DISINVESTMENT IN INDIA………….PART I

CONCEIVING THE IDEA

ESTABLISHMENT OF PUBLIC SECTOR REGIME IN INDIA

Prior to Independence in 1947, public sector activities in India were restricted to certain utility services like irrigation, railways, posts and telegraph, and ports. After Independence, the industrial policy resolution of April 1948 envisaged a mixed economy for India and declared that public sector would play an effective and dominant role in the future economic development of the country. Industrial Policy Resolution of 1948, which was announced in 1956, coinciding with the launch of second five-year plan 1956-1961, was called by some as the economic constitution of India. India witnessed a massive expansion of public sector through new units and nationalization of existing units during between 1950-1960. Govt. of India reserved 17 industries for exclusive development in the public sector. The most important features of the 1956 industrial policy was the classification of all industries into the following three categories, Schedule A, Schedule B and Schedule C. The schedule A listed 17 industries reserved for exclusive development in the public sector. The schedule B listed 12 industries to be progressively owned by the Government and in which the Government would generally set up new enterprises. The Schedule C industries contained the rest of the industries, which were left to the care of private sector but under general control of government.

Nationalization of existing enterprises also contributed to the expansion of public sector. Government nationalized the life insurance business in September 1956 and the general insurance business in January 1973. In July 1969, Government acquired the ownership and control of 14 major commercial banks in the country. In April 1980, six more commercial banks were nationalized, making banking business a near-monopoly of the public sector. In another move, the Government nationalized the coking mines in 1972 and the non-coking coal mines in 1973, with the result that coal production in the country came almost completely under the public sector. The 1977 industrial policy of Janata Government at the Centre laid special stress on the promotion of cottage and small-scale industries in both urban and rural areas. It proposed revamping of Khadi and Village Industries Commission to enlarge its area of operation.

CHARACTERISTICS OF PUBLIC SECTOR REGIME

India’s development pattern during 1950-1980 was characterized by

1. Strong centralized planning

2. Government ownership of basic and key industries

3. Regulation and control of private enterprise through licensing and restrictive clauses of MRTP, ACT

4. Trade protectionism through high import duties, non-tariff barriers and strict exchange controls.

5. A cautious and selective approach towards foreign capital.

This result into the realization of drawbacks, which inhibited competitiveness and efficiency, producing a much lower rate of growth than expected.

PRESSURES RESPONSIBLE FOR

URGENCY OF ECONOMIC REFORMS IN INDIA

There were two type of factors which contributed encouraging the process of industrial liberalization:

(a) Internal Factors (b) External Factors

During the first three decades of economic planning (1950-1980), Indian economy grew at a modest rate of 3.5 percent per annum as compare to the growth of population at an average rate of about 2 percent per annum. Thus the rate of growth in terms of per capita income was around 1.5 percent per annum.

Economic policies of the first three decades of planning led to inferior quality of domestic production with high cost as compared to the world prices.

Mounting losses of public sector enterprises were causing great concern to the Government. These losses were upsetting fiscal balance of the Government, both at the Central and State levels.

E X T E R N A L	With the dismemberment of Soviet Union, Western powers lost interest in Asia, and India lost its strategic importance. At the 23^rd annual meeting of the Asian Development Bank held in New Delhi in May 1990, both USA and Japan the two major donors to ADB sought postponement of negotiations on future commitments to the fund. As a result the developing countries of Asia now have to compete hard to claim financial resources from the USA and its allies. Thus economic reforms in India re partly attributable to international compulsions.
	China contributed at large to this cause which had initiated the reforms in 1979. Moreover some East Asian countries were showing encouraging results in the field of economic growth.
	The Gulf crisis hit Indian economy hard, thousands of Indians working in the Guld countries had to be airlifted from the war zone to India, resulting, blow to foreign exchange reserves.
	The eighth round of multilateral trade negotiations held under GATT and lasting for seven years (1986-1993) named Uruguay Round, resulted in new legal agreements for trade and strengthening settlement system. Following this, during ministerial conference in Marrakesh, Morocco in April 1994, a new successor institution of GATT, namely World Trade Organisation (WTO) came up.

BEGINNING OF ECONOMIC REFORMS

DRIZZLING MEASURES

In 1985, even on the modest scale, the economic reforms were set in motion, during Prime Ministership of Sh. Rajiv Gandhi. The highlights of the measures were:

1. Delicensing of non-MRTP and non-FERA companies for 31 industry groups and MRTP/FERA companies

in centrally declared backward areas for 72 industry groups.

2. Broad-banding of certain industries e.g. machine tools

3. The threshold asset limit for companies under MRTP Act was raised from Rs.20 crore to Rs. 100 crore.

Consequently, 112 companies wre freed from the purview of MRTP Act leaving 379 under the same Act.

4. Investment limit in small-scale industries was drastically revised upward from Rs. 20 Lakh to Rs. 35 Lakh.

INDUSTRIAL POLICY STATEMENT, 1991

Started with great fanfare, public enterprises were found afflicting with various ills like over-staffing, labour indiscipline, under-utilization of installed capacity, excessive political interference, bureaucratic instead of profesionalised management, and undue emphasis on capital-intensive technology. Consequently the Govt. of India announced a new industrial policy in the Parliament on July 24, 1991, which, inter alia, reduced the list of industries reserved for public sector from 17 to 8 initially, later on, 4 more industries were dereserved. Some highlights of 1991 Industrial statement:

It abolished industrial licenses for all projects except for a selected 18 specified industries.
It removed the asset limits for MRTP totally. The main function of MRTP was to control and regulate the monopolistic, restrictive and unfair trade practices.
It raised the limit for foreign equity holding from 40 percent to 51 percent. The automatic clearance for direct foreign investment up to 51 percent in high priority areas was a clear signal that the foreign investments were welcome.
According to new policy, chronically sick public sector units were to be referred to the Board for Industrial and Financial Reconstruction.
Worker’s participation in management.
Industries reserved for the small-scale sector would continue to be so reserved.
With a view to raise resources and ensure wider participation, the new policy announced disinvestment in public sector undertakings in favour of mutual funds, financial institutions, workers, and the general public.

Here, started a new journey with new perspective and new goals. With the fast paced global economic changes forced India to take hard remedial measures and forward steps to minimize the gap between developed and developing nation. India has proved to be a successful in her endeavors whereas there are some economical aspects which still need to be looked upon carefully.

SANDHIR SHARMA, FACULTY

P P SINGH, FACULTY

DEPTT. OF BUSINESS MANAGEMENT

PUNJAB COLLEGE OF TECHNICAL EDUCATION , LUDHIANA