Here is a compilation of essays on ‘Public Enterprises in India’ for class 9, 10, 11 and 12. Find paragraphs, long and short essays on ‘Public Enterprises in India’ especially written for school and college students.
Essay on Public Enterprises in India
- Essay on the Meaning of Public Enterprise
- Essay on the Types of Public Enterprises
- Essay on the Need for Public Enterprises
- Essay on the Growth of Public Sector in India
- Essay on the Organization of Public Enterprises
- Essay on the Department of Public Enterprises
- Essay on the Working of Public Enterprises in India
- Essay on the Problems of Public Enterprise
Essay # 1. Meaning of Public Enterprise:
Generally speaking, a public enterprise is an agency of the government through which the government manages its commercial and economic activities.
According to S.S. Khera, “By state undertakings is meant the industrial, commercial and economic activity carried on by the Central government or by a State government or jointly by the Central government and State government, and in each either solely or in association with private enterprise so long as it is managed by a self-contained management.”
According to a U.N. publication “By public enterprise is meant economic undertaking especially industrial, agricultural or commercial concerns, which are owned (wholly or in part) and controlled by the state.” To A.H. Hanson, “Public enterprises means state ownership and operation of industrial, agricultural, financial and commercial undertakings.”
Friedman defines public enterprise as “an institution operating a service of an economic or social character on behalf of the government, but as an independent legal entity, largely autonomous in its management, public accountability and subject to some directives by the government, equipped on the other hand with independent and separate funds of its own and the legal and commercial authorities of a commercial enterprise.”
In short, public enterprise is an activity of the government, central, state or local, involving manufacturing or production of goods. As a constituent of political and administrative structure, it possesses a sound blending of public purpose, public accountability, autonomous functioning and inherent right to manage and control the enterprise by the government.
Essay # 2. Types of Public Enterprises:
Khera has divided public enterprises into four types on the basis of ownership, namely:
(i) Central Government enterprises, like the State Bank of India, Life Insurance Corporation, Hindustan Steel;
(ii) State Government enterprises like Electricity Boards and State Transport Corporations;
(iii) Joint enterprises of both the Central and State Governments, like Damoder Valley Corporation and Bhakra Nangal Project;
(iv) Undertakings born out of association between government and private enterprises like Oil India Limited.
William A. Robson divides them into seven categories on the basis of the nature of their activities. These are:
(i) Public Utilities, like water, electricity, gas, ports and harbours,
(ii) Transport and Communication, like railways, airlines, shipping, telephones, posts and telegraphs, etc.,
(iii) Banking, Credit and Insurance like Reserve Bank of India, State Bank of India, Financial Corporation of India, Life Insurance Corporation of India,
(iv) Multipurpose Development Projects, like Tennesse Valley Authority in U.S.A., and Damodar Valley Corporation in India,
(v) Basic industries like coal, mining, iron and steel and shipyard,
(vi) New Industries or Services, like Hindustan Steel, Indian Telephone Industries, Hindustan Machine Tools and State Trading Corporation, and
(vii) Cultural activities like Film Corporation of India.
Essay # 3. Need for Public Enterprises:
Government intervention of a positive kind in the ownership, operation and regulation of public enterprises and public utility services has today become all-comprehensive and varied. These undertakings have served as a powerful instrument for achieving social and economic development.
Without basic infrastructure facilities like roads, dams, railways, energy and means of communication, economic growth is not possible.
These activities are not undertaken by private enterprise as its sole concern is profit motive. The growth of public enterprises in a country is influenced by various factors like needs of the nation, defence considerations, political and social philosophy and the state of economic development.
In India, the following reasons justify government participation in economic activities:
(i) Need for Sound Industrial Base:
India during colonial rule was economically backward. After independence, the task of its economic reconstruction was vast. Huge capital investment was required to build dams, provide infrastructure for industrial growth and provide public utility services to the people which could be done by the government only.
(ii) Modern Economy is a Planned Economy:
It is believed that the success of a planned economy depends on the growth of public enterprises. Planning is of particular significance for India where a lot has to be achieved with limited resources and within a limited time. Modern economy has to be a planned economy, the national responsibility of planning is something which cannot be discharged by any authority other than the government.
According to A.H. Hanson, “Public enterprise without a plan can achieve something; a plan without public enterprise is likely to remain on paper.”
(iii) Balanced Growth:
Since the private sector does not take any interest in the establishment of industrial base including development of key and basic industries and since it has no social interest in promoting balanced regional development (it sets up industry only in such areas where it is profitable to do so), the government has to take up the task of nation-building and ensure balanced regional growth of the country by providing infrastructure and facilities in the backward regions.
(iv) Commitment to Socialist Society:
The government is committed to build up a secular socialistic society in India and therefore it is increasingly compelled to enter directly into industrial and commercial activity.
(v) Need for Funds:
The government need funds for its diverse welfare activities. By active participation in business, the state can get money in the form of profits which may be used by it to discharge the new and heavier burdens of a welfare state.
A government committed to a certain social and political philosophy may well decide to intervene in the economic activity. The political philosophy of socialism led the Indian government to nationalize banks, air transport and coal mines. Among the social purposes may be included development of weaker sections of society, development of backward areas and child and women welfare.
In a survey undertaken by the United Nations it was found that the factors determining a Government’s attitude towards public enterprises are in part ideological and in part pragmatic.
Attention was drawn to the following pragmatic considerations which led a Government to expand public enterprises:
(a) National defence, war and related activities;
(b) Lack of appropriate private enterprises for certain purposes, e.g. agricultural credit;
(c) The inability of private interests to develop certain lines of production;
(d) The need for certain forms of government assistance to private undertakings;
(e) Desire to impose more rational organization on specific sectors of the economy;
(f) A desire to establish ‘model’ productive units;
(g) Strong desire to accelerate economic growth.
Essay # 4. Growth of Public Sector in India:
Even before the British rule in India, the rulers used to undertake public activities like construction of roads, bridges, dams, places of art and culture etc. The poor sections of the society were looked after by the state.
The ancient Indian state was a paternal state. The British rulers established some public enterprises like posts and telegraphs, railways, telephone exchanges, hydro-electric power houses and some industrial units also. It was, however, after independence that public sector got a fillip in India.
Article 39 of the Indian Constitution directed the State to direct its policy towards securing that the ownership and control of material resources of the country are so distributed as best to sub-serve the common good and that the operation of economic system does not result in concentration of wealth and means of production to the common detriment ?
The first Industrial Policy, 1948 assigned to the state “a progressively active role” in the development of industries. It recommended a Mixed Economy pattern for the country.
Under this Policy, only three Government Monopolies were established viz., the manufacture of arms and ammunitions, the production and control of atomic energy and the ownership and management of railway transport.
In regard to coal, iron and steel, aircraft manufacture, shipbuilding, manufacture of telephone, telegraphs and wireless apparatus excluding radio receiver sets and mineral oils, new undertakings could be set up only by the state. All other industries, old and new, were left to private enterprise, subject, in eighteen cases, to control and regulation.
The main industries in this category were automobiles, electric engineering, heavy machinery, machine tools, heavy chemicals, fertilizers, electro-chemical industries, cement, sugar, paper, air and sea transport, minerals, rubber manufacture etc. Thus, both the public and private sectors were called upon to work jointly as equal partners in the task of nation- building.
In the subsequent industrial policy resolutions, the state assumed more and more responsibility for setting up new industrial undertakings. The public sector has grown under the Five Year Plans.
At the time of launching of the First Plan, there were only five non-departmental units of the Central Government, which number has gone up to 244 Central Public Undertakings. This number does not include departmentally managed undertakings like Posts and Telegraphs, Railways, etc. and nationalized banking institutions.
Essay # 5. Organization of Public Enterprises:
In general, there are three main forms of organisation of public undertakings, namely, departmental concerns, government companies and public corporations. In addition, there are other forms also which are being used for management of economic type of activities. There are – (a) Commissions like Tariff Commission, Khadi and Village Industries Commission; (b) Control Boards for River Valley Projects like Bhakra Nangal Board, (c) Public Trusts like Port Trusts, Unit Trust of India, (d) Commodity Boards like Coffee Board, Tea Board, All India Handlooms Board.
Below we briefly outline the characteristics of the three main forms of organization:
(i) Departmental Undertakings:
Department is the traditional unit of public administration. In the field of public enterprise also it is the oldest form of organization. An enterprise may constitute a department itself or it may be organized as an integral part of a department similar in status to a division, bureau or section within a department.
In a more specific sense, departmental undertakings are a part of the governmental organization set up as different ministries/departments subject to the control of a Minister.
Thus, posts and telegraphs, defence production, railways, ports, docks. Mints, Integral Coach Factory, Government Printing Press, and Atomic Power Projects are departmental enterprises. At the state level, Dairy Schemes, Electricity, Road transport, irrigation etc. are departmental undertakings.
Characteristics of Departmental Undertakings:
The main characteristics of departmental enterprises are:
(a) The enterprise is financed by annual appropriations from the Consolidated Fund and is a part of the annual budget.
(b) The enterprise is subject to the budget accounting and audit controls applicable to other departmental activities.
(c) The staff of the enterprise are civil servants. Their service rules are guided by the Civil Service Rules.
(d) The enterprise is subject to the direct control of the head of the department. He is fully accountable through his Minister for the activities of the enterprise.
(e) The enterprise can be sued only through the state. It is not a legal person.
(f) It is created by an executive resolution. Its creation does not require any prior parliamentary approval.
In order to facilitate the working of departmental enterprises and lend an amount of flexibility in their functioning, a Board or Inter-departmental Committee is sometimes set up as the Railway Board. Posts and Telegraphs Board, Defence Production Board.
The main objective behind this pattern is to give the responsibility of managing departmental enterprise to a plural executive rather than a singular one so that better and objective decisions may be taken.
Advantages of Departmental Undertaking:
The main advantage of departmental enterprises is that it is directly under ministerial control and accountable to the Parliament. Accountability to the Parliament is its greatest advantage. Further, it follows a set structural pattern and fixed procedure which leads to the regularized arrangement of its operations. Administrative planning becomes easier.
Disadvantages of Departmental Undertaking:
The disadvantages far exceed its advantages.
Briefly these are:
(a) The departmental form of organization leads to centralization of authority. For every activity or decision prior approval of the government is required. Thus this system does not permit sufficient autonomy and flexibility, so essential for the effective functioning of industrial and commercial activities.
The strict and rigid financial and administrative controls make the administration of such enterprises non-flexible. By the time government approval is received, the market-situation changes. Rules are given precedence over urgency.
(b) It is strictly hierarchical in its structure and follows the principle of chain of command. Because of too much emphasis on hierarchical levels, the benefits and services to the consumer are adversely affected. The bureaucratic approach gives rise to red-tapism, delay and nepotism. The initiative is killed and every individual within the organization tends to look upwards for decision.
(c) The departmental undertakings are open to all sorts of political pressures and party interests. There is reckless expenditure in order to strengthen and stabilize the ruling party’s position or to appease populism. There is much political interference in its day-to-day functioning.
Even transfers of minor employees are dictated by the minister. The frequent changes in the ministry or change of the government does not enable the organization undertake a long-term perspective. Often, a minister on assuming charge of a departmental enterprise changes its earlier projects even after much expenditure has been incurred on their implementation.
On account of the above disadvantages, A.D. Gorwala, in his Report on the Efficient Conduct of State Enterprises (1957), observed, “Like private agency departmental management must be the rare exception, not the general rule. In many ways, it is the direct negation of the requirements of autonomy.” According to Earnest Benn, “The great departments of state are not organized for business administration”.
As a matter of fact, the problems of flexibility and autonomy are the basic problems of departmental enterprises. Although some attempts have been made to introduce flexible procedures and give autonomy to the managements by setting up Boards, yet this pattern should be adopted only after a judicious consideration of the various aspects involving an activity. It should be an exception rather than the rule.
(ii) Government Companies:
Prof A.H. Hansen in his book, Public Enterprises and Economic Developments has defined the term ‘state company’ as “an enterprise established under the ordinary company law of the country concerned in which the government has a. controlling interest through its ownership of all or some of the shares”.
According to Section 617 of the Indian Companies Act, 1956, a government company is that in which not less than 51 per cent of the paid up share capital is held by the Central government and by any State government or governments or partly by the Central government and partly by one or more State governments.
Characteristics of Government Companies:
According to the Report of the Study Team on Public Sector Undertakings by the A.R.C., the main characteristics of a government company are as follows:
(a) It has most of the features of a private limited company;
(b) The whole of the capital stock or 51 percent or over of it, is owned by the government;
(c) All the directors, or a majority of them, are appointed by the government depending to the extent to which private capital is participating in the enterprise;
(d) It is a body corporate under a general law, viz. Companies Act;
(e) It can sue and be sued, enter into contract, and acquire property in its own name;
(f) It is created by an executive action of the government without parliament’s specific approval having been obtained, and its Articles of Association, though conforming to on Act, are drawn up and are revisable by the government;
(g) Its funds are obtained from the government and, in some cases from private shareholders, and through revenues derived from the sale of its goods and services;
(h) It is generally exempt from the personnel, budget, and accounting and audit Jaws and procedures applicable to government departments;
(i) Its employees, excluding the deputationists, are not civil servants. The government company may be wholly owned, partially owned and joint-sector company. A wholly owned company is one in which the entire share capital is invested by the government itself without any participation from the public.
A partially owned is one in which the government invests at least 51 per cent of the share capital, the remaining part coming from the public.
A joint sector company is one in which both the public and private investment has taken place and where the state takes an active part in direction and control. It is a mixed enterprise of government and some other private entrepreneur like Tata’s, Birla’s or Modi’s, the government reserving the power to control and supervise while the private entrepreneur carries on with the work of production and management.
Reasons for Adopting the Company Form of Organization:
The government may adopt the company form of organization for three reasons:
(a) It may have to acquire shares of an existing enterprise in response to a financial or employment crisis or in order to maintain a nationally important production or service which has become unprofitable or insolvent under private enterprise, for example, the taking over of the Indian Iron and Steel Company and a number of textiles mills.
(b) The state may wish to launch an enterprise in association with certain other interests, national or foreign, for example, Hindustan Steel Limited, Hindustan Shipyard Limited which it took over from a private enterprise.
(c) The government may wish to start an enterprise entirely as a public concern in order to put it on its feet, with the intention of disposing of all or part of it to the public, or to specific private interests as soon as possible.
The other advantages of a company organization are convenience in formation, flexibility and freedom in operation, less burden of capital on the state, cooperation from the private sector, better discipline than under a departmental organization, professional management, suitability for commercial trading and other similar activities and opportunity to get foreign collaboration.
In view of its advantages, the company form of organization is very popular with the government. However, it suffers from certain limitations or disadvantages.
A former Comptroller and Auditor General of India went up to the extent of saying that “these private limited companies are a fraud on the Company Act and also on the Constitution, because money cannot be taken away from the Consolidated Fund for the establishment and transformation of certain concerns into private companies in the name of the President and Secretary to the Government.”
The most conspicuous disadvantage is that it evades constitutional responsibility which a state-owned enterprise has to the Parliament in a democratic country. It is created by an executive action and funds are provided from the Consolidated Fund without any prior parliamentary sanction and any accountability or control. Professor Robson called it a device for avoiding public accountability and control.
Secondly, a government company remains under the control and influence of the Minister for Industries and is subject to the same political pressures, pulls and party interests as a departmental organization. It does not enjoy any autonomy.
In the words of Prof. V.V. Ramanathan, “It is apparently an autonomous agency, but the articles of association are so framed and the boards so constituted that government influence can be easy and extensive.” However, the company form remains the most acceptable form of organization of public enterprises. A.D. Gorwala favoured it for substantially commercial functions.
(iii) Public Corporation:
The traditional unit of administration is the department whose head is responsible for all the acts of the department to the chief executive. Examination reveals, however, that there is another type of organization called “Public Corporation” which may be said to have come into existence as a result of the entry of the state into the field of business and commercial enterprise.
It has been described by Robson as “The most important innovation in political organization and constitutional practice.”
In Britain, the Port of London Authority established in 1908 may be said to be the first business corporation in that country. In America the first and the oldest corporation is the Panama Railroad Company established in 1904. In India the Damodar Valley Corporation set up in 1948 was the first corporation. The system of corporation has now become a universal device for managing public enterprises.
Public Corporation, as defined by Prof M.E. Dimock, is “a publicly owned enterprise that has been chartered under federal, state or local law for a particular business or financial purpose.” Prof M.C. Shukla describes it as “a corporate body created by legislature, with defined powers and functions, and financially independent, having a clear-cut jurisdiction over a specified area or over a particular type of commercial activity.”
According to Prof J.M. Pfiffner, “A corporation is a body framed for the purpose of enabling a number of persons to act as a single person. The essential characteristic of a corporation is said to be the feature of several individuals who act as one. Thus the corporation is viewed as an artificial person, which is authorized by law to carry on particular activities and functions.”
Herbert Morison defined a cooperation as “a combination of public ownership, public accountability and business management for public ends.”
According to Davis, “The public corporation is a corporate body created by public authority with defined process and functions and financially independent” William J. Grange defines a Corporation “as an artificial person, which is authorized by law to carry on particular activities and functions.”
According to Harold Seidman, “Government Corporations are organized to achieve a public purpose authorized by law.” In other words, it may be said that the corporation is a corporate judicial person capable of entering into contracts and acting in its own name.
The best way perhaps to place it is to imagine the whole field of activity as a triangle, one side of which represents the private enterprise and the other two sides central and local governments respectively.
Public corporation will then be placed somewhere in the triangle, its distance from the three sides being determined by the degree in which it partakes of the character of one or other of these fields of activity.’ It is usually set up under a statute and enjoys a great deal of autonomy.
Characteristics of Corporation:
The main characteristics of a Corporation are:
(a) It is a legal person capable of suing and being sued, entering into contracts, acquiring and owning property in its own name.
(b) It is corporate under a special statute of the Parliament which lays down its purpose, powers and functions, etc.
(c) Its functions are primarily of a business or industrial nature.
(d) It is run on business lines and not in accordance with the departmental procedures and practices. It is possessed of the flexibility and initiative of a private enterprise.
(e) It has its own budget and finances separate from the national budget and finances. It holds funds in its own name and enjoys complete autonomy in the management of these funds. It is not subject to the budgeting, accounting and audit regulations followed by departmental enterprises.
(f) It enjoys complete administrative autonomy from the control of the Chief Executive.
(g) Its personnel do not form a part of the civil services but are recruited independently and appointed on the terms and conditions laid down by the corporation itself.
It may, however, be noted that corporations are not absolutely free from Government control. They have to work according to policy guidelines given by the government from time to time and submit the annual report and other documents to the government. The Board of Directors is appointed by the government.
Features of Corporation System:
From what has already been said the following main features may be deduced in the corporation system:
(a) Suitable for Business Enterprises only:
This system can be best used for business enterprises only. This is so because the success of business operations depends upon conformity to the conditions prevailing in the market. A public enterprise in order to be completely and usefully under the market control has to be freed from the political control.
If it is put under political control, it will become a pawn in the game of party politics killing thereby the efficiency of the enterprise.
(b) Financial Autonomy:
The corporation should have an independent finance and possess financial autonomy. The usual financial procedure of the government is not suitable for a business enterprise because business needs flexibility in methods, simplicity in procedure and promptness in dealings. The financial procedure of the government is usually rigid, dilatory and cumbersome.
Therefore, it is essential that the corporation should enjoy financial autonomy and freedom from departmental interference in order to attain adequate flexibility in operation. Of course, in order to safeguard the interest of tax-payers, corporations are not exempted from audit control.
In our country, however, such audit is conducted by private auditors approved by the Comptroller and Auditor General of India. Further, if the C. & A.G. is not satisfied with the audit report of the private auditors, he can order re-auditing by the Commercial Audit department of his own office especially established for the purpose.
(c) Administrative Autonomy:
The public corporation should enjoy autonomy not only in fiscal matters but also in administrative matters. This is essential because the corporations have to work on business principles. They have to follow business standards rather than administrative adaptability to the changing conditions of the market.
If the corporation has to seek every time prior approval of the government before taking any step or entering the market, the market conditions by that time might change.
According to Herbert Morrison, “A large degree of independence for the boards in matters of current administration is vital to their efficiency as commercial undertakings.” The government should lay down the general policy of the corporation but leave its execution in the hands of the board of directors.
Though the principle of ministerial responsibility may impel the minister to control more and more the working of the corporation, and though it is difficult to draw an exact line of demarcation between the general policy and day-to-day affairs, yet it cannot be denied that the corporation should have freedom to draw its own plans and programmes, to adopt its own methods and technique, to employ its own administrative staff and supervise its own operations.
(d) Juridical Character:
The corporation can only be established by an Act of the legislature. It is a juristic person, i.e., it can sue and be sued in its own name. It can hold proprietary rights, contract agreements and conduct all legal dealings.
It does not, however, mean that all public enterprises should be managed by corporation system. Besides the corporation system there are three other forms of public enterprise organizations, i.e., departmental, joint stock company and a mixed type. Which system should be adopted for which enterprise, largely depends upon the nature of the enterprise. No hard and fast rule can be laid down for it.
The framers of the First Five-Year Plan of India had laid down. “Over the greater part of the field, the choice lies between management through a company and management through a corporation. Departmental management has many advantages and is an appropriate form for public enterprise only under certain defined conditions. Where an enterprise is of a substantially commercial character and flexibility is necessary, Joint Stock Company is a better form. Where an undertaking performs what in effect is an extension of the functions of government, such as broadcasting, public corporation may be necessary.”
Kinds of Corporations:
According to L.D. White, there are three types of corporations:
First, there are corporations owned by the government either outright or in majority interest and controlled by the government. These are appropriately known as government corporations.
Second, there are corporations in which the government either has an investment or broad representation or both but in which control is vested in the hands of private parties. These are less than full-fledged government corporations, and are conveniently termed ‘mixed enterprises.
Third, there are corporations established by private parties under authority of law, and subject to some degree of supervision by the government, but in which there is no element of government or broad representation.
This class of corporations comprises essentially private bodies beyond the proper meaning of the term, Government Corporation, although they may be utilized as a matter of convenience to co-operate in governmental activities.”
Advantages of Corporation System:
In the words of Prof W. A. Robson, Corporation system is one of the “most important innovations in political organization and constitutional practice”. The question naturally arises Why a Corporation? It is not easy to discover a simple reason for its development. A number of advantages are said to accrue from the system.
Firstly, it takes the purely business and technical services of the government outside of the domain of politics. It means that decision in respect of business activities would be made by a body selected on the basis of merit and not of politics. This will increase efficiency and result in economy.
Secondly, a public corporation will exercise its duties continuously and with a freedom of action that is not possible for the legislature. The legislature is in session only for a brief period and while it is in session it can devote only a part of its time to the affairs of any service.
Moreover, action once taken by it can be modified only by passing a fresh law after great labour and delay. Under the circumstances, quick action is not possible and the system becomes rigid.
The public corporation, on the other hand, is in continuous session and can reach prompt decision. This adds flexibility to the system and actions which normally require years if the legislature had to deal with them are secured in no time by the corporation. Furthermore, the corporation as it consists of expert and non-political men can take better decisions than the legislature—a body of political and lay men.
Thirdly, the creation of public corporation for the revenue producing services would relieve these services from the operations of administrative orders which prescribe in great details the procedure with regard to purchase, accounting, contracting, etc. The corporation builds up its own administrative system which suits its own needs.
Fourthly, the corporation system will offer immediate relief to the legislature from the burden of considering the details of organization, powers, functions, method of work, annual appropriations etc., of these services. Under the corporation system the greater part of this burden will be performed by the board of directors of the several corporations.
Each corporation would have a separate budget prepared by the directing administrative staff of the corporation and submitted to the board of directors. The latter will submit it to the legislature through the minister of finance.
Finally, under the corporation system the employees of the service will have an incentive to economy and efficiency. They know that the benefits resulting from increased economy in expenditure and from increased revenue will come directly to the service instead of going to the general treasury. This will promote the development of an esprit de corps and interest in the employees.
Disadvantages of Corporation System:
The following disadvantages of corporation system may also be noted:
(i) It is difficult to effect changes in the constitution, powers and functions as such changes can be brought about by the Parliament or state legislature particularly more difficult in a coalition government.
(ii) Political interference is often seen in the management of the corporations.
(iii) Generally civil servants and politicians are nominated on the Board of Directors who do not have technical knowledge and skills required for efficient management.
However, the system of public Corporations is gaining more and more ground in various countries. Estimating the value of this system, the American President’s Committee on Administrative Management had said in 1932, “Its peculiar value lies in freedom of operation, flexibility, business efficiency and opportunity for experimentation.”
Essay # 6. Department of Public Enterprises:
The Bureau of Public Enterprises was set up in 1969 in the Ministry of Finance, on the recommendations of Estimates Committee and performs the following functions:
1. To act as a data bank and as a clearing house of information in respect of important matters of common interest including information about organisational structure and pricing policies in public enterprises in other countries;
2. To compile and analyze information and to present federal report on the performance of public undertakings to Parliament and agencies of the government;
3. To provide technical and expert assistance from a central point to the controlling ministries, identify and study common problems of public enterprises and make suggestions for achieving economies in capital cost by laying down norms for building and townships and other amenities;
4. To function as the secretariat of Public Enterprises Selection Board and assist the enterprises in making other selection,
5. To advise PSB on wage policies and other matters on which advice is sought,
6. To furnish periodical reports to Parliament and government on the working of PSE,
7. To compile information on the terms and conditions of service of the employees and to advise the government and PSE with a view to ensuring desirable uniformities in these matters;
8. To coordinate the work relating to the examination of PSE by parliamentary committees;
9. To arrange training programmes and to advise PSE on management development.
The Administrative Reforms Commission was of the view that the Bureau should become the main, if not the sole central agency. It will act as a staff agency but will not undertake any critical evaluation of performance of PSE and give advice on patently managerial matters.
The Bureau presents to Parliament every year a report on the working of industrial and commercial undertakings of the Central Government. It provides an overall review of the physical, financial and socio-economic performance of all PSE falling within the purview of the committee on Public Undertakings.
The report also gives information about the work and achievement of the Bureau. It also publishes a monthly journal ‘Lok Udyog’.
It has been said by some enterprises that the Bureau interferes in their day-to-day working by issuing guidelines, instructions and advice on many minor matters and matters of detail like expenditure on entertainment, time limits for receipt of applications for filling up vacancies etc., but it has not done anything in the matter of providing a data bank about organisation, structure and pricing policies in PES in other countries of the world.
It may not be denied that the Bureau of Public Enterprises has today arrogated to itself the powers which were not expected at the time of its inception. The Bureau ceased to exist in September, 1985 and became the Department of Public Enterprises under the Ministry of Industry.
Essay # 7. Working of Public Enterprises in India:
The public enterprises have had a phenomenal growth during the last three and a half decades—the number of central public undertakings having gone to 244 from a mere five at the time of the first Five Year Plan. However, from its expansion, it should not be concluded that the public undertakings in India are functioning very efficiently.
There is little which suggests that the public sector has turned the comer and launched itself into self-sustaining growth on the basis of internal resource generation. Over 80 per cent of the net profits of public undertakings is based on the performance of petroleum, steel and coal sectors through occasional price increase. The non-petroleum sector has not shown any creditable performance.
The financial losses are partly due to poor operational performance, low capacity utilization, excessive overheads, poor technology, defective pricing policy, poor management, over- staffing, groupism and unionism.
The Rao Government seized of the problem of sick public undertakings setup the Disinvestment Commission in August 1996 to draw up a long term disinvestment programme for public enterprises. It also introduced liberalism in the field of industry and allowed private sector to operate in the fields earlier the monopoly of public sector.
The equity shares of some public sector enterprises were sold to the financial institutions to overcome the resource constraint. The Vajpayee Government followed the policy of disinvestment vigorously and sold away the equity even in profit making undertakings. A Disinvestment Ministry was set up.
The UPA Government led by the Congress Party under Shri Manmohan Singh and supported by the leftists has under the pressure of the leftists slowed down the process of disinvestment and abolished the Ministry of Disinvestment. However, the working of public sector should not be solely judged in terms of financial losses and gains.
An important objective of public sector in India was to provide a sound base for industrial development and ensure balanced regional growth besides the social objective of promoting the welfare of the weaker sections of the society.
The public sector has served as an important instrument in coping with such tasks as restructuring the economy on the basis of industrialisation, exploiting natural resources in the national interests, construction of hydrological installations and improvement of the living conditions of the peasantry.
However, as the country marches ahead in the twenty-first century, restructuring of public enterprises is essential, which much include modernisation, rationalization of capacity, selective exit and privatisation, managerial practices and technological up-gradation.
Essay # 8. Problems of Public Enterprise:
It has been remarked that on account of numerous advantages, the public enterprise is gaining more and more ground in various countries. But in spite of its advantages the system has been presenting a number of vexed problems.
These problems are mainly three in number, namely:
(i) The problem of responsibility towards the legislature,
(ii) The problem of protection and representation of consumers’ interests, and
(iii) The problem of labour welfare.
We shall consider each problem separately:
(i) The Problem of Legislative Responsibility:
Public enterprise is an autonomous body created by an act of the legislature. It enjoys freedom to an extent in both the financial and administrative matters. It draws its own plans and programmes and executes them in the way which it thinks most appropriate.
Therefore, the problem always remains as how to safeguard national interest without encroaching upon the administrative independence of the corporation and usurping their managerial responsibility.
Under the usual parliamentary procedure the legislature, as the representative of people’s interest, exercises control over the administration through the minister who holds all the administrative agencies under his control.
But this type of control is not available in the case of public corporation as it is not under the administrative control of the minister but an autonomous body in matters of administration recruiting its own personnel and adopting its own methods of working.
The relationship between the minister and the corporation is defined in these words: matters of policy for the minister and matters of daily affairs for the corporation.
Mr. N.V. Gadgil, the then Minister for Works, Mines and Power, presenting the report of the Select Committee on Damodar Valley Corporation Bill to the Parliament said, “The general principles on which this corporation will have to work are that for all purposes it is going to be an autonomous body, that it will be free within the framework as contemplated in the provisions of this Bill to manage the affairs of the corporation. There is only one limitation—and the House will agree that it is a very good limitation—that in matters of policy the Central Government will have the final voice.”
But it is not a simple task to differentiate between the term ‘matters of policy’ and ‘matters of daily affairs’. There does not exist any convenient line of demarcation between the two.
Mr. A.H. Hanson says, “As an administrator knows, the process of policy formulation takes place at a number of different levels and therefore it becomes almost impossible to say where ‘the general’ ends and the ‘day-to-day’ begins. General principles of policy are not always specifically formulated at the highest level, but may quite often arise from a host of small decisions of the day-to-day order, which collectively constitute something of genuine public importance.”
A command can only be relatively more general or more particular than another. Sometimes the so-called small matters may involve such important principles as might demand the direct attention of the legislature.
In actual practice a tendency of transgressing their limits and encroaching upon the jurisdiction of the other is observed in both the corporation and the minister.
In 1951 on the working of Damodar Valley Corporation Mr. A.D. Gorwala observed, “The history of the corporation since then appears to have been a series of unedifying episodes in which, so far as one can make out, the corporation has had to use a great deal of its energies in attempting to maintain its autonomy and sections of government theirs in attempting to reduce the corporation to the position of a department subordinate to the secretariat.”
The estimates committee of the House of the People in 1955 remarked, “The autonomous character of DVC has been taken to extreme limits. The DVC has developed strange conceptions of its autonomy and tried to bypass the authority or the advice of the government. Government, in their turn, have failed to keep it within limits although necessary power is vested in them under the Act to do so.”
(a) ‘Mundhra Deal’:
Thus the question of relations of the corporation with the government is of great practical importance. The success or failure of the corporation will depend ultimately upon how far it has been able to harmonize its relations with the government.
Mr. T.T. Krishnamachari, the Finance Minister of India, had to resign in February 1958 because of unprofitable investment of money in Mundhra firms by the Life Insurance Corporation of India.
Though the minister was not responsible for the loss the Corporation suffered on account of bad investment of money as he did not issue written directions to that effect, yet he deemed it proper to resign. The case of ‘Mundhra Deal’, as it was called very aptly, shows that how the so-called day-to-day affairs may involve principles that might determine the success or failure of the corporation and the future of the minister.
The minister though may not be directly responsible for bad administration of day-to-day affairs by the Corporation, yet potentially he is responsible for it. Ultimate responsibility cannot be based on the distinction between general principles and particular orders as it is hard to draw a clear line of demarcation between the two.
In relation to the corporation the minister stands on a dangerous ground because while, on the one hand, he does not hold the administrative control over the corporation, on the other the corporation by its unwise acts may involve his future.
In the ‘Mundhra Deal’ case the Finance Minister was not under any constitutional obligation to resign, but on account of adverse remarks made by Mr. Chagla in his report he better decided to resign and we think it was a wise decision for a minister of responsibility, integrity and self-consciousness.
(b) Lesson of ‘Mundhra Deal’:
In view of what has been remarked by A.D. Gorewala, would it not have been better and wiser for Life Insurance Corporation to take the written sanction of the Finance Minister before purchasing the shares of Mundhra firms?
That the act of the directors was not prudent, though it might not have been mala fide, cannot be denied. In U.S.A. there is a system under which the corporations obtain the prior approval of the Bureau of Budget for expenditure on ‘administrative expenses.’
Under the Government Corporation Control Act of 1945 the bonds and other obligations, as well as some of its lesser financial transactions, are subject to approval by the Secretary of the Treasury.
In the light of ‘Mundhra Deal’ it would be better if such similar Acts were passed in India to regulate the financial dealings and ensure effective control and coordination of the government corporations while giving them some relief from the strict financial requirements imposed upon the departments.
(c) Government Control:
The Government of India exercises control over public corporations through the following methods:
(i) It has the power to appoint members of the Board of Governors or Directors and remove them. In the case of the Reserve Bank of India, Rehabilitation Finance Administration, Damodar Valley Corporation, and Air India, all the members of the Corporation, its governing board, and executive committee are appointed by the Central Government.
In other corporations it has the power to appoint the major number of members of the Board of Directors. The Corporation Acts do not lay down any qualifications for membership.
The Government can remove the members for reasons specified in the Act, such as refusal to act, incapability of acting, abuse of position, general unsuitability or for any reason which may appear to be sufficient. It need not be said that this power of appointment and removal may be abused for political advantage and the offices of public corporation may become places for political favorites.
It is, therefore, necessary that this power should be used judiciously for the efficient working of a corporation.
(ii) The Government has the power to give to the corporations directions or instructions on matters of general policy. If the corporation fails to carry out the instructions or directives given by the Government, it can supersede the Board and appoint a new Board.
In view of the lessons of ‘Mundhra Deal’, it is necessary that the directives be given in writing and the minister issuing such directives should fully own the responsibility therefore. It would be desirable if these directives are published in the Annual Report of the Corporation, as is the practice in England, or such directives are placed on the table of the House.
In some cases, the Government has been given the power to issue directives in regard to details as well.
(iii) The government’s approval is necessary in case of some of the corporations for their schemes and programme.
In the case of the two Air Corporations, previous approval of the Government is required “to undertake any capital expenditure for the purchase of any immovable property or aircraft or any other thing at a cost exceeding Rupees 15 lakhs, enter into a lease of any immovable property for a period exceeding five years, or dispose of any property, right or privilege of a book value exceeding Rs. 10 lakhs.”
(iv) Capital investment and borrowing by the corporations require government’s approval. This is so in the case of the D.V.C., and the two Air Corporations and the Industrial Finance Corporation.
(v) The accounts of the corporations have to be kept in a form settled in consultation with the Government or the Auditor-General, and the audit of the accounts is usually by auditors appointed by the Government or by the Auditor-General himself.
(vi) The Government have the necessary power to obtain the necessary information from the corporations which are required to submit to the Government periodical statements, accounts, returns, annual financial estimates, programmes and the annual report on their activities and working.
The above methods of ministerial control over corporations are good so far as they go but it is necessary that the ministerial control should not go too far so as to destroy the autonomy and efficiency of the corporation.
There is a great need of establishing a just balance between autonomy and control through appropriate conventions and understandings. The ministerial powers should not be misused for political purposes.
The attitude of the minister towards the corporation should be that of a friend, philosopher and guide and not of an unnecessary dictator. W.A. Robson has well remarked, “Ministers must be prepared to face up to the responsibilities which they have assumed. They should not be permitted to remain in the twilight zone in which some of them love to dwell flitting happily from one private meeting to another talking things over with the chairman at lunch, in the club, in the House of Commons, in the department without disclosing either to the public or to the parliament the real extent of their intervention. This is not the way to strike the right balance between governmental power and managerial freedom.”
(d) Parliamentary Control:
Apart from corporation’s responsibility, i.e., its relation with the minister, there is also another aspect of the problem, i.e., its relation with the Parliament. Paul Appleby has remarked, “The Public Corporations must not be thrown into the arms of a ministerial father unless a fond Parliamentary mother is available to restrain excessive application of paternal discipline.”
The methods of parliamentary control over public corporations are the same as for any other department of the Government.
The following are the methods of parliamentary control over public corporations in India:
(i) Enactment of the Corporation Act;
(ii) Continuous control through Parliamentary Committee on Public Enterprises;
(iii) Discussion on the Annual Reports of the Corporations;
(v) Half-an-hour discussion;
(vi) Adjournment Motion;
(vii) Calling Attention of the House to matters of urgent public importance;
(vii) Moving resolutions and discussing any matter;
(ix) Budget debates;
(x) Discussion on the Inaugural Address from the Head of the State.
(xi) Debates on the report of the enquiry commission if any.
The difficulty with the above methods is the same as in the case of ministerial control, i.e., the difficulty of distinguishing between matters of general policy and matters of day-to-day affairs. Questions, adjournment motions or discussions are not allowed on internal and routine matters of public corporations as these are autonomous bodies.
According to Prof. Robson, “If once the parliamentary questions were given free play over the whole field of activity of a nationalized industry, half the advantages of having a public corporation rather than a government department, would be lost.”
The above methods of parliamentary control over public corporations have been considered inadequate and, therefore, the members of Parliament have asked for a separate Select Committee on Public Enterprises.
In 1951 a Select Committee was appointed by the British House of Commons “to consider the present methods by which the House of Commons is informed of the affairs of the nationalized industries and to report what changes, having regard to provisions laid down by Parliament in the relevant statutes, may be desirable in these methods.”
In one part of its report the Committee recommended the establishment of a Standing Committee of the House to inform the Parliament about the aims, activities and problems of the corporations.
In the opinion of the Select Committee, “The basic argument for the establishment of a committee, to be a liaison between the nationalized industries and Parliament and elicit such information as is necessary on behalf of the House of Commons is that such a committee is the only practical means of performing these functions. The published reports of corporations do not completely meet the needs of Parliament or the public, partly owing to their sheer volume and complexity, and partly, because information is not necessarily available on the matters on which it is required or when it is required.”
Since 1954 there is in the British House of Commons a Select Committee on Public Enterprises.
In India many members of parliament during the course of a debate on the parliamentary control over public corporations held on 10th and 11th December, 1953, demanded the appointment of a Select Committee on the lines of British Select Committee to keep a watch over the financial working of public corporations.
Dr. Lanka Sundaram, who initiated the debate, said, “The Public Accounts Committee is there, but it comes into the picture and holds an inquest perhaps one or two years after the money is spent. There is neither the time nor the opportunity for either the Public Accounts Committee or the Estimates Committee to take a grip of the problems involved here. The basic position is that these committees are already overburdened with work and they have neither the opportunity nor the time to go into these questions fully…. So each of the corporations in India today has become a monopoly without competition. Each one has become an imperium in imperia—small kingdom, completely assigned to….the over lordship of the officer who happens to be the Managing Director or Chairman. But in the national interest something must be done immediately to ensure- (a) that the control of the minister becomes effective, and (b) the authority of the House is maintained.”
To achieve this purpose he proposed “the creation of a Parliamentary Committee, apart from the Public Accounts Committee and Estimates Committee to sit all the year round specifically charged with the task of looking into the affairs of these various corporations.”
The proposal of Dr. Lanka Sundaram was, however, not accepted by the House.
The Finance Minister, Mr. C.D. Deshmukh, expressing his inability to accept the proposal said, “Is it necessary for Parliament to be informed from day-to-day or session to session as to how a particular corporation is being run? Is it not better to enable the executive to manage these, and then to call the executive to account? That is a consideration which Parliament will have to bear in mind, before they take a decision on this matter.”
Thus the appointment of a Select Committee to study and report on the working of Public Corporations was not looked upon with much favour. The difficulty was that such a committee may become a fault-finding body or a super-Board of Management of the corporations.
The idea was veering round to what Herbert Morrison said that those who wanted detailed Parliamentary accountability must plump for state department management; those who favoured publicly owned industry being vested in a Public Corporation must be prepared to bear some limitation on detailed Parliamentary accountability.
A few years later, Mr. G.V. Mavalankar, former Speaker of the Lok Sabha, drew the attention of the Prime Minister to the simmering frustration among the members of the Parliament regarding the working of Public Corporations and backed the proposal for setting up a separate committee for public undertakings.
The first official motion for setting up the committee was moved in the Lok Sabha on November 24, 1961, but the General Elections intervened in January, 1962.
A fresh motion was put on the agenda of the Lok Sabha on August 28, 1962, but it did not make head-way. Later on, on a motion of Mr. Nityanand Kanungo, Minister of Industry, the Lok Sabha accepted the proposal to constitute a Committee on Public Undertakings on November 20, 1963. The Committee, as at present, consists of 10 members of the Lok Sabha and 5 members of the Rajya Sabha.
The functions of the Committee, as outlined in the motion, are as under:
“The Committee will examine, in the context of the autonomy and efficiency of the public undertakings, whether their affairs are being managed in accordance with sound business principles and prudent commercial practices. They will also examine the reports, if any, of the Comptroller and Auditor-General on public undertakings and will perform such other functions vested in the Public Accounts Committee and the Estimates Committee, in relation to the public undertakings, as may be allotted to it from time-to-time by the Speaker of the Lok Sabha.”
Matters of day-to-day administration of the public undertakings, as well as matters of major Government policy in regard to them, have, however, been excluded from the purview of the Committee by its terms of reference.
In addition to the opportunity afforded by the above Committee to control public undertakings, the Parliament in our country gets very many other opportunities also to examine the working of the corporations. It can put questions to the ministers, move a motion for adjournment on a matter of public importance, move resolutions and discuss any matter.
During the Budget debates and discussions on President’s address and Annual Reports of the Corporation also the Parliament gets an opportunity to discuss the problems of public enterprises.
So far the Indian Parliament has been sufficiently vigilant and alert about its duties. When Damodar Valley Corporation was without a Chief Engineer for years, the members raised the question and enquiry into its affairs was held in 1953.
Again to investigate the affairs of Indian Finance Corporation, when there was a doubt about its affairs, an enquiry committee was appointed at the instance of members. When Life Insurance Corporation’s funds were not properly invested in Mundhra firms, questions were raised in the Parliament, and Chief Justice Chagla of Bombay High Court was appointed to enquire into the deal.
These instances show that the Parliament has very vigilantly exercised the functions of control and supervision over the activities of Public Corporations in India and has never missed an opportunity for that purpose.
(ii) Problem of Safeguarding Consumers’ Interests:
Public enterprises are not an end in themselves but an extension of the government activities designed to promote public welfare. The question is how the interests of consumers can be safeguarded when corporations hold monopoly rights in their field.
In India no private company is allowed to carry on life insurance business since the establishment of Life Insurance Corporation. Similarly in England the wireless broadcasting service has been taken over solely by the British Broadcasting Corporation. The Tennessee Valley Authority in America owes the sole responsibility for dealing with the resources clearly fixed in the regional agency involving seven states.
Hence it is necessary that the interests of the consumers should be represented in matters of fixing up prices, and quality of goods.
Herbert Morrison suggested the creation of consumers’ council appointed by the minister from among the interests concerned with the particular corporation to act as a forum for the expression of public grievances and advise the corporation on the people’s reaction to its proposed action. Prof Robson, however, is opposed to the creation of such councils.
In his opinion the main objection to consumers’ council is “that they are advisory or representative organs whose main purpose is related to the administrative operations of the nationalized industries. The main task of enquiring into individual complaints requires a tribunal of some kind to ensure a painstaking investigation of facts, a concentration on the particular circumstances of the individual case, consideration of the situation in terms of the consumers’ rights and the corporation’s responsibilities towards them. The weakness of the machinery for safeguarding the interests of individual consumers is that it attempts to use advisory or executive organs for performing a function which requires the judicial process.”
Therefore, Robson proposed the creation of the independent agencies of a judicial character to which aggrieved consumers could bring their complaints and before which the corporations would be required to justify their price policy. Mr. Gorwala also recommended the constitution of “price tribunals” for some enterprises “whose duty it would be to examine all rates charged and before whom anybody could complain.”
(iii) Problem of Safeguarding Labour Interests:
The need for safeguarding the interests of the labourers is as important as those of the consumers. The best means so far devised is to give the labourers a share in management. Their representatives advise it in matters of fixing wages, hours of work, leave rules, holidays, amenities for life, insurance against casualties and other conditions of work.
In addition to a share in management labour tribunals are established to settle the disputes arising between the management and the labourers. The tribunals include equal number of representatives of the labourers and management with a chairman appointed from among the judges of a High Court.
There has been a good deal of unrest among the workers in the public sector plants in India. This is certainly bad particularly in view of the fact that public sector enterprises have got to be ‘model employers’, setting example for the private sector. With the setting up of the Joint Management Councils and Workers’ Education Programmes, it is hoped that the position shall considerably improve.