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Government Policy on Public Sector
 

The Industrial Policy Resolution of 1956 has been the guiding factor, which gave the public sector a strategic role in the economy. Massive investments have been made over the past five decades to build the public sector. Many of these enterprises successfully expanded production, opened up new areas of technology and built up a reserve of technical competence in a number of areas. Nevertheless, after the initial concentration of public sector investment in key infrastructure areas, public enterprises began to spread into all areas of the economy including non-infrastructure and non-core areas.

Government of India announced on 24th July 1991 the ‘Statement on Industrial Policy’ which inter-alia included Statement on Public Sector Policy. The statement contains the following decisions:

“Portfolio of public sector investments will be reviewed with a view to focus the public sector on strategic, high-tech and essential infrastructure. Whereas some reservation for the public sector is being retained, there would be no bar for area of exclusivity to be opened up to the private sector selectively. Similarly, the public sector will also be allowed entry in areas not reserved for it.

Public enterprises which are chronically sick and which are unlikely to be turned around will, for the formulation of revival/rehabilitation schemes, be referred to the Board for Industrial and Financial Reconstruction (BIFR), or other similar high level institutions created for the purpose. Social security mechanism will be created to protect the interests of workers likely to be affected by such rehabilitation packages.

In order to raise resources and encourage wider public participation, a part of the government’s shareholding in the public sector would be offered to mutual funds, financial institutions, general public and workers.

Boards of public sector companies would be made more professional and given greater powers.

There will be greater thrust on performance improvement through the Memorandum of Understanding (MOU) System through which managements would be granted greater autonomy and will be held accountable. Technical expertise on the part of the Government would be upgraded to make the MOU negotiations and implementation more effective.

To facilitate a fuller discussion on performance, the MOU signed between Government and the public sector enterprises would be placed in Parliament. While focusing on major management issues, this would also help place matters on day-to-day operations of public enterprises in their correct perspective.

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To devolve full managerial and commercial autonomy to successful, profit making companies operating in a competitive environment

Generally, profit making companies will not be privatized

Every effort will be made to modernize and restructure sick public sector companies and revive sick industry

Chronically loss making companies will either be sold off, or closed, after all workers have got their legitimate dues and compensation

Private industry will be inducted to turn-around companies that have potential for revival

Privatization revenues will be used for designated social sector schemes

Public sector companies and nationalized banks will be encouraged to enter the capital market to raise resources and offer new investment avenues to retain investors.
 

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