Page 74 - DMGT401Business Environment

Unit 2: Industrial Policy and Regulatory Structure

(c) Liquidation: The assets are sold to someone who may use those assets for the same Notes
purpose or for any other purpose.

(d) Workers Co-operative: Here ownership of the enterprise is transferred to workers who
may form a co-operative to run the enterprise.
2. Organisational Measures: A number of organizational measures are conceived to limit
state control. They include:
(a) A Holding Company Structure: Here, the organization is decentralised and sufficient
autonomy of decision making is given at the operative level but the government
still controls decisions made at the apex level. In this way a decentralised pattern of
management emerges.
(b) Leasing: The government transfers the use of assets to private bidders for a specified
period. In the leasing agreement the bidder is required to be assured regarding
profit sharing between the State and bidder. This is a kind of tenure ownership.
(c) Restructuring: Restructuring is of two types: financial and basic restructuring.
Financial restructuring means the writing off of accumulated losses and
rationalisation of capital composition in respect of debt-equity ratio. The main
purpose of rationalisation is to improve the financial health of the enterprise and
basic restructuring is said to occur when the public enterprise decides to shed some
of its activities to be taken up by ancillaries or small scale units.

3. Operational Measures: The objective of operational measures is to improve efficiency of
the organisation. Operational measures include the following measures:
(a) Grant of autonomy to public enterprise in decision making.

(b) Provision of incentives for workers and executives consistent with increase in
efficiency and productivity.
(c) Freedom to acquire certain inputs from the market.

(d) Development of proper criteria for investment planning.
(e) Permission to public enterprises to raise resources from the capital market to execute
plans of diversification and expansion.

Divestiture is one of the important ways of privatisation; it is a privatisation of ownership
through the sale of equity. It entails selling stock to the public.

Example: In India various public sector banks such as State Bank of India, Vijay Bank
etc., sold their stock to the public through IPOs.
The new industrial policy announced by the government in July 1991 emphasised the
following four major to reform the public sector enterprise:

(a) Reduction in the number of industries reserved for the public sector from 17 to
8 (further reduced to 4 and then to 2) and the introduction of selective competition in
the reserved area.
(b) The disinvestment of shares of a select set of public sector enterprises.
(c) The policy towards sick public sector enterprises to be the same as that for private
sector.
(d) An improvement of performance through an MOU system.

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