Public sector restructuring and disinvestment is a much publicised and talked about issue these days. It has engaged the attention of a cross-section of our intelligentsia, both nationally and globally. In order to appreciate the various issues involved, it is necessary to put the entire matter in proper historical perspective.

Historically, the public sector played an important part in the development of Indian industry and economy. At the time of independence it was considered that political independence without economic self-reliance could be detrimental to the country's sovereignty and autonomy in policy making. I recall the address by Pandit Jawaharlal Nehru at the 7th Annual Session of the All India Manufacturers' Conference in 1947 wherein he outlined his vision of an industrially strong India. He had said that "Essentially, no good can come without political freedom and all other freedoms flow out of political freedom. Now that we are on the verge of political freedom, we shall run and bounce towards economic freedom". While recognising the important role of private enterprises, he emphasized on planning and mixed economy.
 
 

It is interesting that the roots of public sector in a mixed economy concept can be traced back to the "Bombay Plan" which was made way back in 1944 by leading industrialists from the private sector, such as Shri J.R.D. Tata, Shri G. D. Birla, Shri Shreeram and Shri Kasturbhai Lalbhai. The economic rationale for establishment of basic industries in the public sector was presented by Pandit Jawaharlal Nehru in his inaugural address at the UN in 1959 when he spoke on the State's role in industrialisation. The massive investments which were made in the early decades after independence to build public sector was more out of historical necessity than from adherence of any political ideology or "ism". As all of you know, public and private sectors played a complementary role in the development of economy in the early decades after independence, at a time when private investments and entrepreneurship were restricted. Investments in public sector created a market for growth and prosperity of the private sector. Setting up of engineering and technical institutions by the government ensured availability of technical and skilled manpower. Development of public sector banks and financial institutions as well as infrastructure in transport and communication created a congenial environment for the flourishing of private enterprises. The basic objectives of starting the public sector enterprises were to build infrastructure for economic development, create employment opportunities, promote balanced regional development and to generate investable resources for development. In the earlier years after independence, the public sector policy was largely guided by the Industrial Policy Resolution of 1956 which gave the public sector a strategic and commanding role in the economy.
 
 

Many key sectors of the economy today are dominated by mature public enterprises that have successfully expanded production, opened up new areas of technology and built up a reserve of technical competence. As a result, the country's ranking, today, in terms of industrialisation, vis-a-vis, other developing countries is quite high. 
 
 

However, after the initial exuberance of the public sector entering new areas of industrial and technical competence, a number of problems began to manifest themselves in many enterprises. Amongst them was low productivity, poor project management skills, over manning lack of technological upgradation, inadequate attention to R&D, low priority to human resources development, and above all, lack of autonomy and political interference.
 
 

To quote some figures, on 31.3.1997, there were 242 central public sector enterprises with a total investment of Rs.1,93,121 crores. Of these, 104 were loss-making enterprises and about 53 chronically sick enterprises. If you exclude the profit making enterprises, mostly restricted to a few sectors like petroleum and allied sectors, which basically enjoy a position of State monopoly, the total loss of the 104 loss making units was a mind boggling Rs. 58,620 crores as on 31.3.1997. As the losses continue, there is an increasing dependence on direct budgetary support, and such losses are continuing to be a recurring draft on the budget. 
 
 

There is an increasing consensus today that the government has no business to engage itself in business and industry and should instead concentrate on social sectors like health, education and social security. With a view to ensure higher return on public investments which are locked up in industries, there is a need to adopt a strategy for restructuring of these enterprises encompassing a wide range of components namely, restructuring of ownership, organisational, financial and personnel restructuring, restructuring of the board of directors and the relationship between the Government and the public enterprises. These should include the closure and winding up of terminally sick PSEs and selling of their assets. Such terminally sick PSEs are mostly restricted to those which were earlier taken over from the private sector as sick units, and which are a major contributory factor for the overall unsatisfactory performance of the public enterprises.
 
 

In the liberalisation era and the post '91 Industrial Policy Resolution period, competitiveness of industry, be it public or private, assumes great importance for their very survival. The PSEs no longer enjoy any special privileges or facilities. In fact they have to bear the burden of past legacies and social considerations and at the same time, they have to compete with the private enterprises. Today, private initiative is being encouraged even in the development of infrastructure like power, roadways, telecommunications, etc. It may be worthwhile to determine whether public sector presence is required in markets, which are fully matured. There is, perhaps, good justification in withdrawal of government presence in such areas, and public sector should remain confined to a few restricted areas.
 
 

Those PSEs which have comparative advantages vis-a-vis global markets should be identified and supported. Other profit making enterprises should be further strengthened. The management of these public sector enterprises should be professionalised and encouragement be given to workers' participation in management. As the lack of autonomy has historically created a somewhat unequal playing field for the public sector, in an increasingly competitive environment, they should be given full autonomy and encouraged to conduct their business on commercial lines only. Relationship between public enterprises and government should be very clearly defined in terms of MOUs, if necessary, and there should be no political interference in the decision-making processes. It would be unfair not to acknowledge the great contributions made by a large number of public sector undertakings to the nation-building process, There are today a number of examples of successful enterprises and their case studies would be an eye-opener, to be emulated by others.
 
 

Today there is a lot of debate on the merits of disinvestment of public sector enterprises. There is a case for Government's withdrawal from non-core sectors on considerations of long-term efficient use of capital, growing financial non-viability and the compulsions of these enterprises to operate in an increasingly competitive and market oriented environment. In certain other key and core sectors of the economy, the public sector should be called upon to continue to play an important role. However, they should be managed on sound commercial lines and must generate adequate surpluses and make contribution commensurate with the quantum of public resources invested in them.
 
 

Unlike the experience in many other countries, like Great Britain, which went in for wholesale Privatisation, public sector in India continues to be an important component of the Indian industry, even after liberalisation. Viewed in this scenario, disinvestment has larger implications than just selling government equity at the best price.
 
 

Therefore along term disinvestments strategy should include strengthening of certain public sector enterprises as well as selective disinvestments in certain others. In such a strategy, protection of employees' interests should be of paramount importance. While the surplus workforce should be provided adequate and fair compensation through Voluntary Retirement Schemes, the sustaining of long-term employment can only be ensured by financial turnaround of loss making enterprises.
 
 

Restructuring is a much wider concept than disinvestments and includes various other components, and the restructuring strategy has to be necessarily unit-specific. While the public sector has played a vital role in the development of our industry and economy, and whose development was considered to be a historical necessity, the objective situation now demands a change in its role. Unless the public sector enterprises respond quickly to the dynamic changes which are taking place globally, following liberalisation and opening up of our economy under WTO dispensations, they will be left behind and become irrelevant.
 
 

(Excerpts from the text of the inaugural speech for the seminar on Restructuring of Public Sector Enterprises, jointly conducted by SCOPE and ILO)
 
 

(By Arrangement with Kaleidoscope)