Q.Describe the Industrial Policy 1991, towards the public sector.

The New Industrial Policy, 1991 was radically different from earlier policies. It moved towards liberalisation, privatisation and globalisation. Its four main aims were to restructure/revive viable PSUs, close unviable ones, cut government equity in non-strategic PSUs to 26% or lower, and fully protect workers. These took shape through four measures:

• (a) Fewer reserved industries — 17 (1956) → 8 (1991) → 3 (2001).
• (b) Disinvestment — sale of equity shares of selected PSEs.
• (c) Sick units treated like private ones — referred to BIFR; National Renewal Fund for workers.
• (d) Memorandum of Understanding (MoU) — autonomy with accountability for results.

The New Industrial Policy, 1991 was radically different from all earlier policies. Where the 1956 Resolution had given the public sector great importance, the 1991 policy moved the government towards disinvestment of the public sector and gave the private sector far greater freedom; foreign direct investment was invited and multinational corporations gained entry. Its guiding purpose was that the public sector should no longer play a passive role but actively participate and compete in the market, accountable for losses and return on investment.

The four main elements of the policy were to:

• Restructure and revive potentially viable PSUs;
• Close down PSUs that cannot be revived;
• Bring down the government's equity in all non-strategic PSUs to 26 per cent or lower, if necessary; and
• Fully protect the interest of workers.

These reforms took shape through four measures:

• (a) Reduction in the number of industries reserved for the public sector (17 → 8 → 3):

  • The 1956 Resolution had reserved 17 industries for the public sector.
  • In 1991, only 8 industries were reserved (restricted to atomic energy, arms and communication, mining, and railways).
  • In 2001, only three were reserved exclusively — atomic energy, arms and rail transport.
  • The private sector could now enter all areas except these three, and the public sector had to compete with it; the two are seen as mutually complementary.

• (b) Disinvestment of shares of selected public sector enterprises:

  • Disinvestment is the sale of equity shares of public enterprises to the private sector and the public.
  • It aimed to raise resources, widen public and worker participation in ownership, and improve managerial performance and financial discipline.
  • The objectives of privatising included releasing public resources for social priorities (health, family welfare, primary education), reducing public debt and interest burden, transferring commercial risk to the private sector, introducing corporate governance, and giving consumers benefits (as in telecom — more choice, lower prices, better quality).

• (c) Policy on sick units — same as for the private sector:

  • All PSUs were referred to the Board of Industrial and Financial Reconstruction (BIFR) to decide whether a sick unit should be restructured or closed.
  • A National Renewal Fund was set up to retrain/redeploy retrenched labour and compensate those taking voluntary retirement — though its resources proved insufficient.

• (d) Memorandum of Understanding (MoU):

  • Performance was to improve through an MoU between a public sector unit and its administrative ministry.
  • Managements were given greater autonomy and clear targets, but held accountable for specified results.