The views expressed in this presentation are the views of the author and do not necessarily reflect the

views or policies of the Asian

Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI
does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use.
Terminology used may not necessarily be consistent with ADB official terms.

Reforming SOEs in Asia: Lessons from

Competition Law and Policy in India
P O L I C Y WO R KS H O P O N R E FOR MI NG S TAT E - OWNE D E NT E R P R I S ES I N C E NT R A L
A S I A : C H A L L E NG ES A N D S OLU T I ONS

S ES S I ON: ROL E O F CO R P OR AT E G OV E R NA NC E A N D S T R AT EGY

B I S H K E K , KY R GY Z R E P U B L I C
2 7 T H A N D 2 8 T H S E PT E MB E R 2 0 1 9
Dr. Vijay Kumar Singh
Professor and Officiating Dean
UPES School of Law, INDIA
Introduction…
Origin of State Owned Enterprises (SOEs)…

The Constitution of India

Pre and Post Liberalization Phase

Competition Act, 2002 and Amendment 2007 (proposed 2019)

The Concept of SOEs in India
Government Companies – based on the ownership structure, and are Companies formed under the Companies
Act with 51% of the share capital being held by the Central or the State Governments. For e.g. Gas Authority of
India Limited (GAIL).
Public Corporations – statutory corporations set up under a specific enactment by the Central or State
Government. For e.g. Food Corporation of India Limited.
Departmental Enterprises – (quasi-corporations) set up by the central or state governments to carry out an
economic activity controlled by the Ministry itself, for e.g. railways.
Public Sector Banks / Financial Institutions – dealt with under separate framework in India. For e.g. State Bank
of India and Small Industries Development Bank of India (SIDBI).
Cooperative Societies – entities established pursuant to some policy objective and are involved in business in
India. For e.g. National Cooperative Consumers’ Federation of India Limited (NCCF) under Department of
Consumer Affairs.
Autonomous Bodies – set up as societies under various ministries to promote designated objective, for e.g.
Indian Institute of Corporate Affairs (IICA).
Trusts – an SOE holding assets of the central or the state governments in pubic trusts. For e.g. Indian Port Trusts
Act 1908 covers many major and minor ports.
Reforms in SOEs…
The performance of SOEs were initiated with the French performance contracting system
adopted on the basis of Arjun Sengupta Committee Report (1984) which recommended for
Memorandum of Understanding (MOU) between administrative (line) ministries and SOE
managers…
Change in Governance – Towards Autonomy – 1991
The Department of Public Enterprises (DPE) under the Ministry of Heavy Industries and Public
Enterprises (known as Bureau of Public Enterprises before 1991) is the nodal department for all
the Central Public Sector Enterprises (CPSEs) and formulates policy pertaining to CPSEs

Performance Management and recognition system of CPSEs..

Categorization of CPSEs…
The categorization of CPSEs is based upon rating obtained by them on their performance under
the MOU system in the last three out of five years.
A composite score is arrived at to rate them as excellent, very good, good, etc. considering the
six factors namely net profit, net worth, manpower cost, production cost, earning per share,
inter-sectoral performance and, etc. (DPE, 2011)
1. Maha Ratna – 8
2. Nav Ratna – 16
3. Mini Ratna Category I – 61
4. Mini Ratna Category II – 12
CPSEs are also categorized into four scheduled, i.e. schedule A (65), schedule B (66), schedule C
(44) and scheduled D (5).
This categorization impacts the organizational structure and Board-level salary of respective
CPSEs
Disinvestment of SOEs…
Nationalization Debate
Department (2004) /Ministry (2009) of Disinvestment deals with
this.
In April 2016, the Ministry of Disinvestment was christened as
Department of Investment and Public Asset Management (DIPAM).
1. Divestment of National Carrier – Air India
2. Divestment of Airports and Railway Stations
Competitive Neutrality…
Section 2(h) of the Competition Act, 2002
Definition of ‘Enterprise’
include even the department of Governments engaged in commercial activities
only with an exception to activity of the Government relatable to the sovereign
functions (all activities carried on by the departments of the Central
Government dealing with atomic energy, currency, defence and space).

Competitive Neutrality Framework (CNF)

Energy Sector Reforms…
Coal India Case
Oil and Gas
Electricity
Sectoral Gap
Renewables
Some more examples..
Telecommunications Sector
Insurance Sector
Transport Sector – Railways
Real Estate Sector

Public Procurement and SOEs

Conclusions…
A definition of ‘enterprise’, including the government departments except the departments engaged in sovereign functions provides clarity to the
SOEs that they are subject to enforcement of competition law.
The aforesaid definition, however, does not set the ‘competition culture’ amongst SOEs. This is attempted to be instilled by way of focused
advocacy efforts of competition agency and government.
In terms of enforcement, the competition regulator has fined many SOEs, however, at times have appeared giving a leeway due to existing policies
and practices with some suggestions to improve their way of functioning (for e.g. Coal India Case).
Government is taking efforts to withdraw itself from not important sectors like running hotels, however, it has been difficult to convince itself to
lose complete control of important sectors like ‘commercial airlines’, railways, etc.
Differentiating between ‘commercial activities’ and ‘social-obligations’ of SOEs requires attention. In certain situations, ‘de jure’ differentiation
doesn’t help ‘de facto’ reforms.
Collaboration between the competition regulator and sectoral regulators is very important. A mandatory consultation mechanism under the
competition law may help.
Corporatization of functioning of the SOEs would help reforming SOEs. There are incentives for performing SOEs on different parameters including
‘good corporate governance’; including ‘competition compliance’ as a parameter may prove useful.
Judiciary shall accord priority to the cases which require setting ground rules for operation of these SOEs. A delay in resolution may be harmful to
the markets and economy, ultimately the citizens of the country.
Political perceptions and interventions shall be minimized in dealing with the issue of reforms. Education and advocacy in these matters would be
very useful.
Thank You…