PUBLIC SECTOR IN INDIA

ADHISH KUMAR SINHA APARNA S S GODAVARI SAI SURESH PRANEETH SAI KUMAR RONICA RAVINDER SINGH SOVAN KUNDU

Prin LN Welingkar Institute Of Management Development & Research , Bangalore

• Refers to part of the economy concerned with providing various government services

• 51% or more of the paid up share capital is help by central government or by any state government.

WHAT IS A PUBLIC SECTOR

• At the time of independence, India was backward and underdeveloped – basically an agrarian economy with weak industrial base, high rate of unemployment, low level of savings and investment and near absence of infrastructural facilities.

• Indian economy needed a big push. This push could not come from the private sector because of the lack of funds and their inability to take risk with large long-gestation investments.

• As such, government intervention through public sector was necessary for self-reliant economic growth.

PUBLIC SECTOR:BACKGROUND

• Hence, the roadmap for Public Sector was developed as an instrument for self-reliant economic growth. The country adopted the planned economic development polices, which envisaged the development of PSUs.

• Initially, the public sector was confined to core and strategic industries. The second phase witnessed nationalization of industries, takeover of sick units from the private sector, and entry of the public sector into new fields like manufacturing consumer goods, consultancy, contracting and transportation etc.

PUBLIC SECTOR:BACKGROUND

• To promote rapid economic development through creation and expansion of infrastructure

• To generate financial resources for development• To promote redistribution of income and wealth• To create employment opportunities• To promote balanced regional growth• To encourage the development of small-scale and ancillary industries,

and• To promote exports on the one side and import substitution, on the

other.

OBJECTIVES

• 1. Fillings of Gaps: At the time of independence, there existed serious gaps in the industrial structure of the country, particularly in the fields of heavy industries such as steel heavy, machine tools, exploration an refining of oil, heavy electrical and equipment, chemicals and fertilizers, defense equipment, etc.

• 2. Employment: Public sector has created millions of jobs to tackle the unemployment problem in the country. Public sector accounts for about two-thirds of the total employment in the organised industrial sector in India.

Contribution of PSUs

• 3. Social Justice : Public enterprises have contributed towards the achievement of constitutional objectives. They have been helpful in reducing the concentration of economic power in private hands, in curbing anti-social monopolies, in accelerating public control over the national economy.

• 4. Development of Ancillary industries: In order to encourage the development of small scale and medium-sized industries in the country, the Government of India has launched a national programme. Public sector ha contributed to this programme by fostering the growth of ancillary industries and satellite planets.

• The Central Public Sector Enterprises (CPSEs) are also classified into 'strategic' and 'non-strategic'. Areas of strategic CPSEs are:

• Arms & Ammunition and the allied items of defense equipment's, defense air-crafts and warships

• Atomic Energy.• Railways transport.• All other CPSEs are considered as non-strategic.

Categories of PSUs

• Public Sector Enterprises having objects to promote commerce, art, science, religion, charity or any other useful purpose and not having any profit motive can be registered as non-profit company under section 25 of the Companies Act, 1956.

• Such companies are also called as the Non-profit or 'No Profit - No Loss' companies.

• Public Sector Banks (PSBs) are banks where a majority stake (i.e. more than 50%) is held by a government. The shares of these banks are listed on stock exchanges. There are a total of 21 PSBs in India.

• The objectives behind nationalisation where:1. To break the ownership and control of banks by a few business families,2. To prevent the concentration of wealth and economic power,3. To mobilize savings from masses from all parts of the country,4. To cater to the needs of the priority sectors.....

“GDP” IMPACT & PERFORMANCE

Economic development

and industrialisati

on

Employment Workforce: productivity challenges

Foreign exchange earnings

Investments in modern forms

of IT

Turnover of more than USD

1 Trillion by 2020

GOVERNMENT-OWNED

GOVERNMENT INTERFERENCE

LACK OF TRANSPARENCY AND ORDERLY FUNCTIONING

CORPORATE GOVERNANCE

ACCOUNTABILITY OF “PSU”

STATICAL STATISTICAL TALKS

GROWTH OF “CPSE’s”

STATISTICAL TALKS

SHARE OF ‘CPSE’s” IN INDIAN GDP

• As reflected in the figure alongside, the turnover of CPSEs have increased from Rs. 7.4 lakh crores in FY 2005 to an estimated Rs.12.6 lakh crores in FY 2009 registering a CAGR of 14.1% during the FY 2005-09 period. Further, the growth in CPSEs has been in line with the overall GDP3 growth of the country, recording a CAGR of 14.5% during the same period

Consequently, in terms of turnover, the contribution of CPSEs to the GDP has ranged between 22%- 23% during the period

STATISTICAL TALKS

Over the years, CPSEs have contributed significantly to the Central exchequer by way of payment of taxes (direct and indirect), duties, dividend payment and interest on Government loans. As evident from the chart alongside, the total contribution by the CPSEs has increased from Rs. 1.1 lakh crores in FY 2005 to an estimated Rs. 1.5 lakh crores in FY 2009 registering a CAGR of 8% during the FY 2005-09 period. However, there has been a YoY decline in contribution by 8.5% in FY 2009 primarily on account of reduction in contribution towards customs and excise duty

During the initial years and even during the nineties, a large number of CPSEs were dependent onbudgetary support extended by the Central Government. However, the number of CPSEs in this category has gradually decreased over the years. The chart alongside shows Government budgetary support to CPSEs during the FY 2005-09 period.

STATISTICAL TALKS

DOMINANT “PSU”

India Top 10 Revenue Generation Wise

PSE

CPSE

PSB

PUBLIC SECTOR

UNDERTAKING

CLASSIFICATION

STATUS OF PUBLIC SECTOR UNDERTAKING

MINIRATNA

NAVRATNA

MAHARATRNA

Framework

Example

Maharatn

a

• Indian Oil Corporation Limited• NTPC Limited

Navratna

• Hindustan Petroleum Corporation Limited• Mahanagar Telephone Nigam Limited

Miniratna Category

• Airports Authority of India• Antrix Corporation Limited

Benefits

1. Balanced growth: By establishing public sector enterprises, a country can develop its economy in all regions. Thus there is a balanced growth. These enterprises can be developed on economic,

social and regional basis.

2.Facilities for economic development: Profits of public enterprises can be used by the state for

financing the schemes of economic development.

3.Greater public welfare: Private enterprises are for increasing profit but public enterprises do not

work for making profit for the owner but they work to help the national economy as a whole.

4.Equal distribution of wealth: With the help of public sector there is possibility for the Government to reduce inequalities of

income and wealth among the people

Political interference:Due to undue influence of politicians, the public sectors cannot function smoothly and effectively. It hampers the efficient

conduct of operations.

Slow growth:

Public enterprises have little scope for expansion and modernisation as they take

a long period to establish and the return on investment is also less.

Poor management:

Due to excess interference by the Government and political parties, the

public enterprises cannot be managed on sound lines or as per the plans laid out. Further the financing of public sector is fully in the hands of the Government,

which restricts the scope for development.

Lack of flexibility:There is a lack of flexibility in public

enterprises. This is due to slow decision making habit of the state. Implementation

of the decision also takes a long time in public enterprises.

Lack of initiation and efficiency:Lack of profit motive leads to inefficiency

and slow working. Therefore decision making is not so quick in public sector like in private enterprises. Public Enterprises

are managed like Government offices, thus efficiency cannot be seen in public

enterprises.

Limitation

Disinvestment

Disinvestment can be defined as the action of an organization (or government) selling or liquidating an asset or subsidiary. It is also referred to as ‘divestment”.Example:-1. Maruti Udyog2. SAIL3. Indian Airlines4. Indian Oil5. BALCO

Objectives of Disinvestment

Reduce financial burden on government.

Improve public finance.

To maintain competition and market discipline.

To encourage wider share of ownership.

Disinvestment Types

Minority Disinvestment

• Andrew Yule & Co. Ltd.

Majority Disinvestment

• NTPC Ltd

Completely Disinvestment

• 18 hotel properties of ITDC

Example

Example

Example

• Improves corporate governance & CSR• Enhanced corporate governance with the induction of independent

directors• Infrastructure, education, healthcare, and law and order

development.

Benefits of Disinvestment…

• Privatization implies a change in ownership, resulting in a change in management. The privatization of public sector enterprises will occur only when govt. sells more than 51% of its ownership to private entrepreneurs.

• Disinvestment on the other hand, has a much wider connotation as it could either involve dilution of govt. stake to a level that result in a transfer of management or could also be limited to such a level as would permit govt. to retain control over the organization.

• Disinvestment beyond 50% involves transfer of management, where as disinvestment below 50% would result in the govt. continuing to have a major say in the undertaking .

Privatization and Disinvestment

The decision regarding disinvestment or liquidation viewed in the light of following criteria:Whether the objectives of the company are achieved. whether there is decrease in number of beneficiaries . Whether serving the national interest will be affected because of

disinvestment Whether private sector can efficiently operate and manage the

undertaking. Whether the original rate of return targeted could not be possible to

achieve.

Criteria for Disinvestment

• In Private Sector, the decision making process is quick and decisions are linked with the competitive market changes.

• The disinvestment process would bring in better corporate governance, exposure to competitive, corporate responsibility, improvement in work environment etc.

• The market participation in capital of PSUs through stock exchanges would enable the market to discover the latent worth of PSUs.

• The Loss making PSUs can be successfully revived by asking the strategic partner to infuse fresh capital and exercising excellent management control over sick PSUs

Merits of Disinvestment

• Selling of profit-making and dividend paying PSU would result in loss of regular source of income to the government.

• There would be chances of ‘asset stripping’ by the strategic partner. Most of the PSUs have valuable assets in the shape of plant and machinery, land and buildings etc.

• The Government’s Policy or disinvestment includes the disposal of both profit making, as well potentially viable PSUs.

Demerits of Disinvestment

• Citizens have every right to own part of the shares of Central Public Sector Enterprises.

• Central Public Sector Enterprises are the wealth of the Nation and this wealth should rest in the hands of the people.

• While pursuing disinvestment, the majority shareholding of at least 51% and management control of the Central Public Sector Enterprises to be retained by the Government.

Policy on Disinvestment

• Government's stakes in CPSEs would squeeze this important source of revenue for the Government.

• Thus essentially implying that the real beneficiaries would not be the ordinary retail investor but institutional investors.

• in the case of disinvestment, future streams of income from dividends are forgone against a one-time receipt from the sale of stakes

• Employees of PSUs would lose jobs

Arguments against Disinvestment

• Unfavorable market conditions • Offers made by the government were not attractive for private sector

investors • Lot of opposition on the valuation process • No clear-cut policy on disinvestment • Strong opposition from employee and trade unions • Lack of transparency in the process • Lack of political will

Why Low Disinvestment???

Coal India Ltd. (CIL), a CPSE, is a Navratna Company engaged in production and marketing of coal and coal products. At present, the paid-up equity capital of the company is Rs. 6,316.36 crore and the Government of India holds 100% of the equity in the company. CIL is planning to disinvestment 10%

Disinvestment of 5% paid up equity of Bharat Heavy Electrical Ltd.Privatization of 6 airports including Delhi , Kolkata & Chennai

Some Recent Divestments & Privatization

Statistical talks

Public sector banks in India• PSBs majority stake held by a government• listed on stock• 21Emergence of public sector banksPublic sector banks before the economic liberalisation

Public sector banks in India

SOURCE: http://www.moneycontrol.com/stocks/top-companies-in-india/net-profit-bse/banks-public-sector.html

FINANCIAL PLANNING: Strategy for PSB

Identification of Customer

Mapping the requirements of customers

Organizations of products and offerings

Competent services and IT architecture

Integrated Marketing Communications

FINANCIAL PLANNING: Strategy for PSB

FINANCIAL PLANNING: Strategy for PSB

Identification of Customer

Mapping the requirements of customers

Organizations of products and offerings

Competent services and IT architecture

Integrated Marketing Communications

FINANCIAL PLANNING: Strategy for PSB

FINANCIAL PLANNING: Strategy for PSB

Identification of Customer

Mapping the requirements of customers

Organizations of products and offerings

Competent services and IT architecture

Integrated Marketing Communications

FINANCIAL PLANNING: Strategy for PSB

FINANCIAL PLANNING: Strategy for PSB

Identification of Customer

Mapping the requirements of customers

Organizations of products and offerings

Competent services and IT architecture

Integrated Marketing Communications

FINANCIAL PLANNING: Strategy for PSB

FINANCIAL PLANNING: Strategy for PSB

Identification of Customer

Mapping the requirements of customers

Organizations of products and offerings

Competent services and IT architecture

Integrated Marketing Communications

FINANCIAL PLANNING: Strategy for PSB

NPA (NON PERFORMING ASSET)

• Non Performing Asset means a loan or an account of borrower, which has been classified by a bank as sub-standard, doubtful or loss asset, in accordance with the directions or guidelines relating to asset classification issued by RBI.

• Earlier assets were declared as NPA after completion of the period for the payment of total amount of loan and 30 days grace.

• In present scenario assets are declared as NPA if none of the installment is paid till 180 days i.e. six months in respect of a term loan.

NPA (NON PERFORMING ASSET)

NPA NPA (NON PERFORMING ASSET)

What is an ETF? Two great investment ideas brought together

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Mutual FundStock

They are listed and traded like a stock on major stock exchanges globally

What is an ETF? Two great investment ideas brought together

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