7.2.3. Features of the Policy of Privatisation in India

The New Economic Policy centred around six major measures to reform the public sector enterprises:

Policy of Dereservation: The Industrial Policy Resolution of 1956 had reserved 17 industries for the public sector. The Industrial Policy of 1991 reduced the number of such industries to eight. Subsequently, the number of industries reserved for the public sector stood, as in 2016 were:

♤ Atomic Energy (Production, Separation or enrichment of special fissionable materials and substances and operation of the facilities)

♤ Railway Operations other than construction, operation and maintenance of items specified by DIPP.

Policy Towards Sick Public Sector Undertakings: In pursuance of the new industrial policy, sick public sector enterprises have been brought within the jurisdiction of the Board for Industrial and Financial Reconstruction (BIFR) for their revival/rehabilitation with effect from 1992. Prior

to 1992, this scheme was used only in the case of sick private sector enterprises. The BIFR was set up in 1987 to look into the revival of sick industrial units residing with private companies.

Policy for Navaratnas and Miniratnas: The government has granted enhanced powers to the Board of Directors of various profit-making CPSEs known as Maharatna, Navaratna, and Miniratna. The Navaratnas originated as a part of the programme of the government in 1996 to identify high-performing and profit-making public sector enterprises. These enterprises were to be provided financial and managerial autonomy to become global giants. Initially, nine such enterprises (and hence nicknamed as Navaratnas) were identified. During 2010-11, the government introduced the Maharatnas scheme under which mega Navaratna public sector enterprises have been empowered to expand their operations, both in the domestic as well as foreign market. In 2016, there were 7 Maharatnas (BHEL, GAIL (India), NTPC, SAIL, CIL, IOCL, ONGC) and 17 Navaratnas. The Miniratna companies followed Navaratnas in 1997. These were consistently profit-making companies and are divided in two categories. These Maharatna/Navaratna/Miniratna companies have been given additional power and freedom to incur capital expenditure, raise debt, enter into joint ventures, restructure their board of directors, and work out their own manpower and resource management policies.

Memorandum of Understanding (MOU): The government has entered into MOUs with the public sector enterprises with the purpose of improving their performance. The main objective of MOUs is to grant autonomy to the public sector enterprises by reducing the quantity of control and increasing the quality of accountability. It aims at bringing a balance between autonomy and accountability. This is sought to be done by specifying in clear-cut terms the measurable goals and giving each enterprise greater autonomy to achieve these goals in a competitive environment. The purpose of MOU is to ensure a level playing field for the public sector vis-a-vis the private corporate sector. The government evaluates the performance of the public sector enterprises through performance evaluation based on a comparison between the actual achievements and the annual targets set by the government. The public sector enterprises entering into MOU with the government are given rating as per their performance. Ratings on a 5 point scale — excellent, good, very good, fair and poor— are given to the public sector enterprises as an incentive to improve their efficiency.

Voluntary Retirement Scheme (VRS): Many of the public sector undertakings have been facing the problem of overstaffing. The Government has initiated a voluntary retirement scheme in the public sector enterprises to reduce the number of excess workers. Under this scheme, workers seeking voluntary retirement are given financial compensation. As a result of this scheme, the government has succeeded in reducing the excess number of employees working with the public sector enterprises.

Disinvestment Policy: The major plank of the privatisation programme under the Industrial Policy of 1991 is the disinvestment policy. Disinvestment means selling of investment. In the context of public enterprises, the policy of disinvestment refers to selling of government's equity in the public sector units in the market. Under this policy, a part of the government shareholding in the selected public sector undertakings would be offered to private investors, financial institutions, mutual funds, workers, and the public at large. Disinvestment of shares of a select number of profit-making public sector enterprises is done in order to raise resources with the objective of reducing public debt burden to provide funds for giving assistance to public sector undertakings or their modernisation and to encourage wider participation of general public and workers in the ownership of the public sector enterprises.

Thus, the New Economic Policy of 1991 has attempted to bring privatisation with the objective of reforming the public sector enterprises. However, it should be noted that privatisation, in itself, is not likely to remove all the shortcomings of public sector. If competitive environment does not exist in a country, transferring ownership to the private sector is unlikely to achieve

much. Moreover, transferring ownership through privatisation may create private monopolies. Creation of private monopolies goes against the basic social and national interest. The policy of privatisation would fail to deliver goods unless it improves the performance of these enterprises.