Public Sector Undertaking

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Short Note On PSU's Type, ETF,PSB,Category ,disinvestment,privatisation

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  • 1.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

2. 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 3. 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 4. 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 5. 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 6. 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 7. 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. 8. 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 9. 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. 10. 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..... 11. GDP IMPACT & PERFORMANCE Economic development and industrialisation Employment Workforce: productivity challenges Foreign exchange earnings Investments in modern forms of IT Turnover of more than USD 1 Trillion by 2020 12. GOVERNMENT-OWNED GOVERNMENT INTERFERENCE LACK OF TRANSPARENCY AND ORDERLY FUNCTIONING CORPORATE GOVERNANCE ACCOUNTABILITY OF PSU 13. STATICALSTATISTICAL TALKS GROWTH OF CPSEs 14. STATISTICAL TALKS SHARE OF CPSEs 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 15. 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 16. During the initial years and even during the nineties, a large number of CPSEs were dependent on budgetary 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 17. DOMINANT PSU 18. India Top 10 Revenue Generation Wise 19. PSE CPSE PSB PUBLIC SECTOR UNDERTAKING CLASSIFICATION STATUS OF PUBLIC SECTOR UNDERTAKING MINIRATNA NAVRATNA MAHARATRNA 20. Framework 21. Example Maharatna Indian Oil Corporation Limited NTPC Limited Navratna Hindustan Petroleum Corporation Limited Mahanagar Telephone Nigam Limited Miniratna Category Airports Authority of India Antrix Corporation Limited 22. 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 23. 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 24. 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 Udyog 2. SAIL 3. Indian Airlines 4. Indian Oil 5. BALCO 25. Objectives of Disinvestment Reduce financial burden on government. Improve public finance. To maintain competition and market discipline. To encourage wider share of ownership. 26. Disinvestment Types Minority Disinvestment Andrew Yule & Co. Ltd. Majority Disinvestment NTPC Ltd Completely Disinvestment 18 hotel properties of ITDC Example Example Example 27. Improves corporate governance & CSR Enhanced corporate governance with the induction of independent directors Infrastructure, education, healthcare, and law and order development. Benefits of Disinvestment 28. 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

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