Page 202 - DECO303_INDIAN_ECONOMY_ENGLISH

Unit 12: Privatisation and Economic Reforms

(c) Restructuring: Restructuring is of two kinds: financial and basic restructuring. Notes
Financial restructuring means the writing off of accumulated losses and
rationalisation of capital composition with respect of debt-equity ratio. The main
objective of rationalisation is to enhance 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 undertaken by ancillaries or small-scale units.
3. Operational Measures: The goal of operational measures is to enhance efficiency of the
organisation. Operational measures involve 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 specific 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.

Notes In India, various public sector banks such as State Bank of India, Vijaya Bank, etc.,
sold their stock to the public through IPOs.

12.1.1 Issue of Privatisation in India

You must understand that the New Industrial Policy declared by the government in July 1991
emphasised upon the following four major steps to reform the public sector enterprise:
1. Decrease in the number of industries reserved for the public sector from 17 to 8 (further
decreased to 4 and then to 2) and the launch of selective competition in the reserved area.
2. The disinvestment of shares of a select set of public sector enterprises.
3. The policy towards sick public sector enterprises to be the same as that for private sector.
4. An improvement of performance through an MOU system.
De-reservations: The 1991 industrial policy decreased the number of industries reserved for the
public sector to 4 from 17. The reserved sectors are:
1. Arms and ammunition and allied items of defence equipment, combat aircraft and warships.
2. Atomic Energy.
3. Minerals specified in the schedule to the Atomic Energy Order, 1953.

4. Railway Transport.
Presently, only Railways and Atomic Energy are reserved areas.

12.1.2 Policy Regarding Sick Units

In 1991, Public Sector Units were also brought within the jurisdiction of the Board for Industrial
and Financial Reconstruction (BIFR). Therefore, it is the BIFR that will now decide whether a sick

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