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ASSIGNMENT
Course Code : MS-92
Course Title : Management of Public Enterprises
Assignment Code : 92/TMA/SEM-I/2011
Coverage : All Blocks
Attempt All the Questions.
1. “The development of the public sector in India can be divided into three phases.” Briefly discuss.
Solution: There are three distinct phases of Indian economy during the last sixty years. The first phase starts with
Nehru's government--roughly starting in 1950 and continued till his death in 1964; the second phase starts with
Indira Gandhi's regime from the mid--1960's to her death in 1984--roughly the same period as of Nehru. The third
phase starts from Rajiv's government in 1985 with distinct departure from the earlier two phases of limited restricted
approach of Nehru and highly restricted approach of Indira Gandhi.
Rajiv's approach was in the favour of liberal economy. He wanted to do away all the restrictions and bring in an era
of open economy. But unfortunately he was unsuccessful in it when senior congress leaders warned him about the
consequences of such approach and he was thus forced to stick to earlier approach with of course minimum changes
here and there. There prevailed a high degree of corruption both among the politicians and bureaucrats. Much of it
was due to long time functioning of restrictive economy. The public was highly agitated about government approach
towards the common man. Under these circumstances, little surprise that Rajiv's government was defeated in the
next elections; and a new coalition government was elected at the centre.
The new coalition also failed to function when there was difference among the ruling leaders and everybody wanted
to grab power. The three PM's --V.P.Singh, Charan Singh and Chander Shekhar, each of whom ruled for short time,
could not bring about stability. As mis-governance was at its high, it resulted in a heavy loss to the economy, leading
to a high debt which India found difficult to clear.
Amidst all the chaos and mistakes, the next elections were held in 1991 resulting in the return of Congress at the
centre with a narrow majority. The win by Congress was largely due to the nation's sympathy vote after the death of
Rajiv Gandhi. Meanwhile Narasimha Rao was chosen as the prime minister.
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2. Explain the Public Enterprises accountability through courts with special reference to promotion.
Solution: Features of PE
A careful analysis of the above definitions reveals the following characteristics of public enterprises
1. State ownership: A public enterprise is wholly owned by the Central Government or Stat Government (s) or local
authority or jointly owned by two or more of them. In case the enterprise is owned both by the Government and
private sector, the Stat must have at least 51 percent share in ownership.
2. State control: The ultimate control of a public enterprise lies with the Government which appoints its Board of
Directors and the Chief Executive.
3. Government financing: The whole or a major portion of the capital of a public enterprise is provided by the
Government.
4. Service motive : The primary aim of a public enterprise is to render service to the society at large. It may have
been to incur losses for this purpose. However, public enterprises are expected to generate surplus in course of time.
5. Public accountability: Public enterprises are financed out of public money. Therefore, they are accountable for
their results to the elected representatives of he public, i.e, the Parliament and the State Legislature. That is why, the
working of pubic enterprises is scrutinized by the Committees of the Parliament or the State Legislature.
2. Goals / Objectives of PE
The main objectives of public enterprises are as follows
1. To stimulate economic growth: The basic purpose of setting up public enterprises is to accelerate the pace of
economic development in the country. Public enterprises provide the basic infrastructural facilities for rapid
industrialization. That is why the Government of India has st up units in various sectors like electricity generation,
transportation and communication network, machine building, fertilizers, petro-chemicals, pesticides, river valley
projects, etc. These enterprises have filled up critical gaps in the country's industrial structure.
2. To mobilise public savings: A high rate of savings and capital formation is essential for rapid economic growth.
The Government has nationalized commercial banks and insurance companies to direct public savings in productive
channels. Moreover, several term lending institutions have been set up to provide finance to industries both in
private and public sectors.
3. To provide employment: As a welfare State, the Government has assumed the responsibility of providing gainful
employment to more and more people. In order to protect employment of a large number of persons, the
Government has often taken over sick and mismanaged units in the private sectors. It has set up several undertakings
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to create larger employment opportunities.
4. To control monopoly: The existence of a large and expanding private sector results in the growth of private
monopolists. Therefore, the Government has reserved certain basic and strategic sectors exclusively for public
enterprises. In order sectors public enterprises offer competition and theory prevent the emergence of private
monopolies.
5. To establish an egalitarian society: An important goal of h public sector is to reduce disparities in the distribution
of income and wealth. Such diffusion of economic power helps to establish an egalitarian order in the society.
Therefore, the public sector was designed to control the 'commanding heights' of the economy.
6. To conserve national resources : Public enterprises have also been set up to ensure proper utilisation and
conservation of natural resources. For example, the coal mines ere nationalized to protect, conserve and promote
scientific mining and to prevent indiscriminate slaughter mining.
7. To stimulate research and development: The foundation and tempo of economic development is based upon
technology. Technological inventions and innovations require substantial investment of funds and development of
scientific talent. Public enterprises alone can afford such investment which do not give direct and immediate
monetary gains. The Government has st up several institutions to undertake research an development on a large
scale.
The foregoing objectives of public enterprises may be divided into three categories, namely (a) economic
objectives : to stimulate economic growth, to mobilise public savings, to develop sound industrial base, to ensure
balanced regional development, etc; (b) social objectives: to generate employment, to create egalitarian society, to
control monopoly, to provide essential commodities; and (c) political objectives : to conserve and develop national
resources, to ensure national defense, to safeguard national priorities etc.
3. Forms of PE with their merits and demerits
The main forms of State enterprises are given below:
1. Department undertaking
2. Government companies
3. Public or statutory corporations
4. Control boards
5. Operating contracts.
1.DEPARTMENTAL UNDERTAKING
Under this form of organisation, a public enterprise is run as a department of the Government. It is organised,
financed and controlled like any other Government department. A departmental undertaking is self-contained but it
is under the overall control of the departmental head and the ministry concerned.
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It has, however, its own management incharge of and responsible for the undertaking. For example, Posts and
Telegraphs are a department in the Ministry of Communications. Similarly, the Chittranjan Locomotive Works and
the Integral Coach Factory are parts of the Ministry of Railways. The Ordnance Factory the Gun Carriage Factory,
the Delhi Milk Scheme, the Tarapur Atomic Energy Plant, All India Radio, Doordarshan, the Government Printing
Press and Mint are other examples of departmental undertakings.
Where a public enterprise is of national significance in view of its giant size or nationwide operations. It may be
organised as a separate fullfledged ministry. For instance, the Indian Railways is managed by the Ministry of
Railways through the Railway Board. The Railway Board consisting of a Chairman , three members and a financial
commissioner manges the Indian Railways under the overall direction and control of the Railway Minister. The
Railway Minister is in turn responsible to the parliament. There is no basic difference between departmental setup
and the ministerial set-up and in both the cases, the undertaking operates as a wing of the government with ultimate
control and responsibilities vested in the Minister concerned.
Salient Features
The essential features of departmental organisation are as follows:
1. Line authority: The ultimate responsibility for management lies with the Minister concerned. The Minister in turn
delegates his authority downward to the various levels, e.g., the departmental head, the chief executive of each
undertaking, etc.
2. Government financing: The undertaking is financed through annual budget appropriations by the parliament or
the State Legislature. The revenues of the undertaking are paid into the treasury.
3. Executive decision : A departmental undertaking is set up by an executive decision of the Government without
any legislation.
4. Accounting and audit: The undertaking is subject to the normal budgeting, accounting and audit procedures
applicable to other government departments.
5. Civil service code: The enterprise is manged by civil servants whose methods of recruitment and service
conditions are the same as for other civil servants of the government.
6. Soverign immunity: Being an integral part of the Government, a departmental undertaking cannot be sued at law
without the consent of the government.
Merits
The main advantages of departmental organisation are as follows:
1. Accountability : Departmental organisation ensures maximum degree of parliamentary control. In the words of
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Krishna Men on Committee, “accountability of departmental undertakings to Parliament is complete, their

management being under the Ministry concerned”
2. Effective control: The management of the undertaking is under the absolute control of the Minister concerned.
Therefore, there is maximum degree of government control on the enterprise.
3. Financial discipline : Tight budgetary, accounting and audit controls ensure that public funds are not misused.
There is unified and centralized management and any surplus earned by the undertaking goes to the government
treasury.
4. Policy instrument : The Government can realize its social, political and economic objectives through departmental
undertakings.
Demerits
A departmental undertaking suffers from the following drawbacks:
1. Loss of autonomy: Excessive public accountability and Parliamentary control result in loss of freedom which is
essential for efficient business operations. Frequent investigations by Parliamentary committees hamper the efficient
functioning an growth of departmental undertakings.
2. Political influence: The undertaking is subject to political changes and its fate depends on the balance of power
between the ruling party and the opposition. There is lack of continuity in management due to frequent changes in
the Cabinet. Political considerations affect the policy matters and long range planning is not possible.
3. Lack of flexibility: Complete centralisation of control and political interference in day-to-day operations lead to
lack of flexibility. There is bureaucracy and red-tape in day-to-day administration. As a result decisions get delayed.
Rigid adherence to time-consuming procedures an formalities make it difficult to run the undertaking in a business
like manner.
4. Lack of professional management: The undertaking is managed by civil servants who do not often possess
managerial knowledge and skill. Frequent transfers and seniority based promotions tend to lower their motivation
and morale. There is lack of initiative because the civil servants are afraid of breaking new ground due to fear of
criticism by the Minister and the Parliament.
5. Inefficiency: Bureaucratic management, undue delays and insensitivity to consumer needs, and cumbersome
regulations result in low efficiency of operations. There is a tendency not to take the losses seriously as these are
borne by the treasury.
Suitability
In general, the structure and working of a departmental undertaking is incompatible with the financial and
operational requirements of a business enterprise. Departmental organisation is in many ways the direct negation of
the requirements of autonomy and flexibility. A departmental undertaking tends to raise the power of the
government tot the maximum and reduce its initiative and flexibility to the minimum. It should, therefore, be “the
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rare exception, and not the general rule”. The exceptional cases wherein the departmental organisation is suitable are
as follows:
1. in defense industries on account of their strategic importance and the need for utmost secrecy
2. for the operation of economic controls like rationing, State trading, etc., which involve exercise of monopoly
power and the use of governmental authority
3. for the operation of public utilities
4. for projects not really ripe for technical and financial sanction because they have not been worked out in detail,
e.g., control body for river valley projects
5. for projects which have reached the stage of technical or financial sanction of which the requisite financial
provision is not assured.
A new development concerning departmental undertakings in India has been the setting up of corporations to raise
loans from the public through the issue of bonds. For example The Railway finance Corporation has issued railway
bonds Mahanagar Telephone Nigam has also issued telephone bonds and it is coordinating the telephone services in
the metropolitan cities.
3. Critically examine the performance evaluation of Railways in the present

context.
Growing competition from other means of transportation has forced railway companies throughout the world to
search for increased performance. Travelling time
is the most obvious performance indicator that may be improved by introducing high-speed trains.
High-speed trains requires straight track or at least tracks with large curve radii and long transition curves not to
impair the ride comfort, another performance indicator. Building new tracks with large curve radii is costly and can
only be justified where the passenger base is large.
Trains with capability to tilt the bodies inwards the curve is a less costly alternative
than building new tracks with large curve radii. The tilt inwards reduces the
centrifugal force felt by the passengers, allowing the train to pass curves at enhanced
speed with maintained ride comfort. Trains capable to tilt the bodies inwards is often
called tilting trains.
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Tilting has today become a mature technology accepted by most operators, but not favoured by many. There are
different reasons behind this fact; the non-tilting trains
have increased their speed in curves (however at a reduced level of ride comfort),
reducing the potential for travelling time reduction by tilting trains to approximately
10 -15 %. The popularity is also impacted by low reliability and motion sickness on
certain services.
Revenue Generation
The total approximate earnings of Indian Railways on originating basis during 1st
April - 30th November 2009 were Rs. 55586.69 crore compared to Rs. 51117.55
crore during the same period last year, registering an increase of 8.74 per cent. The
total goods earnings have gone up from Rs. 34394.97 crore during 1st April - 30th
November 2008 to Rs. 37337.46 crore during 1st April - 30th November 2009, an
increase of 8.56 per cent. The total passenger revenue earnings during first eight
months of the financial year 2009-10 were Rs. 15597.44 crore compared to Rs.
14440.92 crore during the same period last year, registering an increase of 8.01 per
cent. Indian Railways have carried 574.38 million tonnes of revenue earning freight
traffic during April-November 2009. The freight carried shows an increase of 7.44 per
cent over the same period last year. The parcel earnings from April to September 2009 has been Rs. 613.08 crore,
registering a growth of 18 per cent as compared to the earnings of last year. The revenue generation through disposal
of scrap from January 2009 to November 2009 was Rs. 2512 crore.
Indian Railways’ Vision 2020
Indian Railways’ Vision 2020 document presented in the Parliament by the Railway
Minister aims at massive addition to its route network, segregation of passenger and
freight services into separate double-line corridors, raising the speeds of passenger
trains from the current 130 kmph to 160-200 kmph on some routes, zero accidents and
equipment failures. The vision 2020 also envisages the implementation of at least four
high-speed rail projects to provide bullet train services at 250-350 kmph
A White Paper indicating the Railway’s present organizational, operational and

financial status based on its performance in the last five years was also presented in
the Parliament. White Paper will help understand the health of the Indian Railways
better so that plans for corrective and constructive action for the future can be drawn
Unprecedented thrust on safety related issues
Unprecedented thrust on safety related issues was given during the year, particularly
to enhance Safety at Level Crossings, Interlocking and Manning, provision of Limited
Height Subways, Normal Height Subways, Road Under Bridges (RUBs), Road Over
Bridges (ROBs), Expenditure on Road Safety Works, Catch Sidings etc, Safety
aspects of Signals and their back-up power supply, Enquiry of Fire related Accidents,
Monitoring of working of Loco Pilots, etc. As on March 31, 2009, there are total 1337
ROBs/RUBs works at various stage of planning and execution. During 2009-10, 40
ROB/RUB have been completed till November 2009 under various schemes. Indian
Railways maintained 34,220 level crossings out of which 17244 had gatekeepers and
16,976 crossings were unmanned. In 2008-09, about 259 unmanned level crossings
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were provided with gatekeepers. And during 2009-10, total 132 unmanned gates have
been provided with gatekeepers till November 2009. Comprehensive Disaster
Management Plan of Indian Railways has been prepared with the approval of the
Board and has been sent to National Disaster Management Authority. Railways are
one of the few Ministries who have prepared their Disaster Management Plan as per
the provisions of Disaster Management Act, 2005. In the current calendar year 2009, during January to 14th
December, 2009, 154 consequential train accidents took place as against 159 during the corresponding period of the
previous year
Implementation of dedicated freight Projects
Progress has been made in the implementation of Western and Eastern Dedicated
Freight Corridor (DFC) projects in the current year. Japanese ODA assistance for
Western DFC project was sanctioned for the first loan of Rs. 130 crore for engagement of Engineering Services
Consultancy services for phase-1 (Rewari-Vadodara section. Request for Proposal (RFP) for engaging Engineering
Services
Consultancy for Phase-I of Western DFC has also been issued by DFCCIL in
October, 2009. For the remaining portion of Western DFC i.e. Phase-II, (Mumbai to
Vadodra and Revari to Dadri) preparatory survey has been commenced by JICA
consultants in November 2009. In case of Eastern Dedicated Freigh Corridor, Asian
Development Bank (ADB) sanctioned a Project Preparation Grant of 1.5 million US
Dollars for Khurja-Ludhiana section and ADB appointed consultants started
feasibility studies in the section in July 2009 and final report is expected by February
2010. For the proposed World Bank funded Khurja-Mughalsarai section of Eastern
DFC, important achievements include appointment of General Consultant for Khurja-
Kanpur section by DFCCIL
As a follow up to the announcement made by the Minister of Railways Kumari

Mamata Banerjee in her Railway Budget 2009-10 speech, for the convenience of
accredited media persons, the Ministry of Railways has decided to replace the existing
system of Coupon Books for accredited press correspondents by more convenient
Photo Identity Card based system for availing concessional train fare. Photo
identification card will be issued by Railways to accredited press correspondents
instead of coupons books. Accredited press correspondent will be eligible for 50 per
cent concession in the basic fares all classes of Mail/Express trains & all other charges
are to be collected in full and 50 per cent in the all inclusive fares of all classes of
Rajdhani/Shatabdi/Jan Shatabdi trains. This concession will not be admissible in
Garib Rath trains. The new system of concession based on Photo Identity card and theincreased concession on
Rajdhani/Shatabdi/Jan Shatabdi trains will be effective from 15th October 2009
Air conditioned Yuva trains for unemployed youth
The first ever ‘Yuva Trains’ which are targeted mainly for the unemployed youths of
the country has been introduced between Howrah-Delhi on 30th December 2009.
These ‘Yuva’ trains are being introduced to ensure that the youth of low income
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groups can travel at low rates between major cities. The ‘Yuva Train’ fares will be
applicable to unemployed persons also between the age group of 15 to 45 years.
Initially, 60 per cent of the total number of coaches will be earmarked for ‘Yuva’
category. The remaining will be earmarked for general passengers (non-Yuva). If
successful, these ‘Yuva trains’ will be extended to other areas of the country. The
total chargeable fare for Yuva passengers inclusive of all other charges like
Reservation Fee, Superfast Train Charge and Development Charge would not exceed
Rs.299/- up to a distance of 1500 kms and Rs. 399/- for distance beyond 1500 up to
2500 kms
Only Ladies Special EMU Train Services
As announced in the Railway Budget 2009-10, the Ministry of Railways introduced ‘Only Ladies’ Matrabhumi
EMU train services in Delhi, Chennai and Kolkata suburban on the pattern of Mumbai suburban as working women
face considerable difficulties in traveling for work. These services will run for the convenience of women
passengers during office hours
Super Fast Parcel Express Trains
With a view to attract high value and transit sensitive non-bulk parcel traffic, Indian
Railways introduced faster parcel services/premium parcel express trains named
“Tejshree Parcel Sewa” between Delhi-Howrah-Delhi, Delhi-Ahmedabad/Vapi-Howrah as a pilot project. This is
envisaged as a time-tabled service from dedicated terminals with guaranteed transit time
Introduction of Luxury Tourist Train.
Keeping in consonance with its commitment towards promotion of tourism, the Indian
Railways in association with Rajasthan Tourism Development Corporation (RTDC) has launched one more luxury
tourist train, Royal Rajasthan on Wheels, on a tourist circuit covering major destinations of Rajasthan besides Agra
and Delhi. This is the fourth train in the series and second in association with RTDC, Two more such trains, one in
association with IRCTC, called ‘Maharaja Express’ and one with Government of Punjab are in the pipeline.
Enhanced productivity linked bonus
For the financial year 2008-09, Productivity Linked Bonus (PLB) equivalent to 75 days wages has been paid to all
non-gazetted Railway employees. About 13.05 lakh non-gazetted Railway employees have benefited by this
scheme. The PLB paid for the year 2008-09 is the highest bonus payment ever made by the Railways reflecting the
splendid performance of Railways during the year
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4 Explain the relevance of wage policy to public sector units with special reference to pay revision for
executives.
Solution:
The relevance of public wages for total public spending has gradually increased in the past decades in several
European countries. Apart from the importance that such budgetary item has for the development of public finances
and for attaining budgetary objectives, public sector employment and wages play a key role on the labour market.
Therefore, the main objective of this paper is to understand the interactions between private and public sector wages.
First, we motivate the analysis with a dynamic labour market equilibrium model with search and matching frictions
to study the effects of public sector employment and wages on the labour market. As in other models that address
this issue, we find that public sector wages and employment have some impact on private sector wages. In essence,
public sector wages and employment impinge on private sector wage, via two channels. On one hand, they affect the
outside option of the unemployed, either by increasing the value of being employed in the public sector (public
sector wage) or by increasing the probability of being hired by the public sector (public sector employment).
Therefore, they put pressure on the wage bargaining. On the other hand, both public wages and employment have to
be financed by an increase in taxes, which will reduce the overall gain from the match and increase the wage paid by
the firm. In the model, an increase of 1% in public sector wages induces an increase of 0.1% in private sector wage.
An increase in public employment of 1 percentage point of the labour force increases private sector wages by
0.45%.
Second, we go on assessing the determinants of private sector wage growth. We develop our analysis for the OECD
and European Union countries for the period between 1970 and 1998/2006 (depending on data availability). We
carefully discuss the econometric issues involved, and how we deal with them, particularly the problem of
endogeneity. An additional purpose of the paper is to analyse as well what are the main determinants of public
sector wages. For instance, public wages can also depend on the fiscal position. Moreover, public wages might be
used as an instrument in terms of income policies, so they can depend on political factors such as the political
alignment of the ruling party or election cycles.
In a nutshell, we empirically find that a number of variables affect private sector wage growth, for instance: changes
in the unemployment rate (negative relationship), inflation rate, total factor productivity growth and hours per
worker. Moreover, public sector wages and employment growth also affect private sector wage growth, which has
important policy implications. In addition, regarding the public sector wages, statistically significant determinants
are private sector wage growth, inflation, and changes in the unemployment rate (positive relationship). Public
sector wages also react positively to the budget balance and negatively to government indebtedness, that is, to higher
debt-to-GDP ratios.
Govt approves revised pay scales for psu employees, In summary the government on Thursday announced a hefty
50 to 300 percent increase in pay-packages with effect from January 1, 2007. The new scales for 1,20,000 non
unionised supervisory staff and 2,58,000 board level officers in 216 operational Central PSUs. approved uniform
fitment of 30 percent of basic pay plus dearness allowance for profit making PSUs with effect from January 1, 2007.
For weak and non-profitable PSUs, the fitment will depend on their affordability and will range between 10 percent
and 20 per cent. The Cabinet relied on the Committee of Secretaries recommendations to classify PSUs into four
categories - A, B, C and D, instead of five categories - A+, A, B, C and D recommended by the Rao Committee in
May. The chairman of 'A' category PSU will now be eligible for Rs 80,000 to 1,25,000 pay scale as against Rs
18,500 to 23,900 currently. There are 247 CPSEs, of which 216 are in operation. In all 16,14,000 are employed in
these, of which 12,36,000 are unionised workmen who negotiate their wages directly with their respective
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companies. reports zee news. Govt approves higher pay for central PSU officers The government has given its
approval to increase pay for officers of central Public Sector Undertakings(PSUs) with effect from January 1, 2007.
psu wage revision, dpe, cpsu, zee business It pays to work for PSUs; employees get salary hike Employees of
private companies may fear for their jobs, but for their counterparts in public sector companies it’s bonanza time.
The Government on Thursday announced a pay hike for central public sector undertakings (PSU), a decision which
would benefit 2.5 lakh employees in over 200 companies. The new compensation package will come into effect
from January 1, 2007 and the basic pay of chiefs of central PSUs will now range from Rs 55,000 to Rs one lakh.
Over 1.6 million employees working in the estimated 240 central public sector undertakings (PSUs) are likely to
receive a 50 to 60 per cent salary increase, possibly with retrospective effect from January 2006. The second PSU
pay revision committee, headed by former Supreme Court Justice M Jagannadha Rao, is in advanced stages of
finalizing its award due April-end and plans to submit its report to the government soon after.
“The sixth Pay Commission report has also said that PSU salaries should not be linked to government. We are
taking a realistic view of the situation,” ndtv, govt approves revised pay scales for psu employees, psu pay
commission, cpsu pay revision, dpe the chairman of a schedule A (top-ranked navratnas like IndianOil, ONGC and
NTPC, among others) central PSU, whose annual cost to company (CTC) works out to Rs 12 lakh to Rs 14 lakh,
could earn a gross Rs 20 lakh after the award. This will be far in excess of what an additional secretary in the
government of India will get on account of the new Pay Commission award. At the bottom of the PSU pay scale, an
entry level attendant in a leading power PSU has a CTC of around Rs 22,000 per month, which could go up to Rs
33,000.
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5. Describe the objectives of privatization and explain to what extent it has succeeded in achieving these
objectives.
Solution: Objectives of Privatization
The objectives of privatization are as varied as the countries are that initiate privatizations and as are the industries
that undergo them. It has been said that “the definition of objectives is not an easy task and it is made no easier by
the multiplicity of possible objectives and actors with different, often conflicting, interests.”
As such, “most privatization methods and techniques are not inherently good or bad, but merely more or less well
suited to the pursuit of one or more specific objectives. The more objectives there are, the more complex the entire
privatization process.”Even more so, it has been said that “each privatization plan has to be fitted to the exact
dimensions of each countries .there are no common prescriptions” and that it is not really a matter of choosing
objectives, but rather of prioritizing them.
It has even been asked, as to “whether privatization is a means to an end or an end in itself.”
“Clearly, it can be both.”That is, is the goal to achieve a private sector-run, non-government owned (private
enterprise) economy? Or is privatization a means to achieve an improvement of services provided to the general
public?
In this section, we will examine the variety of possible objectives for privatization and the underlying reasoning and
benefits of each one of them.
The most common objectives of privatization can be classified according to their most basic features, from where
most other “sub-objectives” can be derived. As such, we list them as follows.
Efficiency and Development of the Economy
This objective seeks to either create or promote a market economy, with various macroeconomic “instruments”.
Obtaining this objective may be done through a variety of methods, be it the promotion of
competition (which in and of itself may be obtained by abolishing monopolies), the promotion of investment (either
domestic or foreign) or the encouragement and the expansion of the private sector, including economic flexibility.
Notably, it has even been said that “privatization can also stimulate the development of institutions that improve
market operations.” And surprisingly, “There are a number of cases, largely from the poorer developing countries,
where performance can be said to have improved dramatically after privatization because the enterprises actually
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closed down before they were privatized. Those enterprises whose production could more easily be adapted by the
new private owners to meet a real demand had a better future than those which could not.”
Efficiency and Development of the Enterprise
This objective focuses on the benefits to the particular enterprise being privatized. This may be achieved by freeing
the enterprise of government intervention or at least reducing it, and thus increasing flexibility and improving the
decision-making, and the efficiency, productivity and quality that result of such increased flexibility and decision-
making. Or as it has been said – a government (any government) does not run a good business, and as such a
government-owned business (a public enterprise) is less efficient than a private enterprise. Many times, this goes
hand-in-hand with the objective of improving the efficiency and development of the economy. Simply put, a better-
run business improves the economy. To be certain, “[a] review of over 50 empirical studies that cover several
thousand companies from about 50 countries finds that ‘the studies cited … almost unanimous … increases in
performance associated with privatization’ and that ‘divested firms almost always become more efficient, more
profitable, increase their capital spending, and become financially healthier.’”
The Jordanian legislation even cites this objective outright. The prime reasoning given for public enterprises being
less efficient than private sector enterprises is that of the lack of connection between the owners of the enterprise and
the management of said enterprise (the principal-agent theory). With a public enterprise, this generally includes the
state, as the owner of the public enterprise, the government and its ministers, the professional civil-servants who
oversee the enterprise, the board of directors and the executive officers of the enterprise. The privatization of such
enterprises eliminates many levels of “middle-men”, each with their own interests and at least brings the enterprise
to a state where it is able to achieve, in theory, the level of efficiency that any other private enterprise enjoys.
Budgetary and Financial Improvements
This particular objective focuses on improving the government’s position, in that generally the sale of the enterprise
itself generates one-time income which can be used to “fund government expenditures, reduce taxation, trim the
public sector deficit, or pay off public debt”
In fact, this particular objective .has even been mentioned as the prime objective of privatization in many
countries.Additionally, if the particular enterprise was a recipient of benefits from the government its privatization,
if nothing else, may result in reducing the financial strain it has on the treasury, and as such improving the
government’s cash flow. This objective has been cited outright in the Jordanian privatization legislation. At times,
there is no longer a need for the particular public enterprise – either as such, or altogether (that is, not even as a
private enterprise).
Income Distribution or Redistribution
This objective may seek to “return” the government owned enterprise to those who “own” the government – the
citizens (and possibly the permanent residents) of the country. Additionally, this objective may encourage employee
ownership, as a method of increasing their efficiency or simply as a method of obtaining their approval to the actual
privatization.
Political Considerations
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Political considerations vary widely, as at times they are part and parcel of the government’s financial and fiscal
policy, which in and of themselves stem from political ideals (i.e. “small, efficient government”, “low taxation”,
“little government intervention and control of the private sector and/or of services provided to the public”), such that
separating them from the other classifications, as listed above, is impossible. In other cases, they may be viewed as
purely political, as they attempt to reduce the power and influence of a certain political party or of the labor unions
on the economy.
6. Write short notes on the following:-
a) Retraining
b) Board for Industrial and Financial Reconstruction (BIFR)
c) Voluntary Retirement Scheme (VRS)
Solution:
a) Retraining
Vocational rehabilitation or retraining is the process of learning a new skill or trade, often in response to a
change in the economic environment. Generally it reflects changes in profession rather than an "upward"
movement in the same field. There is some controversy surrounding the use of retraining to offset economic
changes caused by free trade and automation. For example, most studies show that displaced factory workers in
the United States on the average have lower wages after retraining to other positions when a factory is closed
due to off shoring. A similar issue surrounds movement from technical jobs to liaison jobs due to offshore
outsourcing. Such changes may also favor certain personality types over others, due to the changing tasks and
skills required. Retraining is sometimes offered as part of workfare programs, which may include support for
transportation, childcare, or an internship.
b) Board for Industrial and Financial Reconstruction (BIFR)
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The main objective of SICA (Sick Industrial Companies (Special Provisions) Act, 1985) is to determine
sickness and expedite the revival of potentially viable units or closure of unviable units (unit here in refers to a
Sick Industrial Company). It was expected that by revival, idle investments in sick units will become productive
and by closure, the locked up investments in unviable units would get released for productive use elsewhere.
The Board of experts named the Board for Industrial and Financial Reconstruction (BIFR) was set up in
January, 1987 and functional with effect from 15th May 1987, under the provisions of SICA.
c) Voluntary Retirement Scheme (VRS)
MAINSTREAM economists perceive voluntary retirement as a measure to shed the workforce whose marginal
productivity is zero. Further, it is argued that this could be introduced in an industrial organization for
maintaining its cost effectiveness in an increasingly competitive world.
Moreover, voluntary retirement is accompanied by technological modernization that warrants the replacement
of labor with capital. Technological modernization improves the productivity of existing workforce so much so
that a section of the existing workforce becomes again redundant even as modernization enhances the installed
capacity of the technology. The workforce that becomes redundant in this process has to retire or be retrenched.
The rationale behind the introduction of voluntary retirement scheme
(VRS) in India is that any organized industrial organization has to operate within the existing legislative
framework, which does not allow the organization to shed the redundant workforce without adequate
compensation
Employers refer to VRS as 'golden handshake', trade unions call it 'voluntary retrenchment scheme', and for the
government, it is'unstated exit policy' which means that an exit policy which may not exist on paper. VRS is one
of the strategies introduced in the early 1980s in central public sector undertakings (PSUs) to reduce the
socalled surplus or redundan workforce. It gained publicity after the introduction of new economic policy in
1991. In India, the government employs more than 70 per cent of the organized workforce; it uses all its
channels to reduce the organized sector of the workforce without antagonizing the trade unions. It is envisaged
in the new economic policy that VRS can provide minimum sustenance security to the retired individual and his
family.
The main objective behind the scheme is to send out those who cannot be retrained in new skills. The premise
of the argument appears to be weak. The liberalization policy, in its anxiety to modernize, restructure and
globalize the products of Indian industry, is wasting precious labor force that could have been modernized
through retraining and on-thejob training. Precious skills and abilities of the retrenched workforce are equated
with worn out physical capital that may not be susceptible to repair or modernization. Are human beings not
capable of learning and modifying their knowledge, skills and applying the same toproduce higher output? The
current emphasis on restructuring does not allow such questions.
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Organizational adjustment at all levels has become extremely imperative. Over manning has crept into almost
all industrial units on account of the inability of the enterprises to reduce or adjust workforce as per the business
needs. The sort of cuts that only happened in heavy industries has now become widespread. The days of
nibbling away deadwood have long gone. It's time for the organizations to realign and focus on the core
competencies.
16

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Course Code : MS-92

Course Title : Management of Public Enterprises

Assignment Code : 92/TMA/SEM-I/2011

Coverage : All Blocks

Attempt All the Questions.

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The main objectives of public enterprises are as follows

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to create larger employment opportunities.

3. Forms of PE with their merits and demerits

The main forms of State enterprises are given below:

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The essential features of departmental organisation are as follows:

The main advantages of departmental organisation are as follows:

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Krishna Men on Committee, “accountability of departmental undertakings to Parliament is complete, their

A departmental undertaking suffers from the following drawbacks:

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3. Critically examine the performance evaluation of Railways in the present

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Indian Railways’ Vision 2020

A White Paper indicating the Railway’s present organizational, operational and

Unprecedented thrust on safety related issues

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Implementation of dedicated freight Projects

As a follow up to the announcement made by the Minister of Railways Kumari

Air conditioned Yuva trains for unemployed youth

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Only Ladies Special EMU Train Services

Super Fast Parcel Express Trains

Introduction of Luxury Tourist Train.

Enhanced productivity linked bonus

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Solution: Objectives of Privatization

Efficiency and Development of the Economy

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Efficiency and Development of the Enterprise

Budgetary and Financial Improvements

Income Distribution or Redistribution

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6. Write short notes on the following:-

b) Board for Industrial and Financial Reconstruction (BIFR)

c) Voluntary Retirement Scheme (VRS)

b) Board for Industrial and Financial Reconstruction (BIFR)

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c) Voluntary Retirement Scheme (VRS)

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