Government policy towards the public sector since 1991

In its new industrial policy of 1991, the Government of India introduced four major reforms in the public sector. The main elements of the policy were to:

• Restructure and revive potentially viable PSUs (Public Sector Units);
• 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 the following measures:

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

• The 1956 Industrial Policy 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 industries were reserved exclusively for the public sector: atomic energy, arms and rail transport.
• This meant the private sector could enter all areas except these three, and the public sector would have to compete with it.
• The message: the public sector and private sector are mutually complementary parts of the national sector. Private units must take on greater public responsibilities, while the public sector must focus on achieving more in a highly competitive market.

(b) Disinvestment of shares of selected public sector enterprises

• Disinvestment means the sale of equity shares of public enterprises to the private sector and the public.
• Its aims were to raise resources and encourage wider participation of the general public and workers in ownership, and to improve managerial performance and ensure financial discipline as the government withdrew from and reduced its equity in industry.
• The primary objectives of privatising public sector enterprises were to:
  • Release public resources locked up in non-strategic PSEs so they can go to social priorities such as basic health, family welfare and primary education;
  • Reduce the huge public debt and interest burden;
  • Transfer commercial risk to the private sector so funds are invested in viable projects;
  • Free these enterprises from government control and introduce corporate governance; and
  • Give consumers benefits — as in the telecom sector, where ending the public monopoly brought more choice, lower prices and better quality.

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

• All public sector units were referred to the Board of Industrial and Financial Reconstruction (BIFR) to decide whether a sick unit should be restructured or closed.
• The Board recommended revival and rehabilitation for some and winding up for others, which caused resentment among workers of units to be closed.
• A National Renewal Fund was set up to retrain or redeploy retrenched labour and to compensate employees taking voluntary retirement. …