavy losses, operating in a competitive market and serving little on

no public purpose. In order to make these units to become more viable, the following

measures have been suggested:

i. Portfolio of Public Sector Investment wll be revlewed with a vlew to re-focus the

Public Sector on strategic, hlgh-tech and essenbal ~nfrastructure,

I I Publlc enterprises whlch are chronically stck and are l~kely to be tumed around

would for the formulatron of appropnate revlval or rehab~l~tatlon schemes be

referred to the Board for lndusmal and Flnanclal Reconstruchon (BIFR),

111 In order to ralse resources and-encourage wder publ~c panlclpatlon, a part of the

government's share holdlng In the Publlc sector would be offered to mutual funds,

financial Instltutlons, general publlc and worken, and

IV There would be a greater thrust on performance improvement through the MOUs

1.5 OBJECTIVES OF PUBI.IC SECTOR ENTERPRISES IY INDIA

Although no specific objective IS la~d down on a 'wh~te paper' or on a

natlonal document. one can gather together a set of ohjectlvez of the Publlc Sector from

ofiiclal documents irom tlme to hme I he pnnclpal Objectl~c5 of Puhllc enterpnxs are

az tolln\\s

I Help In the rapid economic growth and ~ndustrial~sation of the country and create

the necessary ~nfrastructure for economic development,

il. F m return on investment and thus generate resources for development;

ill. Promote redistribution of income and wealth:

iv. Create employment opportunities;

v. Promote balanced regional development;

vi. Assist in the development of small scale and ancillary indastr~es; and

vii Promote import substitutions, save and earn foreign exchange for the economy

These objectives, for obvious reasons, have undergone changes over a

period of trme

1.6 PROGRESS MADE BY PUB1,IC SECTOR ENTERPRISES IN LNDIA

Publlc Sector In lnd~a has been cntlclsed vehemently by a number of

\upporter\ of the Pnvate Sector who have chosen to shut thelr eyes towards the

achle~ements of the Publrc sector Followng descnpt~on be sufficrent to conwnce one

that Publ~c sector has played slbmlficant and a defin~te p s ~ t ~ v e role In the economy

1.6.1 Sim and lnvestment

In order to achleve the stated objectrves, the government of lndia has

made huge Investments In the Publ~c Sector cY,c: diKcrcn! ;!oT: nods The

phcnorncnal Increase of the s1c.e and Investment In th~s sector can be observed In the

Table I 1 The number of enterprises has ~ncreased from a mere F~ve companies In 19.5 1

to as many as 243 companies In 1995-96. S~milarly. total investment has also recorded a

steep nse from a meagre amount of Rs.29 crores to a huee amount of a little over

Rs. 1.64.332 crores during the same period. The investment In the Public sector over the

years has grown at an annual Compound Growth Kate (CGR) of 28 26 per cent dunng

forty-five year period. Moreover. its spectacular

Table 1.1

Growth of Investment and Size in Central Public Sector Enterprises Since Independence

1 Year 1 Total l l n i a 1 Total lovestment Growth Rate

! 1 (in Nos) I (Rs. I n Crores) I (in Percentage) , I

CGR : Compound Growth Rate Source: Bureau of Public Enterprises, Public Enterurises Survey, Wnistry of Industry,

Government of India, New Delhi, Vol. I , 1995-96, Chapter 1

growth in size of investment has diversified into vmous fields of activity. Public sector

has created the infrastructure base for modem industrial economy and has helped the

economy in achieving a very large measure of self-sufficienc!~ In the matter of industrial

equipment and mach~nery, designing of power equipment. bas~c drugs and chemicals,

raw materials, aeronautics, making of steel, mining of coal and minerals, extraction and

refin~ng of crude oil, manufacturing of heavy machinery, machlne tools, Instruments and

other commerc~al activities

1.6.2 Generation of Employment

Puhl~c enterprise have a hignlticant place In Indian economy as they have

been generating and problding emplovment to \arious categone? of people From the

lahle 1 2 i t can tw stated that bv 1995-96, as many as 30 51 lakh? of persons are

emploved in Public Sector Enterpnses receiwng an average emoluments of Rs 105,879

per annum When these figures are compared to that of the 1975-76 figures, only 15 05

lakhs were in e m p l o ~ e n t with an average emolument of Rs 8.983 per annum The

achievement wwthln nineteen years appear significant However, it could be noticed that

Pcb!:c e-!cTrxes have reduced the emplovment mzrgnallv since 1990-91 due to the

lntroductlon new economic pollcle.. Desp~te ot thew new trends. Public Sector has

saved the mlllions of population trom the problem of unemplosment and mlsery and

helped in the stab~lisation of lndustnal productron

Table 1.2

Generation of Employment and Average Annual Per Capita Emoluments in Public Sector Enterprises

Year Employment in Lakhs of 1 Average Annual Workers I Per Capita

I

I 1 Emoluments (in RB.)

1995-96 I 20 51 1 102879 1 I

I CGR 1 69 1 1 59 I

- - - -_l_______ L

CGR : Compound Growth Kate Source: Bureau of Publ~c Entepses. Publlc Entemses Survey. Mlnlstq of Indusm.

Government of lnd~a. New Delh~, Vol 1, 1995-96. Chapter I

1.6.3 Contribution to Exchequer

The Public Sector enterprises have been making cons~derablt: contribution

to the central exchequer by way of dividends, corporate tax, sales tax, excise duties and

customs and other duties. Their contribution to the central exchequer on the whole

~ncreased at the rate of 2 1.17 per cent per annum from Rs 1,196 crores to Rs.32,096

crores by 1996-97 a. can be observed from the Table 1.3. The phenomenal growth is due

to record nse In corporate taxes and dividends Though the growth rates In exclse and

tax are low. these two resources have contnbuted 81.25 per cent of the total contribution

made by the Public Sector to the government

1.6.4 Contribution to Exports

Another slplficant achievements of Publlc Sector Enterprises pertans to

the~r role In foreign trade and the~r contnbut~on In earnlngs from foreign exchange for

the country As far as f o r e ~ g exchange earnlngs are concerned. the Public Sector has

contnbuted In three ways

i Through d~rect export of Items produced in the Public Sector

I I Through servlces rendered by the Publlc Sector undertakings. and

i l l Through trad~ng and marketing servlces of the undertakings through wh~ch the

exports are canalised

Table U

Contribution to Public Exchequer by the Public Sector Enterprises in India

- - 14 58 I28l 1 13 82 1 1683

-- - CGR : Compound Growth Rate Source: Bureau of Publrc Enterprises. Publrc Entemnses Survey. M~nlstry of Industry.

Government of Indla, New Delhr, Vol I , 1995-96. Chapter I

1 19x1-XL I O U I 579 1 2558 / 1321 4567

1982-87 I I T 928 ' 2667 1827 5537

1 1983-84 133 1240

1 1984-85 176 I 1190

I 3454 i 1727 6554

I

3407 , 2837 7670

/ 1986-87 1 191 lo00 , I 4117 I 3753 9061 1

The Public Seclor Enterpnses' export earnings are depicted in Table 1.4.

The earnings of the Public enterprrses from exports have substantially rose from Rs.1640

crores In 1975-76 to Rs. 1 1,326 crores in 1995-96 whlch constituted roughly 43 per cent

of the total ~ndustnal exports Thus, the Public Sector enterprises have today cc me to

command a very substant~al share of the total exports

Table 1.4

Export Earnings of Public Sector Enterprises

- r - --

--

I

Exports of Percentage Growth Over 1 Public Enterprises The Previous t e a r

(Rupees in Lakhs) I

1975-76 1640 00 42 50 l Y7h-77 1753 00 6 90 1977-78 1562 00 - I090 1978-79 1834 00 17 40 1979-80 1913 00 4 30 1980-81 I 221700 15 90 1981-82 2756 00 24 30 1982-83 1983-84

4747 20 72 60 5512 10

I 16 53

1984-85 I 583 1 45 5 41 1986-87 3822 32

I - 34 45

1988-88 I 3941 78 3 31

I 1988-89 417648 6 03 1989-90 489222 17 14

I 1990-91 6367 84 10 12 199 1-92 7085 82 1 1 31 1 C9Z-93

I 8979 78 26 73 1993-94 I 10338 02

r 15 13 1994-95 1995-96

CGR - - - -

11935 52 11326 18 1

11 05 15 06 - - - . - -- - - . -

CCR : Compound Growth Rate Source: Bweau of Publlc Enterpnses, Publ~c Entemnses Survey, M~nlstry of Industry,

Government of Ind~a, New Delh~, Vol I . 1995-96, Chapter I

1.6.5 Public Sector And Capital Formation

The role of Publlc Sector ~n collecting savlngs and lnvestlng them dunng

the planned era has been very ~mportant Dunng the F~rst and Second plans of the total

~nvestment, 54 per cent was In the Publlc Sector and the remalnlng In the Pnvate Sector

The share of Publ~c Sector enhanced to 60 per cent In the Th~rd Plan The Fourth, Fifth

and S~xth plans env~saged respectively 59 per cent, 57 6 per cent and 53 per cent share In

Publ~c Sector of total plan Investment However, for the first tlme slnce the advent of

plann~ng, the Seventh plan reduced the share of Publlc Sector Investment ro below 50 per

cent and kept at 47 8 per cent compared to 52 2 per cent for the Pnvate Sector At the

same tlme. the Puhllc Sector financ~al lnstltutlons have plaved an Important role In

collecting savlngs and mobll~satlon resources

The share of Puhllc Sector In Gross Domestlc Sa\lng\ iGIlS) wa\ 16 2

per cent d u n g 1980-8 I , 7 3 per cent ~n 1992-93 and 6 9 per cent ~n 1995-95 Dunng the

per~od of Sixth plan, the publ~c sector's wing was 18 6 per cent of t h ~ s total GDS and ~t

1s declined to 10 8 per cent dunng the perlod of the Seventh Plan Another element of

contnbutlon of Publ~c Sector to ewnomlc development IS ~ t s role ~n total Gross Domest~c

Capltal Forrnat~on (GDCF) whlch has gone up from about 40 per cent dunng 1970-75 to

about 52 p r cent dunng the Seventh plan penod22 Hence. the Publlc Sector has played

a postll\r: role for the cap~tal tbrmat~on ofthe count5 tbr the past five decades

L6.6 Development of infrastructure

Econom~c Development in any underdeveloped country depends on

infrastructure W~thout sufic~ent doses of ~nvestment ~n expansion power and energy.

-- - -

'2~overnment of I n d ~ a Econom~c Survev. 1994-95, Statement 1-4, pp S 6 & S 7

2 1

Transportation and Communication facilities, and basic and heavy indushies, the process

of industrialisation cannot be sustained. lndia had inherited an undeveloped basic

infrastructure from the colonial period. After Independence, the Private Sector neither

showed any inchnation to develop itself nor d ~ d 11 has any resources to make this

possible It was comparatively shy both financially and technically and was incapable of

establishing a heavy Industry immediately. This has forced the state's participation in

~ndustnal~sat~on essential, as the state could enforce a large wale mobilisation of capital,

the co-ord~natlov of ~ndustnal construction and tralnlng The Publlc Sector has not only

lrnproved the road, ra~l, alr and sea transport system, but also expanded them in

manlfold l'hus. the Publlc Sector has enabled the economy to develop a strong

infrastructure for the further economic growth. At the same tlme. private sector also has

benefited immensely from these projects undertaken by tht: Public ~cctor".

1.6.7 .4ehicvcment of Balanced Regional Development

The (;overnment of lndia tned to use 11s power of senlng up of newer

industries as a means of removing regional dlspanties in industrial development. In the

pre-Independence period. much of the industrial progress of the countN was llmited In

and around the port towns like Mlimbai (Bombav). Calcutta and Chennat (Madras) All

other pails 01' thc count9 lagged far behlnd Through the Inlnatlon of the Plannlng

Commlsslon In the country by 1951, the Government of lndia has pad pamcular

anentlon to thls problem and has set up industries in a number of areas hitherto neglected

by the Private Sector. Thus, a major p r o m o n of Public %stor investment has been

drected towards backward states and backward regions of the country For instance, all

U R.Nagaraj. "Public Sector Performance In the Eighties", Economic and Political Weekly. December 14. 1991, p.877

the four major steel plans In the Publ~c Sector, namely, Bh~lat Steel Plant, Rourkela Steel

Plant, Durgapur Steel Plant and Rokaro Steel Plant, were set up In the backward States

Further, ~t 1s bel~eved that the senlng up of large scale Publ~c Sector projects In the

backward areas would unlash a propuls~ve mechan~sm 111 them and cause economlc

development of the hlnder-land Hence. these conslderatlons also y ~ d e d the locat~on of

machinery and machlne tools factones, aircraft, transport equipment and fert~l~ser plants,

such allkc in backward areas"

1.6.8 Import Substitution and Export Promotion

Ava~lab~l~ty of fore~gn exchange reserves often emerged as a senous

constra~nt on the programmes of ~ndustnal~sat~on In a develop~ng econom! Ihr

constraint appeared In a rather strong way In lnd~a durlng the Second plan and the

subsequent plans On account of these cons~derat~ons, all such ~ndustnes that help In

Import subst~tut~on are of crucial Importance for the economy The establ~shment of

Bharat Heavy blectncals Ltmtted (BHEL), Bharat Electron~cs 1.1rnlted (BEL), Hlndustan

Ant~b~otlcs L~m~ted (HAL), Inman 011 Corporat~on (10C). 011 and Natural Gas

Comm~ss~on (ONGC), etc . In the Publlc Sector I S of spec~al Importance from th~s polnt

of VlPW

Moreover. several Publ~c Sector Enterpnses have also played a v~tal role

In expand~ng the exports of the country The H~ndustan Steel L~m~ted (HSL), Hlndustan

Mach~ne Tools Ltm~ted (HMT), Bharat ElecbPn~cs L~m~ted (BEL), State Trad~ng

Corporat~on (STC) and Metals and Mnerals TraQng Corpomhons (MMTC) were

establ~shed for th~s purpose

. -- -- - - 2.4

- -- I3ureau of Publ~c Enterpnses, "Public Enterpnses Survey". M~n~strv of

Industry. Government of ind~a, New Delh~. Vol 1, 1994-94, p 10

1.6.9 Development of Ancillary and Small Scale Industries

An important constituent of governments' industrial policy IS the

development of small scale and anctllary ~ndustnes to help the achtevement ot soc~o-

economlL ohlecttve\ such as generatlon of einplovmcnt, reduction In dlsparittes of

Income, promotton of balanced regtonal development and decentralisation of industrtes

over large areas For thts purpose the Publtc Sector enterprises \pelt out the steps to be

taken hv them to accelerate the growth ot anctllaq industnes through huvtng their tnput

lequlrernents d \ per thc Clovemment s guidcllne\

1.6.10 Worlung Kerults of Public Sector Enterpr~ses

1 he I'uhllc \ e ~ t o r Enterprtses mndc \~gntficant and ebenttul record In

term5 ot turnobcr output promotton ot ekports contnbutlon to the exchequer,

generatlon ol r.rnplo\msnt opp~rtunit~es de\elopment of anclllan and small scale

sector Hut the financial standlng and profitah~litk ot most of these untts are not very

much \att\faLton2' An analysls of the worbtne result\ of Central Ciovemment

cnterpr~sc\ durlng 1975-76 and 1995-96 attempted hereunder It is true that the

cftictenc\ of Puhltc Sector Enterpnses cannot he measured tn terms of profitabtlln

done Ilo\\s\er other crtterton llhe their capacct\ to contnhute to the puhl~c exchequer

pcnerdtiotl of cmplo\ment opportunities earntngs throct~h loreign e\pnrt\ reg~onal

halanced development and other soclal constderatlon* should also be p e n wetghtage in

n Mohammed Talha. "Publtc Undertaktng White Elephants", Vol 30, No 17, September 16-30. 1986, p IS. Bhapat, L Ci , "What is Wrong w t h the Publtc Sector", Yo-, September 16-30, 1982, p 22

16 Bureau of Publtc Enterprises. "Public Enterpnses S u n e l ' Minlstrv of Industrl (;overnment of lndla, New Delhi, Vol 1 1990-91 p 27

the evaluation of their performance. But in our country, where there is a paucity of

funds. profit is no doubt of paramount important criteria. If an enterprise fails to make

protit, ultimately it leads to the erosion of its share capital and if t h ~ s situation is

prolonged further the enterpnses ceases to existz7 In t h ~ s regard. ~t is an important to

recall that the Planning Commission expected a min~mwn return of at least 1 1 to 12 per

cent on investment made in Public sectorm. Therefore, planned profits are a must for the

estahlishinent ~I ' s t~ ia l i s t i c pattern of s o c ~ e h ~ ~

I>unng 1975-76 and 1995-96, the Investment in the Central Government

Fntcrprizes pre\\ h \ more than 17 69 times from Rs 9.006 crores in 1975-76 to

Rs 1.73,874 crores In 1995-96 registering an annual growth of 16.32 per cent as can be

sccn (iom thc '1 able I 5 . I h e gross margin from the operation5 of'these enterpnses ha\.e

alw Sro\rm o\er the \ear\ at the rate of 19 per cent wh~ch 1s larger than the rate of

in\cstmmt in these enterpnses Besides. the size of gross prolit after depreciation also

enhanced of the rate of 19.08 per cent per annum. The s ~ z e s of g o s s margin and gross

profit when compared to that of the capital employed are show~ng a proportion ranglng

from 1 1 20 p r cent in 1975-76 to 17.83 per cent In 1993-94 and 7.42 per cent and

1 1 57 per cent respectively 1 hese rates of protitablilt! would leave anything towards

ni.1 prt)fit ~I 'onc cons~dcrs the adinlnistrati\c and other c\pendirurc hlan! studiesm ha\e

ctmcludcd lhat the present lcvel of growth In gross prolits absolutely negligible to earn

an! sartstactoq rate of return on capital employed

. -- - - -- 27 S S Marathc. "Rc-assessing the Public Sector". Indtan Management, March

1995, p 22

?lannlng Comm~ssion, "Fourth Five Year Plan A Draft Outline", Government of, 1966. p 88

" ~ e i r . Gerald, M , I.ea&nr Issues in Economic Develovment, Oxford tlnlverslty Pre\\. tlong Kong. 1975, pp 393-398

"4baidullah. Md , "Pnuattsation Through L>is~nvestment", The Chartered Accountant. March 1990, pp 68 1-683 --

Tab

le 1

.5

Pro

fita

bil

ity

Pro

file

of

Pu

blic

Sec

tor

En

terp

rise

s D

uri

ng

19

75

-76

an

d 1

995-

96

- - - -

- - -

-

~ . - --

.- - - -- -

I -, -

(Rs In C

rore

s)

/ Gro

ss M

argi

n -r A

--

i-

I P

mT

ax

i I

Pm

lit

(aft

er

/ Per

cent

age

of

Per

cent

age

of

Num

ber

of

Cap

itnl

'

Dcp

rcci

m-t

ion

' C

ross

se

ttin

g oE

T I

Gro

ss M

argi

n C

mrs

Pro

fit

~n

te

rp

h

pl

o

, an

d D

RE

pr

otit

i

loss

cs o

f lo

ss

1 to

Cap

ital

to

Cap

ital

i i

Tax

ea

I y;h

; 1 E

mpl

oyed

E

mpl

oyed

1

r- .

~+

--i

I 4

-

I -

- -

A

1975

-76

1 19

76-7

7 1

1977

-78

I 19

78-7

9 '

1979

-80

1980

-81

1981

-82

1982

-83

125

9006

10

14

345

66

8

763

149

1105

7 I

1490

1

467

1028

60

7 15

5 12

065

I 14

89

574

915

755

160

159

1396

9 1

1766

69

5 10

71

/ 8

86

8

185

169

lo1

82

20

55

82

6

1229

I

1004

22

5 1

168

1820

7 24

01

983

I418

17

99

19

1 '

188

i 21

915

4012

17

58

?654

16

30

1025

1

193

2652

6 '

5184

17

20

7465

19

27

1542

11

26

'

74

2

13

48

9

29

I2

34

!

75

8

12 6

4

12 7

0 13

19

18 2

9 19

54

19

33

20

30

19

25

19

05

19

93

19

87

19

36

7 6

9

7 6

0

7 7

9

12 1

0

13 0

6

11

94

12

72

12

31

12

54

12

48

12

68

12

53

1983

-84

201

1 29

851

5771

22

05

7565

20

86

I480

9

85

i

207

/ 36

382

7386

27

58

4628

25

29

I 19

86-8

7 1

211

5296

5 82

70

2983

52

87

3115

21

73

1 19

88-8

8 ,

214

1972

98

97

, 33

82

65

I2

3416

1

3095

19

88-8

9 ,

220

1 55

617

1108

2 ,

4142

69

40

7587

33

57

' 19

89-9

0 /

226

1747

8 1

4866

85

72

4167

44

05

1 19

90-9

1 23

3 10

622

5729

52

93

' 199

1-92

27

6 10

2084

18

312

1 72

10

11 10

2 76

01

3501

10

88

I8

:::: 83 I1

59

11

.39

17 3

3 11

57

1

96

0

! 1

39

0

21 3

8

: 16

.10

2 3

0

j 2

37

1995

-96,

Cha

pter

1

4003

1

5076

1

1992

-93

237

' 11

7991

1

2222

3 85

48

1367

5 9

67

3

1993

-94

239

I 14

0110

25

227

, 92

70

1595

7 19

94-9

5 1 240

12

9707

27

600

9162

18

478

1 189

4 65

44

1088

1

9768

i

1406

5 I

1995

-96

3184

6 9

2 1

6 22

670

CCR :

Com

poun

d ~

rG

h

Ra

t~

17 4

91

Sou

rce:

Bur

eau

of

Pub

llc

En

terp

r~i~

~

j'ubl

lc

Lnt

emns

es S

un

ey M

lnlq

tn u

t It

idur

tr)

Go\

enll

nent

of

Indl

* U

CH

Del

h~

Vol

1

1286

2 19

96-9

7 37

177

9

18

9

2798

8 13

927

' C

GR

--

- --

1

16

72

[

_

18

99

1

18

80

1

90

8

1 2

01

6

L7 PROBLEMS BEING FACED BY PUBLIC SECTOR ENTERPRISES IN INDIA

The most important criticism levied against the Public Sector has been

that, in relatlon to the capital employed, the level of profits have been too low. Even the

Government oiIndia has cnticised the performance of the Publlc Sector Enterprises. For

Instance, the Eighth Five Year Plan notes that the Public Sector has been unable to

generate adequate resources for sustalrung the growth process-J1. Moreover, the poor

performance oi Publ~c Sector Enterpnses is due to a host of problems which may be

classlfied into financial and non-financial problems based on various studies. Some of

the problems can be enlisted as follows:

I. Under unlisat~on of installed capaclty is a major reason for the low level of

profitablily and poor performance In Public Sector Enterpnses pan~cularly In case

of capital lntenslve unlts. A large number of these enterprises have operated at less

than 50 pn cent of thelr capaclty for a number of yean. It affected the operational

efficlenq of the enterprisesx

i ~ . General]!. pnces are determlned at a level that would cover total cost (includng

taxes) and provide a sufficient net return over &,,I above thls. As against h s , the

pncing policy is determlned by the politicai and social objectives rather than

financ~al objectives" Lack of rational pncing policy has resulted in poor

profitabll~y and has left leaving little profits for financing the expansion

' '~lannin~ Comm~ssion, "Eight Five Year Plan", at, Vol.11, p. 108.

''~ija? Kalkar. "Public Sector Measures to Impart Efficiency", The Economic -,Januq3. 1991.p.11.

*lansung Commission, m. " ~ a t h u N.D., "Profitability in Public Enterprises", Lot Udvog, Vol.XIU, No. I.

April 79, pp.3-27.

I I I Most Publlc Sector Enterprises are over-capitaltsed and hence productiv~ty of

capital I S lowJS due to poor plann~ng heavy expenditure dunng construction wrong

\election of project vtes and allocat~on funds on non-product~ve heads

I V J xces\lve dependence on external sources of fund\ and Loncequent Interest

pdymenl obllgations affected the comrnerc~al vlab~llty of most Publlc Sector

cntcrprlses The poor generation of Internal source5 1s attributed to the poor

\ Poor planncng nnd dcla) In tmplemcntatlon ol project5 resulted in a r a w In the cost

of the prqectn Cost escalat~on was due to changes In project utes some times due

to a bclatcd recognition of product rnlx that I S unsu~tahlc to Indian market

conJ~t~on\ Sldrllng the proleclr behlnd t h ~ schedule 1s Ieadtn~ to make nlost

p r o l ~ ~ t \ non \ lahlc'.

\ I I he tailure to glbc adequate return on the huge Public k c t o r lntcstrnent has been a

lnyor contrlhutlng factor towards the recent fiscal and forelgn exchange crlsls

ibhlch has put severe stralns on the lndlan econornj"

VII I ach of autonom) polltical cons~derat~ons In filling top management posttion\ and

frequent ~ntertercnce into the aftalrs of da). to day administration by respectlke

"lhd\cr~ h l Kc\tructur~ng the Ualan~e Sheet\ of Publli Scctor L.nterprl.;es and I'r~\atl\atlon I'ldns Publlc E.ntcr~rtses Vol 4 Nos 1-1 1994 p 6;

"~crlhat.l C halam (I and DAsh~narnunh\ t) Poor Return5 and l o\+ ener era ti on of l,unds in the lndlan Publlc Sector . Publlc Enternrises Vo19 No 1 1989 P 49

37 Pram11 Chaudhiry, 'The Indian Economj . New L)elh~, 1989, p 157 and Frank C Slngh. "Publ~c Sector Problems The Cost of Delay", C M New Delhi, No 17, 1980 p 4

J Y ~ ~ l m a d h a p Mohanty 'Public Sector Fnterprises In lnd~a Need for Baslc Kelorms Public Cntemnses, Vol 14. Nos 3-4, 1994 p I0

ministries reduced the flexibility in taking up commercially viable decisions and

thereby inclrrred large amount of oppo~tunity losses39

Thus, it is evident that Public Sector Enterprises were incurring losses

conttnuously due to the presence of numerous financ~al and non-financial p1:)hlems

f3es1des, one essential cause for the losses incurred by these enterprises in the poor

operating and linanc~al performance of these enterprises At the same time. pcdicy

makers, bureaucrats. managers and also researchers have not given due weightage and

imponarlcc on this prohlem Hence. this present study is planned to explore ~nto thts

dimen~ion

1.8 PRIVA.I'ISATION TRENDS: 4 NO'TE

I he new Industrial Pol~c! announced h\ the (ro\ernment of lndia in Jul?

1991 etnphavwd the economic stab~l~sat~on and structural reforms whtch alm at creat~ng

d coinpetttl\r and market dri\en economic en\Ironment In lnd~a Further it 5tipulated

that the (io\ernmcnt to 'ensure that the Publtc Sector 1s run on bus~ness l ~ n e s ' ~ The

nc\r economic pol~c\ of 1991 stressed the follo\\mg four measure< to reform the Puhl~c

Sector enterprises in lndia

I Keduction In the number of ~ndustnes reserved for the Public Sector from 17 to 8

I rc~luc.cJ I<) 0 Inlsr o t > ~ anJ the ~~~rroduction ~ ~ t ' s e I ~ ~ t ~ \ c cornpetltton in the rc5enr.d

areas.

39 Uapat. N t i , "l.ossrs In Publrc Sector Enterprises Government should not

Interfere Into Day-to-Day Affatrs". m a . December 29. 1979, pp9-10 and Summtt Chaharavarthb. "Autonomy to Publlc Sector for Rev~tal~satton". Apnl 16-30. 1987. p 17

ul K V~swanathan and S Roy Chaudhaq. "Kestructunng the Publtc Sector The Prlvattsatton Opt~on", Public Enter~nser, Vol 14, Nos 1-2, 1994, p 49

29

ii. The d~sinvestment of shares of a select set of Public Sector Enterprises In order to

ralse resources and to encourage equity participation cf general public and workers

in the ownersh~p of Public Sector Enterprises;

11i The policy towards sick Public Sector Enterpr~ses to he the same as that for the

Private Sector. and

I V . An improvement of perfbrmance through an MOU system by wh~ch management

are to he granted greater autonomy but held accountable for specltied results"". In

add~tion. there was a draqtic rcduct~on in the b u d g c t a ~ support to sick and

potent~all\. s ~ c k Publ~c Sector tnterprises

I'he ne\v ~ndustrlal pol~cy had reduced the 11st of reqerved industries

to the Publ~c qector from 18 In 1956 to 8 in 199 1 The! are ( 1 ) Arms and

Ammun~t~on. ( 2 ) Atomlc Energy. (3) Coal and L I ~ I I ~ ~ , 1 4 , Mineral 011s. ( 5 )

Mln~ng of Iron Ore, Manganese Ore, Chrome Ore. Ciypsom. Sulphur, Gold and

Diamond. (6) M~ncng of Copper, Lead, Z~nc. Tin, Molyblenom and \hlolfi-am, (7)

Mlnerals specified In the schedule to the Atomlc Energy (Control of product~on and use

order, 1953,. and (8) Ra~l I'ransport In 1993. Items 5 and 6 \\.ere deleted from the

reser\cd 11st As of no\\. onl? h lndustrles are rcscned for the Puhl~c Sector Thus. of

the 18 ~ndustr~es reserved for the Publ~c Sector slnce 1956, as many as 12 are now open

to the Pr~vate Sector

- - -- - - - - -

"<io\ ernment of lnd~a, Econom~c Surve,. 1992-93, pp 143-1 45

1.82 Policy Regarding Sick Units

The lndustr~al Pollcy of July 24, 1991 marked a s ~ g ~ f i c a n t departure

from the concept of a command economy toward\ a market drlven economv in w h ~ h

l~beral market-based economlc pollc~es are cons~dered as the major stlmul~ to boost the

growlh and development of the lnd~an ~ n d u s t r ~ e d ~ Hes~des, the pollc) has suggested the

status of Publ~c Sector unlts to be on par 1~1th the Pnvate Sector unlts Publ~c Sector

I-nterpr~ws have al\o heen brought iv~thln the lu r~sd~ct~on of the Board for Indu5trlal and

k~nnnc~al Keconstructlon (BIFK) The UlFK that w~l l dec~de whether a s ~ c k Publlc Sector

unlt bc cfli.ct~\cl) restructured or 11 has to be closed do\sn As on December 21, 1995,

138 cases of puhllc sector unlts (59 belong to Central Government and 79 belong to

State\) \\ere rcferrcd tcr R I rR Of th~s, 1 8 cases \\ere dlqrn~sqed as not ma~ntarnsl)le

re \~ \a l \chcme \\a\ sanctioned for 29 caws, ~ h t l e w ~ n d ~ n g up was recommended to the

con~crncd I l~gh Courts In I4 caw5 ( 5 Central \ and 4 State\ )

The dcclslon to close down the slcb Publlc Sector enterprises has

naturall) caused \\idespread resentment rn the \rorhtng class as the danger of

retrenchment of labour now looms large 1 o solve thls problem, the government has set

up a National Renekral Fund (NKF) for retralnlng and redrplo)ment ofretrcnchcd labour

1.8.3 Memorundum Of I ndentanding (MOl')

The MOlJ system IS presently the centre plece of Publlc Sector reform In

l n d ~ a and the new lndustr~al Pollcq of July 1991 which stsls to make 11 an effectlbe

-- - - -- - - - - -

41 Sun11 Khatn~ and Kasto Macus", Strateg~c Opt~ons for Restwtunng the Publlc Sector In Ind~a", Publ~c Enter~nse. Vol 14, Nos 1-2, 1994, pp 3-19

U~aL.esh Mohan, ..Puhl~c Sector Reform In the New lndustnal Policy'.. Public Entemnse. Vol 14, Nos 3 4 , pp 240-242

mechanism for performance improvement by prov~ding greater management autonomy

to Publtc Sector Enterprises and at the same time making them accountable by various

means.

Furthermore, a MOlJ is an instrument whtch defines the relationship of

the Publtc Enterprise wtth the government (Adm~nlstrat~ve M ~ n t s t ~ ) and clarifies their

respective roles In order to achieve better performance The emphasis \s on achleving

the ncgottatcd and agecd targets rather than ~nterfcrlng In the da! to day affalrs

When the Moll s>stem cornmenccd In the year 1987-88 \\hen only four

unlts s~pnad perfi~nnance contracts by the end of the year 1994-95. the number of such

enterprises had gone upto 99 Of these, the Department of Publlc Enterprises ha! rated

the performancc of 39 as excellent and of ?h ah \cr! good Onl? the prrformancc of

two were rated pnor ichtle e\,aluation for 16 i s pendtng. I'hus. the financial performance

of these cnterprtses was better than what \\as targeted for In the hlOl!\

1.8.4 Disinl estment

I hc major plank of the pnvattsatlon In lndta has k e n the d ~ \ ~ n ~ e s t m e n t

of government s eqult, In a belect number of profit mah~ng Puhllc tnterpnses The

prlm.ln O ~ I C C I I \ C of dtr~nvestment ma\ be tn moh uy rcsourccq on long-term \rith an

alm to enh~nce et?ictenc\ and Irnpro\c the prhrmanci . of Publ~c \ectnr unit\ and to

realtgn filth the economtc pol~ctes pursued bv the government Rased on the suggestions

of Rangarajan Comm~ttee In 1993. the rattonale beh~nd the d~s~nvestment programme IS

to r a w non-tnflattonary form of finance to meet the budgetary needs whtch Include

requlre~nents of development actlvltles and scx~al ohl~gattons This probvamme

commenced In 1991-92 and by December 31. 1995, the gwernment had d~s~nvested a

part of its equity in 40 Public Sector Enterprises and had raised an amount of Rs. 10,500

crores through the various rounds of disinvestment during July 1, 1991 to December 3 1.

1995 The shares were initially offered to select financial institutions and Mutual Funds.

But slnce 1992-93, 11 ey are being offered to the public as well The government IS also

planning to oWer shares of Public enterprises to the workers of these enterprisesu.

Thirty one PSlls were selected Ihr dlslncestment In the first phase of

1991-92 in the arcas of Petrolcum, Fcrtiliscrs, Chernlcals, Computers and

C'omrnunlcation. Flectron~cs and Iqeav! Engineerin uhlch are engaging v~rtual

~nonopnl-\. and were mainly the ‘cab cows' w ~ t h 'star performance' Privatisation of

public enterprtses tn lndla can take place c~ther through o\\ncrsh~p transfer or

manageincnt transfer or financial transfer, thc frarncwork oluhlch IS given below

1.8.4.1 Ownership Transfer

The ownersh~p transfer has alreadv taken place In the case of some PSUs

cn lndta I or In\tance In llnar Pradesh IJP Auto Tractor\ 1.1mlted has k e n handed o\er

to Mi+ Clpanl Automotrres 1 lmlted In Andhra Pradech the AIIwyn Nlssan Llm~ted has

hscn handed o\sr to M \ Mnhlndra and Mah~ndra I lrnltcd

l.U.4.2 Wanagement Transfer

Management transfers have taken place In State Owned Publlc Enterprises

of Kajasthan. A sodium sulphate plant of a departmental enterprise has k e n dec~ded to

be glven on leax basis.

- - - - - - - - - - -- U Busmess Standard, Frlday 17. Apnl 1992 and Nand Dhamaja, "PSU

Dls~nvestrnent. Concepts and Practices In Ind~a", Product1\15, Vol 36, No 4, Januac - March 1996, pp 620-672

1.8.4.3 Financial Transfer

Financial transfers are gaining the greatest momentum. The pnvat~sation

of Marut1 lldyoy 1.imited is a case In point where~n the government has become a

minor~ty shareholder

Ilowevcr. thc privatisation I S not considered as a panacea for the present

day ills of the econom?. neither pcople have an excessive faith in the market forces.

Qu~tc a s~gn~ficant scctlon of our society is opposed to prrvatisation for a %men, reasons

V V lta~nanathan'~. a notzd researcher on Publlc Sector. places the Issue In a \er!

succinct lnrrnnrr " in V ~ C H of the h~storical background of Public Enterprises in India, it

I S ~nconcc~\ablc that pr~~atrsation in this county u.111 he accepted by the soc~ety as an

end ~tsclt: since thcrc IS no consensus in favour of market solutions and property r~ghts

non col~s~dzrcd US prlrnc factor Tor much ncedcd soc~al and ccunomlc change Th15

~rnpl ic that pr~\a~isntion \ \ i l l ha\.c to he \,ie\vcd essentially as the best possible means of

achlevlng pre-dctcrm~ned targcts and ensurlng that 11 does not d~ston the parameters of

such end.;"

I'\~hl~c attctirltw In our countn ha5 hcrn tclcu\cd on ,o nitlch :>ri thc

prlormancc i ~ f the C'c.ntmll\ sponsored Publ~c Undertallngs In order 111 Lno~+ the~r

stand and prospects In chang~ng economic environment In t h ~ s sectlon an attempt IS

made to revlew the existing l~terature In evaluating the operating and financ~al

performances 01 Publ~c Sector Enterprises w t h a vlew to ~dent~fq the gaps that exlst

46 V.V.Ramanathan, Prlvatlsat~on In Develoo~nrr Countrtes. Routledge. London. 1990, p~ 186-187

in the field o f research on Public Sector Enterprises. The studies conducted by

different researchers and agencies are examined in the following paragraphs

An early attempt has been made by Professor ~amanathan" on

"Finances o f Public Enterprises", In 1971 wherein hc has examined and analysed

d~fferent aspects o f financing o f public enterprises While focussing his attention on the

profit and prof~tahilitc criteria, he has explored Into the impact of pricing policies on

the public sector linancing.

~harma" has h~ghlighted the problems o f f iwnc~ng the operations of

publli cntcrprlses at different stage< such ah gestation. operation and expansion. It 1s

ohsen cd from the qtud! that thc go\,ernment was the malor pro\ ~der o f finances o f these

cnterpriwh The p;~ttc.m of financing dur~ng perlod \\a\ sim~lar to the gestatlon ~ r l o d

The contr~bution of internal funds was far beh~nd the potential mainly due to the poor

operating profits \\hlch led to thc dcpcndenic on horrcl\\cd funds in the total capital

structure t~fthesr. tnterprlses

slnghU has made an exploratory stud) on the performance o f publlc

cnterpnses dunng the pcrlod o f ten years endlng 1979-SO lit. has ~dentlfied a number

o f reason\ for poor performance o f public cntcrprws These include. the long

gestation perlid. adoptinn of administered pnce p>licles. managerla1 ~nefticiencies

4 IIIJII~;.ICIICC\. lack o i a c c ~ u n t a b ~ l ~ t ~ . role 01' ~~) I i t~c idn) : III ~ I I I ~ ! mah~ng. ctc.

%amanathan. V.V. Finance o f Publ~c Entemses, Asla Publishing House, Bombay, 1971.

"~harma B.S., Financ~al Plannlnn in Indian Public m, V i h Publishing House. New tklhi, 1974.

U~ingh K.R. "Publlc Sector Enterpnxs An Evaluat~on o f Performance", Southern Econom~st. December 1-1 5, 1981, pp 9-14

~ a ~ c h i " had made an evaluation on the role of Public Sector

Enterprises in India against the explicit and implicit objectives during the period of 1976

and 1985. He has apprec~ated the performance of these enterprises in respect of their

efficiency in generation of employment and their contribution to the net domestic

savings in lndra He lamented on the non-implementation of different recommendations

made by the different Committees for the betterment of the efficiency of these

enterprises tie has pleaded for restructuring the management styles and

accountability aspects of these enterprises

~harra" has made a rc\iebr on d~fferent studres relating to the

profitabrlrt! prfonnance 01' puhlrc entcrpriqes The stud~es rebrewed by hlrn have

concluded that the common melody for deteriorating performance of public

enterprises is the lack of commrtment and lack of accountabilrty of management at all

~rakash" had made an attempt to find out a su~table criteria for

measuring the efficiency of Public Sector Enterprises in India. After a careful analysis

of the rvorks of different authors lrke Sargent Florance, Grlber Walker, Om Prakash,

Keshav and others, he suggested a set of d~ffcrent financral measures to eialuate the

eflicrcnc) of l'ublrc Sector Enterprises He has identified c e m n financial ratios,

namcl! protir bcfore t.i\ to salcs. profit h-forc ta\ to nct \ror!h. \slur: of production ro

netrwrth and lnwnlor) turnoier ratios as better rndrcators of performance

Ilowcver, he has admitted that the measurement of el'ficiency of public enterprises 15

not always possible as against multiple objectives for which they are established.

%agchi. K.Amiya, "The Role of Public Enterprises in lndia". Asian Develo~menl Review, 1982. pp.89-100.

-~hatia B.S , "Researches on Profitabil~ty of Publ~c Enterprises". RBI & c ~ S S ~ O M ~ Pamrs, 1983. pp.32-39. -

"~rakash. J.. "Measuring the Efficrency of Puhlic Enterprises". The Journal of Institute of Public Enterwises. April-June 1983.

Another study in the same pattern is that of the ~ansal". He has tried to

identify the financial measures of perfomance in Public Sector Enterprises by

constructing 91 different types of ratios. He has employed the 'factor analysis' to

consider different sets of variables to evaluate the profitability of Public Sector

Enterprises

~ a o " of Reserve Bank of India has evaluated the performance of non-

financial non-departmental enterprises in Public Sector coverlng a period o f two decades

ending 1980-81 tie observes good capital-output ratios and capital formation rates

durlng thls period. He has evaluated the productiv~ty In operations b!. employing

Cobh-Douglas production funct~ons between operating surpluses and the fixed assets

turnover ratlos tic found that the entire capital formation is financed through

brrow~ngs either from government or other institutional agencies He has observed that

the h~he In inflation rate has been reducing the operatlns surpluses to the extent of

0 92 per cent with every one per cent rise in Price Index

~rinivasan" has made a study on some of the recent trends in financing

Public Sector Enterprises in Indra. He observes that the role of equity has been

decl~nrn!; In publlc enterpnses from 26 4 per cent to 20.6 per cent and interest beanng

funds habe been cxcupylng 30 3 per cent to 33 6 per cent of thc total capital structure

dur~ng 1975 and 198: Thcsc \hlftz together \ \ I I ~ lncrraslng Intrrcct ratcz hake h~hud

up the interest burden of the enterpnses and have adversely affected the financial

. - - - -- - - - - - "~ansal S C . "Financ~al Measures of Performance In Publlc Enterprises",

lndlan Journal of Commerce, Vol 141, No 4, December 1984, pp 107- 130 %machandra Rao, K S., "Profitab~l~ty of Non-F~nancial Non-Depamnental

Enterprises in Publlc Sector - 1%142 to 1980-8 I", RBI Staff Occass~onal Pawrs, 1984, pp 83- 125

u~r~nrvasan C.V., "Some Recent Trends In the F~nancing of Public Sector Enterpnxs". I.ok Udvog, June 1985

viability. This is contrary to the perfomuvlce of pnvate sector enterprises who were

able to bring down the share of costlier bank loans during the same period. He

suggested for adopting a more realistic approach in the preparation of financing plans

and adoption of innovative modes of financing, considering the debt capacity and the

available operating surpluses in Public Sector Enterprises.

~apad~a"%as made a study to find out the contribut~on of 'takcn-

over' units In the poor financial surpluses earned by Public Sector Enterprises during

1978-83 He observes that the taken-over units account for 18 per cent of total

Investment. 22 per cent of total sales turnover and much higher 45 per cent of

emplovmcnt of all Central Iiovernment enterprises. He observes that 18 taken-over

unlts are In red during the entire SIX year period of the study amounting to a loss of

Rs 936 crores He suggests for no-more tahe-obers of s~ck lndustnal unlts just for the

~8I.e of protecting the employment ot these unlts subsequently behaclng as rel~ef

undemh~ngs and most of these arc non-v~able to ach~cbe the cornrnerc~al results from

them

Chalam and ~ur thv - have made a study on the performance of

Publlc Sc~tor Enterprises In lnd~a and the? have annhuted the poor financ~al

performance to the e*cessl\e use of external source\ In the~r (Public Enterpnges)

cap~tal structure Tt:;; have ~;.alu;ltc.! :A; ;flec~s of heavy esternal finances cn net

tnconicb and on short-tern1 I~qu~d~t? p)sltlon, In turn ellirct~ng the uorhny funds

ava~lablr: for successful operation I'he) haw suggested for allo\r ~ n g more pni ate

equity part~ciption; lncreastng the operating efficiency through controlling costs

and improving the capacity utilisation and factors such alike .. .---

" " ~ a ~ a d ~ a . M.S.. "Public Sector's Poor Financial Returns: Place for Taken- Over Units", -, Nu.?. 1985. p.5.

hala lam G.V and D a k s h i ~ Murthy D.. "Performance of Public Enterprises in India, Impact of Heavv External F~nancing". Public Enternrise. Vo1.6, No 2. 1985

~iswanathan" has evaluated the performance of Public Sector

Enterprises during 1979-80 and 1984-85 Among the two categor~es of industrial unlts,

he observes that the production-oriented industries are faring in a bener way than the

others In the I'ght of loosing entlre capital-base by some of the loss maklng

enterprise, he recommends for the adopt~on of Joln Stock concept by erring the

enterprtses on ra~ls.

frlvedlv has made an analys~s on the woA~ng of Publtc 5ector

I ntcrprlsc., to ~onstruct a cntcnon for e\iluatlnc the~r financcal performance Wh~le

J ~ u a r d ~ n g the concept of profitah~lltt as trad~tlonal cntenon on the grounds that t h ~ s

~rlrerion suflcr< from the prohlsm of accounting I ~ ~ n ~ t a t ~ o n < he ha\ wggested slmple

multipl~cr Indicator AF per his Indicator the performance 1s a weighted average of

I,thnur p r o d u ~ t ~ \ ~ t \ and the ratlcr of production to ltz capaclt\ Further he ha<

\ugge\ted an e~ght-\tep alwrnar~vc measure for e\aluat~ng the performance of a

un~t III I'uhllc kc tor

(;upraq* has made a stud\ to find out how thc Inbcstments In Central

I'uhllc I ntcrprlws arc financed t le haz analwed the role of eura budgtan pro\Istonk

and the rccent promcnena of Publlc Sector bonds, external cornmerclal

twno\\ing\ ~ntercnterpnsc hrroulngs from yxclal~sed cwrdlnatlng commlnees

Je\clopmcnt funds and zuch cltherz tle ohwncs that the (io\ernments' hudsctan

*l V~swanathan, h K . "Performance Appraisal of Publ~c Enterpnses", t ~ n a n c ~ a l I:xwess. Apnl 1986, p 5

Y n v c d t . Prajapathl. "Public Enterpnscs In lnd~a If not for Profit them for What')". Econorn~c and Poliocal Weehlg, Vol XXI, No 48. Fto\embzr 1986. pp 137- 148

n ( iupu I' Anand, " I ~ n a n c ~ a l I'ublic t.ntcrpnrs.\ ln\estment In Ind~a" t GoWmK &-l'ol~~~cal_ WICWI~~. Vol XXII. N o 5 I . I k e m h e r 17. 1988. pp 2697-2702

support has been declining during the recent past. This has made the enterprises to find

sources for themselves on competitive lines.

venkatachalamU has made a study on the performance o f Public

Sector Ikterprises espec~ally cons~dering the trends a ~d relative roles of external and

lnternal sources. covenng a pertod o f nineteen years from 1960-6 1 to 1978-79 He has

cvaluatcd the financing pattern o f Public Sector Enterprises and found that these

cnterpriscs werc Increasingly dependent upon external sources of finance The

horrow~ng\ from government and semi-government agencies continuously increasing.

I l c has ohxrvcd that the Imbalances In the tinanc~al structure caused by heavy

d o ~ c~l'dcht capttal ha\ created the Interest burden and 11 is constituting In its own

\\a for the pcwr findnc~al prrfonanu: tie has suggested for lmproblny the

operat~ng ct'tic~cnr! through allo\r~ng prl\atc equit! panlclpt~on, re-organlzatlon o f

cap~tal \tructurc and ratlonal~sat~on of pnctng pol~c!

i'hattopd\a\" has brought an e\aluatlon \\orL on the performance o f

('cntral (towrnment cnterprlws covering a pnod of 18 ?can from 1%9-70 to

lWh-87 l i e has presented the cntlclsm Ic\elled agalnst the performance of Puhllc

Sector I ntcrprlws and c\al l l i t td that the Puh11c Sector un~ts to habe the potentla1 to

reco~d IIIUC~~ better rcsultb. proilded the! are run on buslncss llncs by ma\trnlslng

thc ~dtc ~ I I tcturn on cap~tiil ctnplovcd I Le has put fomarded a number o f susestlons to

tInpr\)\c the \\\brL~ng 01 thcx unltb. irwludlng the appllcatlon o f pnnc~ples of sound

- - - - -- - -- - -

" ~ e n k a ~ h e l a m 6 . k~nanclng o f Public Entemses In India Htmalayan I'ubllshtny House. Bornhay. 1988

"~hattopadhavav. I' . "Central Government Fnteqmses An Elghteen Year l'rohlc". l . a _ c ~ ~ ~ f ~ - Y ~ , Vol 10. No 9. March 1989 p 1 1-1')

Shastri ~ e h t a " had made a survey on the existing literature on the

working of Publlc Sector Enterpnses during the last three and half decades and

feels that because of the interference from different quarters, from project approval to

~mplementat~on. leads to lack of accountabll~ty tie esttmates that the delays,

poor cmrdtnation, wrong decls~ons, wrong selectton of sltes, machinery and staff

have costed the natlon to the extent of 10 per cent of total Seventh Plan outlay He

suggests for w t lng off the accumulated losses of some Publlc Sector undertaking

and ~ I \ C a chance to Introduce a neu rcorl-culturc lor the futgre benerment In them

Sankar and saiU have conducted a comparatne study on Pnvate and

I'uhllc Scctor entcrpr~w \r,~th respec1 to thelr financ~al etlicienc! dunng penod between

1986-87 and 1988-89 'The study ldent~fies that the Pnvate and Publtc Sector

I.nterprc\rc di1'li.r In crrattng a surplus to the extent of 9 per cenl on Sales The Cap~tal

emplo\ed In I'ubllc Sector Enterpnses s h o ~ e d a bener performance The profits

earned tn I'n\ale Sector IS three ttmes h~gher in sve of the eqult? than In the publtc

wctor C'aplul Structuring strateg) and the accurnulat~on of rexnes helped the pn\ate

wctor to a h~gh financial efliclenc>

Kao and lathaU have made stud! on the Ftnanclal Management and

I'r~duct~vlty In Publlc Sector Enterpnses covenng a penod of Ten years from 1975-76 to

1085-Xh ( )peratlonal and Ftnanc~al Performance of these mlerpnses were

evaluated through \orlous operational and financtal rat104 I1 \\a> irbscned that h~gh

"~hastri Mehm, "Has Public Sector Lived upto Our k\pectatrons", m a , A p ~ l 16-30. 1987, pp 12-16

U~anLar. 7' 1. and Sal. S S I' . "hvete and Publlc %tor - A Comparative Study of ' l k i r F~nanc~al Eficlarcy dunng 1986-87 and 1988.89". The Journal of Insl~tuw of Public bntcrw~m. Vol 13. No4.291-316, D w m k r 1990

*~handrawkara Rao K and Madhavt Istha. k . !:~nanc~al Manawment ln !'ubIic . ~ t o r ~ ~ ~ e - ~ - ~ . I>tscovr~ Publlshlng Iioux. Nen Ik lh~ . 1991

capital-output ratio and slow growth rates in partial and total factor productivities as

explanation for poor profitability in most public enterprises during the period. It

was also noticed from the study that there exists wider fluctuat~ons in operating wst

responsiveness. utilisation of resources and excessive investment on fixed assets of

these enterprises, l'he study Identified lower profitabil~ty in these enterprises dunng

the study period and suggests for improvement hq- allowing these cntcrprises wort in

an entreprcneural atmosphere

~ a j u m d a r ' has eulmlncd a study on relat~ve pertbrmance of Public,

Jo~nt and I'n\ate Seclor\ In lnd~an lndustn durtng the perlod of 16 \ears hettrzen 1973-

74 and 1988-80 Ihc pcrfonnancedf thew sectors was measured through growth

rate\ In 1 otal I ~ \ ed A\wts. \\orblnp capltal and human capital agalnst the output of

the rcyxctt\c sector5 '('he study results ~ndicate that the joint sector firms are effic~ent

than gwcrnment wncd firms hut less ~.tl-ic~ent than thosc. of In the prl\ate sector

Indrascna ~ c d d t - made a stud, on the performance of Publlc

I ntcrprlw\ through \slue addd approach dunns the penod from 1988-89 to 1992-93

wlectlng 131 11.1 as a stud) unit It IS observed from Ihe stud? that the product~r~t) rat~os

In term> of ~ a l u e added In relauon to vanous resources of BHEL were lncreaslnp dunng

1988-89 a d 1992-93 excepl wrh regard to Capital Employed Ihe studv concludes that

thcrc c\lrl> greater wope tor tunher Improvement of Value added ratlo.; ~f HHFI

h* S m l t K Majmdar. "Public. Jolnt and Private Sectors in h h a n industry - Iivalurrtmng Relatlvc Perfwmamr Differences". Econom~c and Polrtrcal Weekly, Feb 18-25, 1995

Y lndrascm R&y. P . "Performa Appraisal in Public Enterprises Through Value-Addad Appmach - A CW Study". The Journal of lnst~tute of Public Enterorises, VOI 18. ( 3 & 4) . 1PW.pp 164-170

All the studies, reviewed so far, present the different dimensions of

problems associated with the poor financial performance in Public Sector Enterpnses

While some of them are stressing on the removal of operational problems on the working

of these enterprises like capac~ty utilisatlon, shortages, parliamentary control, etc., the

others are explaining about the serious implications of borrowings from the Government

and the required changes in polictes to be brought In for better management of these

enterprises. The recommendations of d~fferent studies paved the way for the current

trend of panla1 dlstnvestment In select Puhltc Enterpnses ~n Ind~a

An attempt IS made In the present study to through some llght on the

cxlsting yaps In thc opcrat~onal and financlal problems of Publlc Enterpnses In Ind~a

\ch-ch arc !eft unattended b) Ciovernmcnt of Ind~a, excepting purtlng forth Irr

'prl\attwt~on plan< \ear-aner \car tor findnc~ng pan~all\ the fiscal deficlts In Annual

budget\

1.10 SEED FOR THE PRESENT STUD\

The studles referred above are prexnbng the performance of Publlc

tnlerpnses and the problems betng faced bv these enkrpnses w h u t maklng any ~n

depth cnqvln ~nto the tntcr-rclat~cinsh~p a s u ~ ~ a l c d and thecr consequent lmpct on

linanc~al pcrforrnance Morrwbcr mnc ~oCthe ~ t u d ~ e s ha\e made an) s)stemattc anemp

to employ wphln~cated operattons, resemch tluhn~ques to work out thc ex-tent of under-

u t ~ l ~ w t o n of r e s o w at h e cuncnt levels of eRic~cncy and capact9 utlllsat~on

further. w of financlal and management rarros 01 l~mlted nunkr , as are suggested h\

Intemat~onal labour Organ~~rtlon (11.0) or ~vrklnp groups. IS extenswe rather than

rdcntltilng the broader trcnds In other aspects of tinanc~al prdi)mance 1s alw present In

these studies. Hence, the present study was taken up to analyse the overall trends in

operating and financial performance of select Public Sector Eiiterprises belonging to

I-leavy and Medium Engineering groups, by appropriately linking up the relevant aspects

of p r f o m a c e Bes~des. this study is intended to employ different sophlstlcated

statistical and econometric techniques before qualifying any aspect of performance for

wider acccptahil~ty and appreciation.

1.1 1 <'HAP'I'ER PLAN

A broad picture about the performance of Public kctor Enterprises. the

financ~al and non-linanclal problems being faced b! them. a hrlef re\ie\r of earher

studre.: to e\aluatc the functlonlng of these enterprises and the need for the present stud)

are p e n In thl\ Intrvduclon Chapter I

C'hapter I I , prov~des the obja~ives of the current stud) Methodology

adopted Source\ of Data. 1.1mitatlons. Size of the sample unlts, Stat~stical and

I.conometr~c tool\ employed and a bncf profile of the chosen sample units

'I'he operating performance In terms of trends in Capital-output ratios,

Value added. I'oial and Partial Factor productivities are analysed In Chapter Ill

! h.iptcr IV h ~ \ crm1~1nr.d ~ h c re\ult\ <)I tnc .~n~ l \ \ r . i ~ o n d u ~ t e d In rc\pr.a

of financial pcrfcmnance of the stud) unlts. the capital formation. sources of finance.

mnds In select financial yardstlchs and the results of pnnc~pal component analcsis

7 k trends in managerial prformance 1s examined by constructing

ditTcrcnt finnrw~al raum ns suggested by International Labour Organisation (11.0) 1 hex

include the general performance, managerial performance and financial performance

dimensions. The results are presented in Chapter V.

Chapter VI provides the econometric results of different multiple

regression equations fitted to establish the changes in various determinants in capital

formation and financing.

The final Chapter VII presents the broad findings and conclusions of the

present s ~ u d \