Role of Public Sector Undertaking

1. Role of Public Sector Undertaking In Nation’s Building In Nation’s Building

2. Public Sector Undertakings Public Sector Undertakings The government-owned corporations are termed as Public Sector Undertakings (PSUs) in India A pubic sector enterprise may be defined as any commercial or industrial undertaking owned and managed by the government with a view to maximise social welfare and uphold the public interest.

3. Public Sector Undertakings • In a PSU majority (51% or more) of the paid up share capital is held • by central government or • by any state government or • partly by the central governments and • partly by one or more state governments.

4. Public Sector Undertakings Maximise social welfare and ensure balanced economic development. Objective Ownership Owned by Government. Management Managed by Government. Raised from Government sometimes through Public Issues Capital Operates in basic and public utility sectors. Area of operation

5. Evolution of Public Sector Undertakings • Post Independence, India was grappling with grave socio-economic problems, such as inequalities in income and low levels of employment, regional imbalances in economic development and lack of trained manpower, weak industrial base, inadequate investments and infrastructure facilities, etc. • 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.

6. Evolution of Public Sector Undertakings 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.

7. Evolution of Public Sector Undertakings The Industrial Policy Resolution 1948 outlined the importance of the economy and its continuous growth in production and equitable distribution. In this process, the policy envisaged active engagement of the State in development of industries.

8. Evolution of Public Sector Undertakings The Industrial Policy Resolution 1956 classified industries into three categories with respect to the role played by the State – The first category (Schedule A) included industries whose future development would be the exclusive responsibility of the State The second (Schedule B) category included Enterprises whose initiatives of development would principally be driven by the State but private participation would also be allowed to supplement the efforts of the State And, The third category included the remaining industries, which were left to the private sector.

9. Evolution of Public Sector Undertakings In 1969, the government nationalized 14 major banks. The Industrial Licensing Policy 1970 placed certain restrictions on undertakings belonging to large industrial houses, defined on the basis of assets exceeding Rs 350 mn. In 1973, the definition of large industrial houses was adopted in conformity with that of the Monopolies and Restrictive Trade Practices Act (MRTP) 1969 and included companies whose assets exceeded Rs 200 mn. The Statement on Industrial Policy in July 1991 was also significant. It brought in fundamental changes in the MRTP Act as well. The statement revised the priority of the public sector.

10. Classification

11. Classification of Public Sector Undertakings • Public Sector Undertakings (PSUs) can be classified as • Public Sector Enterprises (PSEs), • Central Public Sector Enterprises (CPSEs) and • Public Sector Banks (PSBs).

12. 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 defence equipments, defence air-crafts and warships • Atomic Energy (except in the areas related to the operation of nuclear power and applications of radiation and radio-isotopes to agriculture, medicine and non-strategic industries) • Railways transport. • All other CPSEs are considered as non-strategic. 'strategic' ‘non-strategic'

13. Status Status Maharatna Navratna Miniratna for Public Sector Undertakings

14. The status of Maharatna, Navratna, Miniratna to CPSEs is conferred by the Department of Public Enterprises - to various Public Sector Undertakings. These prestigious titles provide them greater autonomy to compete in the global market.

15. Maharatna A company qualifying for the Maharatna - status should have an average annual turnover of Rs 20,000 crore during the last three years against Rs 25,000 crore prescribed earlier. The average annual net worth of the company should be Rs 10,000 crore. The Maharatna status empowers mega CPSEs to expand their operations and emerge as global giants. The coveted status empowers the boards of firms to take investment decisions up to Rs 5,000 crore as against the present Rs 1,000 crore limit without seeking government approval. The Maharatna firms would now be free to decide on investments up to 15% of their net worth in a project, limited to an absolute ceiling of Rs 5,000 crore.

16. Navratna The Central Public Sector Enterprises (CPSEs) fulfilling the following criteria are eligible to be considered for grant of Navaratna status: Having Schedule 'A' and Miniratna Category-1 status. Having at least three 'Excellent' or 'Very Good' Memorandum of Understanding (MoU) ratings during the last five years. The Navratna status empowers PSEs to invest up to Rs. 1000 crore or 15% of their net worth on a single project without seeking government approval. In a year, these companies can spend up to 30% of their net worth not exceeding Rs. 1000 cr. They also enjoy the freedom to enter joint ventures, form alliances and float subsidiaries abroad.

17. Miniratna For Miniratna category I status, the CPSE should have made profit in the last three years continuously, the pre-tax profit should have been Rs. 30 crores or more in at least one of the three years and should have a positive net worth. For category II, the CPSE should have made profit for the last three years continuously and should have a positive net worth. Miniratnas can enter into joint ventures, set subsidiary companies and overseas offices but with certain conditions. This designation applies to PSEs that have made profits continuously for the last three years or earned a net profit of Rs. 30 crore or more in one of the three years. Miniratna Category-II CPSEsCategory II miniratnas have autonomy to incurring the capital expenditure without government approval up to Rs. 300 crore or up to 50% of their net worth whichever is lower.

18. FORMS OF ORGANISATION

19. FORMS OF ORGANISATION OF PUBLIC ENTERPRISES

20. DEPARTMENTAL UNDERTAKINGS

21. FEATURES OF DEPARTMENTAL UNDERTAKINGS The main features of departmental undertakings are as follows: (a) It is established by the government and its overall control rests with the minister. (b) It is a part of the government and is managed like any other government department. (c) It is financed through government funds. (d) It is subject to budgetary, accounting and audit control. (e) Its policy is laid down by the government and it is accountable to the legislature.

22. MERITS OF DEPARTMENTAL UNDERTAKINGS • The following are the merits of departmental undertakings:- • Fulfillment of Social Objectives: • Responsible to Legislature: • Control Over Economic Activities: • Contribution to Government Revenue: • Little Scope for Misuse of Funds:

23. LIMITATIONS OF DEPARTMENTAL UNDERTAKINGS • Departmental undertakings suffer from the following limitations: • The Influence of Bureaucracy: • Excessive Parliamentary Control: • Lack of Professional Expertise: • Lack of Flexibility: • Inefficient Functioning:

24. STATUTORY CORPORATIONS

25. FEATURES OF STATUTORY CORPORATIONS The main features of Statutory Corporations are as follows: (a) It is incorporated under a special Act of Parliament or State Legislative Assembly. (b) It is an autonomous body and is free from government control in respect of its internal management. However, it is accountable to parliament and state legislature. (c) It has a separate legal existence. Its capital is wholly provided by the government. (d) It is managed by Board of Directors, which is composed of individuals who are trained and experienced in business management. The members of the board of Directors are nominated by the government. (e) It is supposed to be self sufficient in financial matters. However, in case of necessity it may take loan and/or seek assistance from the government. (f) The employees of these enterprises are recruited as per their own requirement by following the terms and conditions of recruitment decided by the Board.

26. MERITS OF STATUTORY CORPORATIONS Statutory Corporation as a form of organisation for public enterprises has certain advantages that can be summarised as follows: • Expert Management: • Internal Autonomy: • Responsible to Parliament: • Flexibility: • Promotion of National Interests: • Easy to Raise Funds:

27. LIMITATIONS OF STATUTORY CORPORATIONS Having studied the merits of statutory corporations we may now look to its limitations also. The following limitations are observed in statutory corporations. • Government Interference: • Rigidity: • Ignoring Commercial Approach:

28. GOVERNMENT COMPANIES

29. FEATURES OF GOVERNMENT COMPANIES The main features of Government companies are as follows: (a) It is registered under the Companies Act, 1956. (b) It has a separate legal entity. It can sue and be sued, and can acquire property in its own name. (c) The annual reports of the government companies are required to be presented in parliament. (d) The capital is wholly or partially provided by the government. In case of partially owned company the capital is provided both by the government and private investors. But in such a case the central or state government must own at least 51% shares of the company. (e) It is managed by the Board of Directors. All the Directors or the majority of Directors are appointed by the government, depending upon the extent of private participation. (f) Its accounting and audit practices are more like those of private enterprises and its auditors are Chartered Accountants appointed by the government. (g) Its employees are not civil servants. It regulates its personnel policies according to its articles of associations.

30. MERITS OF GOVERNMENT COMPANIES The merits of government company form of organising a public enterprise are as follows: • Simple Procedure of Establishment: • Efficient Working on Business Lines: • Efficient Management: • Healthy Competition:

31. LIMITATIONS OF GOVERNMENT COMPANIES The government companies suffer from the following limitations: • Lack of Initiative: • Lack of Business Experience: • Change in Policies and Management:

33. Role of Public Sector Undertakings Public Sector Undertakings (PSUs) have laid a strong foundation for the industrial development of the country. The public sector is less concerned with making profits. Hence, they play a key role in nation building activities, which take the economy in the right direction. PSUs provide leverage to the Government (their controlling shareholder) to intervene in the economy directly or indirectly to achieve the desired socio-economic objectives and maximize long-term goals.

34. Role of Public Sector Undertakings As agriculture is the backbone of Indian economy, Public Sector Banks (PSBs) play a crucial role in pushing the agricultural economy on to the progressive pathway and helping develop rural India. Moreover, PSUs play a substantial role in the rural development by providing basic infrastructural services to citizens.

35. Empowerment of Public Sector Undertakings The Government provides Public Sector Enterprises (PSEs/PSUs) the necessary flexibility and autonomy to operate effectively in a competitive environment. The Boards of Navratna and Miniratna companies are entrusted with more powers in order to facilitate further improvement in their performance.

36. Empowerment of Public Sector Undertakings • The government has also implemented revised salaries for executives of PSEs/PSUs. Moreover, some innovative measures such as Performance Related Pay have been introduced to make them more efficient. These incentives for the employees have been linked to individual, group as well as company performance. • For further strengthening, the government is also encouraging the listing of Public Sector Enterprises on the stock markets.

37. Governance of Public Sector Undertakings The Department of Public Enterprises - acts as a nodal agency for all Public Sector Enterprises (PSEs). The important roles and tasks of the Department are: General policy relating to Public Sector. Matters relating to issue of Presidential Directives and guidelines to Public Sector Enterprises. Formulation of policy guidelines pertaining to Public Sector Enterprises in areas like performance improvement and evaluation, financial management, personnel management, board structures, wage settlement, training, industrial relation, vigilance, performance appraisal, etc.

38. Governance of Public Sector Undertakings Matters relating to reservation of posts in the public sector enterprises for certain classes of citizens. All matters relating to Memorandum of Understanding between the Public Sector Enterprises and the administrative Ministries/Departments. Matters relating to delegation of powers to Board of Directors.

39. Coal India Ltd.

40. History and Formation of Coal India Limited With dawn of the Indian independence a greater need for coal production was felt in the First Five Year Plan. In 1951 the Working Party for the coal Industry was set up which included representatives of coal industry, labour unions and government which suggested the amalgamation of small and fragmented producing units. Thus the idea for a nationalized unified coal sector was born. Integrated overall planning in coal mining is a post-independence phenomenon. National Coal Development Corporation was formed with 11 collieries with the task of exploring new coalfields and expediting development of new coal mines.

41. Factors to Nationalization of Coal Industry in India Nationalization of coal industry in India in the early seventies was a fall out of two related events. In the first instance it was the oil price shock, which led the country to take up a close scrutiny of its energy options. A Fuel Policy Committee set up for this purpose identified coal as the primary source of commercial energy.

42. Factors to Nationalization of Coal Industry in India Secondly, the much needed investment needed for growth of this sector was not forthcoming with coal mining largely in the hands of private sector. The objectives of Nationalization as conceived by late Mohan Kumaramangalam were; Conservation of the scarce coal resource, particularly coking coal, of the country by • Halting wasteful, selective and slaughter mining. • Planned development of available coal resources.

43. Factors to Nationalization of Coal Industry in India • Improvement in safety standards. • Ensuring adequate investment for optimal utilization consistent with growth needs. • Improving the quality of life of the work force. Moreover the coal mining which hitherto was with private miners suffered with their lack of interest in scientific methods, unhealthy mining practices etc. The living conditions of miners under private owners were sub-standard.

44. Formation of Coal India Limited With the Government's national energy policy the near total national control of coal mines in India took place in two stages in 1970s. The Coking Coal Mines (Emergency Provisions) Act 1971 was promulgated by Government on 16 October 1971 under which except the captive mines of IISCO, TISCO, and DVC, the Government of India took over the management of all 226 coking coal mines and nationalised them on 1 May, 1972. Bharat Coking Coal Limited was thus born.

45. Formation of Coal India Limited Further by promulgation of Coal Mines (Taking over of Management) Ordinance 1973 on 31 January 1973 the Central Government took over the management of all 711 non-coking coal mines. In the next phase of nationalization these mines were nationalized with effect from 1 May 1973 and a public sector company named Coal Mines Authority Limited (CMAL) was formed to manage these non coking mines. A formal holding company in the form of Coal India Limited was formed in November 1975 to manage both the companies.

46. BRIEF HISTORY OF COAL INDUSTRY

49. Corporate Social Responsibility (CSR) efforts By Coal India Ltd. As part of its Corporate Social Responsibility (CSR) efforts, Coal India Limited and its subsidiary companies regularly undertake various community development activities in and around the coalfield areas for the benefit of the local people.Works done under Community Development Programme are as under:- • Installation/Repairing of Hand Pumps. • Digging/renovation of Wells/Ponds/Dam etc. • Water Supply through pipelines. • Construction/Renovation and repair of Community Centre/building.

50. Corporate Social Responsibility (CSR) efforts • Construction/repair of Roads/Culverts. • Construction/repair of school building. • Organising Medical Camps. • Organising Sports and cultural activities. • Misc works.