Essay on the Indian Economy Policy of 1991

The pre-1991 policy, which is undimensional and status quoits failed to deliver either adequate growth or allocative justice. What it delivered in plenty was inefficiency, red tape and corruption.

As a part of the statement of Industrial Policy, a statement of Public Sector Policy was announced by the Government of India on July 24, 1991. The policy attempts at improving the portfolio and performance of PSUs.

The statement contains the following decisions:

1. Portfolio of public sector investments will be reviewed with a view to focus the public sector on strategic, high-tech and essential infrastructure. Whereas some reservation for the public sector is being retained, there would be no bar for area of exclusivity to be opened up to the private sector selectively. Similarly, the public sector will also be allowed entry in areas not reserved for it.

2. Public enterprises, which are chronically sick and unlikely to be turned around, will, for the formulation of revival/rehabilitation schemes, be referred to the Board for Industrial and Financial

Reconstruction (BIFR) or other similar high-level institutions created for the purpose. A social security mechanism will be created to protect the interests of workers likely to be affected by such rehabilitation packages.

3. In order to raise resources and encourage wider public participation, a part of the government’s share holding in the public sector would be offered to mutual funds, financial institutions, general public and workers.

4. Boards of public sector companies could be made more professional and given greater powers.

5. There will be a greater thrust on performance improvement through the Memorandum of Understanding (MOU) system through which managements would be granted greater autonomy and held accountable. Technical expertise on the part of the Government would be upgraded to make the MOU negotiations and implementation more effective.

To facilitate a fuller discussion on performance, the MOU signed between Government and the public enterprises would be placed in Parliament. While focusing on major management issues, this would also help place matters on day-to-day operations of public enterprises in their correct perspectives.

The seven new elements of the policy were restructuring of

(a) Policy environment,

(b) Portfolio of investments

(c) Equity or ownership pattern

(d) Boards of PSUs

(e) Quality of interface between the government and the boards

(f) Sickness of PSEs

(g) Safety net for workers.

Pace and Direction of Reforms

While all the seven elements of the policy are closely interrelated, the element relating to restructuring of equity is the key element of the pace and success of the reform process. Progress here would set the pace and direction of further reform.

Autonomy – disinvestment and setting up of apex body

This would also require fundamental changes. Already such changes are discernible in some of the recent policy announcements about autonomy and reconstitution of boards.

The Rangarajan Committee on disinvestment was set up in recognition of the importance of this issue. The committee made two extremely important policy recommendations.

One related to limits of the level of disinvestment in a three-tier operation, and the other was setting up of an apex body to conduct actual operation.

Retention of 51 percent equity continues to remain the mantra. The mindset of ‘socialism’ prevails, amongst all sections of governance or even amongst those who are outside, without options. The Nehruvian legacy continues to hold sway, though Nehru himself would have changed it.

Disinvestment with efficiency and productivity

There are some general lessons for effective disinvestment. Any country embarking on a liberalisation and globalisation policy has to focus on efficiency and productivity.

These concepts are not anti-employment as some tend to shrilly complain but are actually pro- employment generation. In achieving desired results, there cannot be islands of efficiency and inefficiency.

Impact of the new policy

Opening up of Public Sector to Competition:

In pursuance of the announced policy, the areas, which were earlier reserved under the monopoly of public sector, have been changed seventeen industries reserved for public enterprises under the Industrial Policy Resolution of 1956 have been reduced to six and even out of these six, some private organisations have already been allowed to operate in coal and lignite.

Rising of Resources, Disinvestments and Rehabilitation of Sick Units: As a part of the policy announced to raise resources, encourage wider participation and promote greater accountability, the Government of India has offered disinvestments in the selected pubic enterprises. A large number of public enterprises were earlier allowed equity participation by the financial institutions and general public.

The PSUs, which are chronically sick and unlikely to turn around, are being referred to the BIFR for the formulation of revival/rehabilitation scheme.