Goswami Committee (1993), Report of the Committee on Industrial Sickness and Corporate Restructuring, Ministry of Finance, New Delhi.
Goswami, O. (1995), India’s State Owned Enterprises Performance, Prospects and Reform Issues, unpublished, Indian Statistical Institute, New Delhi.
Goswami, O. (1996), Wither Corporate Sector Reforms in India? The Public Sector, Banks, Monit-oring and Exit”, unpublished, Indian Statistical Institute, New Delhi.
Iyer, Ramaswamy, R. (1996), The Memorandum of Understanding System—Indian Experience in S.L. Rao (ed.), Reforming State-Owned Enterprises, National Council for Applied Economic Research, New Delhi.
Prepared by Richard Hemming.
The reserved industries are atomic energy, coal and lignite, defense equipment, petroleum and crude oil, radioactive minerals, and railways.
Some enterprises also receive subsidies, most notably fertilizer producers for which the retention price scheme provides a guaranteed return on net worth. Subsidies are also paid to shipyards, textile mills, and a few other enterprises. In addition, the Government occasionally writes off loans to enterprises, which is an implicit subsidy. Fertilizer producers received subsidies totaling 0.4 percent of GDP in 1995/96, paid mainly to CPEs; other subsidies to CPEs amounted to less than 0.1 percent of GDP.
The main differences are that the private sector data, collected by the Centre for Monitoring the Indian Economy, include financial firms and many sectors where the public sector is not heavily involved (construction, trade, services), and exclude sectors where the public sector has a monopoly or virtual monopoly (mining, oil and petroleum, power).
Employment creation and preservation is the main non-commercial objective. However, enterprises are also expected to employ particular disadvantaged groups, to locate in certain areas, and to otherwise serve the common good.
Thus clearly justifying a recent conclusion that “the world-wide wave of privatization…has not yet touched India’s shores” (Joshi and Little, 1996, page 178).
World Bank estimates put overstaffing of CPEs at 25-33 percent of the workforce, or 500,000-650,000 workers.
A six-year strategy for full liberalization has been recently outlined by the Strategic Planning Group on Restructuring the Oil Industry (the ‘R’ Group).
While this has been mentioned as a possibility with the sale of oil company shares, at this point the liberalization of the oil sector seems inevitable. The risks seem greater where there is resistance to liberalization and inefficiencies would persist.
The work of a government committee (the Satyapal Committee) set up to advise on the measurement of financial performance in MOUs should be useful in this connection.
The new Government is addressing this issue, and is expected to propose that a firm which defaults on payments to banks and financial institutions for a year or more should be declared sick.
In the private sector, restructuring decisions should be based solely upon financial considerations. This should also be the principal concern with public enterprises. However, the decision to extend MOUs to sick enterprises yet to be registered with the BIFR appears to be motivated by a desire to justify their survival by reference to non-commercial objectives