Foreign Investment & Public Sector Undertakings (PSUs) in India part 11

 Okay, here are structured notes based on the Telugu audio lecture:

Topic: Foreign Investment & Public Sector Undertakings (PSUs) in India

I. Recap of Previous Lecture (Foreign Investment)

• Covered Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII).

• Discussed which states and sectors receive the most foreign investment.

• Identified sectors providing significant foreign investment to India.

II. Public Sector Undertakings (PSUs) - Role & Objectives

• Initial Goal: Establish PSUs primarily in backward regions to promote development (0:41-0:49).

• Benefits/Rationale:

  • Development of underdeveloped areas.

  • Job creation (employees become government employees).

  • Job security for workers (0:59-1:01).

  • Generate profits for the government (1:03).

  • Increase overall production (1:06).

  • Provide essential goods/services at fair/reasonable prices to the public (unlike private sector focus solely on profit) (1:09-1:13).

  • Focus on public welfare (1:16).

III. Historical Context & Evolution of PSUs

• PSUs performed well until the 1980s (1:31).

• Decline observed between 1981-1991 (1:33-1:36).

• Post-1991 Economic Reforms:

  • Gradual privatization of PSUs (1:43).

  • Relaxation of the economic system (1:45).

  • Shift in focus and reduction in the dominance of PSUs.

IV. India as a Mixed Economy

• India has always been a mixed economy (both PSUs and private sector exist) (2:09-2:15).

• Pre-1991: More industries were in the public sector, fewer in the private sector (1:53-1:59).

  • Example (1950s): ~80% PSU, ~20% Private (2:26-2:35).

• Post-1991: The balance shifted. More industries moved to the private sector, with the government retaining fewer key industries (2:00-2:07).

  • Example (Recent Years): ~20% Govt, ~80% Private (2:38-2:43).

• Despite the shift, India remains a mixed economy (2:45-2:48).

• J.M. Keynes cited as supporting mixed economies as robust (2:49-2:56).

V. Defining a PSU (Shareholding)

• Initially, a PSU could be 100% government-owned (3:42-3:48).

• Later defined by majority government stake: If the government holds >51% share, it's considered a PSU (even if private share is 49%) (3:58-4:04).

• Even with a 74% govt stake (26% private) or 51% govt stake (49% private), it remained a PSU (3:52-4:04).

• Pre-1996 Definition Issue: Even if the government stake fell below 51% (e.g., 49% Govt, 51% Private), the entity was still often considered a PSU based on its initial establishment status (4:21-4:38).

VI. Strategic Disinvestment & Redefinition (Post-1996)

• Ramakrishna Commission (Investment Disinvestment Commission): Recommended a change in definition (4:55-5:00).

• New Principle (Strategic Disinvestment - వ్యూహాత్మక విక్రయం): If the government's share falls below 51% (specifically mentioned 49% or less), not just the share, but the management control (యాజమాన్యం) should also be transferred to the private entity (5:02-5:24).

• Example: IDBI Bank (5:28-5:40)

  • Previously a government bank like SBI (5:43-5:46).

  • LIC's shareholding in IDBI increased to over 51% (5:51-5:57).

  • Consequently, the government's share fell below 49% (5:59).

  • As per Ramakrishna Commission recommendation, management was transferred.

  • In 2019, RBI classified IDBI as a private bank (listed under LIC IDBI Bank) (5:36, 6:34-6:39).

• Current Trend: If govt stake falls below 51% (or 49%), management control is transferred to the private sector (6:53-7:02).

VII. Importance & Role of PSUs

• Contribution to National Income: Contribute significantly (e.g., ~25% of domestic product/national income at one point) (7:17-7:26).

• Employment Generation: Major role in providing employment (7:34).

• Key Sectors Dominated by PSUs:

  • Chemicals & Fertilizers (7:42)

  • Defense & Armaments (7:44)

  • Railways (7:47)

  • Petroleum (7:48)

• Regional Development: Crucial for balanced regional growth by establishing units in backward areas (8:00-8:07). Reduces regional income disparities.

  • Examples: Hospet (Karnataka), Rourkela, Vizag Steel Plant (established 1973/started construction - significant impact on Vizag's development) (8:15-8:58).

VIII. Growth & Policy Influence

• Key PSUs established early: Railways, Posts & Telegraph, Ports, Defense Ordnance Factories, Aircraft Manufacturing (9:30-9:43). These remain under government control.

• 1956 Industrial Policy Resolution: Gave significant priority/impetus to PSUs (9:48-9:53). (Though 1948 policy also gave some priority).

• Second Five Year Plan: Focused heavily on establishing basic and heavy industries (PSUs) (10:26-10:54). Linked to Mahalanobis model, Rostow's Take-off stage, Rosenstein-Rodan's Big Push theory.

IX. Classification of PSUs

• A. Based on Establishment/Structure (11:12-11:22):

  1. Departmental Undertakings: Directly managed by govt departments, accountable to Parliament (e.g., Posts, Telegraph, Railways) (11:16, 11:23-11:48). Funded by govt budget.

  2. Public Corporations: Created by a special Act of Parliament/Legislature (e.g., LIC, FCI, GIC - General Insurance Corp) (11:19, 11:52-12:17). Have separate legal existence but govt holds stake/control. Operates based on the Act's rules. Govt intervention is limited as long as they follow the Act.

  3. Government Companies: Registered under the Companies Act (1956/2013) (e.g., ONGC, BEL, BHEL, ECIL, SAIL, NTPC, etc.) (11:21, 13:49-14:03). Function like private companies but with govt shareholding.

• B. Based on Promoting Development (Development Financial Institutions) (14:33-15:12):

  • Institutions created to foster specific sectors (e.g., NABARD - Agriculture, NHB - Housing, SIDBI - Small Industries).

• C. Based on Function/Activity (15:31-16:18):

  1. Construction (e.g., R&B dept, NHAI, Airports Authority of India - AAI)

  2. Manufacturing/Production (e.g., BEL, ECIL)

  3. Financial Services (e.g., RBI, SBI)

  4. Trading & Marketing

  5. Transport Services

  6. Development Promotion (e.g., NABARD, SIDBI)

• D. Based on Sector (16:23-16:43): (Numbers as per lecture, may be dated)

  • Agriculture Related: 5

  • Mining: 24

  • Manufacturing: 99

  • Power: 129

• E. Based on Performance/Status (16:48-17:02):

  • Maharatna (Highest performance/autonomy)

  • Navratna

  • Miniratna (Categories I & II)

  • Status grants financial and operational autonomy.

X. Data on Central PSUs (CPSEs)

• March 1951: Only 5 CPSEs (17:33)

• March 2021: 717 CPSEs (including departmental, statutory corporations, govt companies) (17:39-17:44).

  • Breakdown (approx): 508 Govt Companies, 6 Statutory Corporations, 203 under Govt control (numbers need verification/context) (17:53-18:02).

• Top Profit-Making CPSEs (2020-21): IOC, BPCL, NTPC, PGCIL, ONGC, HPCL, P(ower)FCL, REC, CIL (Coal India), Mahanadi Coalfields, NMDC (18:10-18:34).

• Top Loss-Making / Worst Performing CPSEs: BSNL, Air India (pre-sale), BHEL, MTNL, Delhi Metro Rail Corp, AAI, IFCI, Bharat Petro Resources Ltd, The Oriental Insurance Co, Bharat Coking Coal Ltd, SJVN (Satluj Jal Vidyut Nigam) / Jal Power Corp (unclear) (18:46-19:47). (Focus on those incurring losses > ₹1000 Cr).

XI. Multinational Corporations (MNCs)

• Definition: Companies with HQ in one country but operating (production/sales) in multiple countries (19:54-20:08). Also called Transnational Corporations (TNCs).

• Examples: Infosys, Microsoft, Google, Amazon, Tata Group (TCS) (20:58-21:13).

• Advantages (21:18-21:54):

  • Bring in capital/investment.

  • Generate employment.

  • Transfer technology and management skills.

  • Access to wider variety of goods/services.

  • Improved production efficiency/quality standards.

  • Boost exports.

  • Understanding global technology/living standards (21:20-21:26).

• Disadvantages (21:56-23:48):

  • Royalty Payments: Drain foreign exchange for using technology/brand names (22:01-22:10).

  • Profit Repatriation: Large profits sent back to the home country (22:46).

  • Competition: Can stifle or kill domestic industries (23:28-23:37).

  • Artificial Demand: Create demand for non-essential goods through advertising (product differentiation) (23:11-23:14).

  • Influence on Policy: Can influence government decisions in their favor (23:39-23:41).

  • Threat to Sovereignty: Over-reliance can compromise national economic independence (Example: VISA/Mastercard - if US withdraws services, Indian financial system disrupted) (23:42-25:00).

  • R&D Costs: Pass on global R&D costs to host countries (25:46-25:55).

  • Environmental Concerns: May exploit resources or cause pollution (Example: Water usage by Coke/Pepsi) (26:00-26:18).

  • Exploitation: Using local resources (water, sugar) to make profits that largely leave the country.

XII. Conclusion (26:32-28:02)

• PSUs have benefits (employment, development) but also drawbacks (potential inefficiency, complacency).

• Over-reliance solely on PSUs led some countries to economic crisis (necessitating reforms like LPG - Liberalization, Privatization, Globalization).

• Need for a balanced approach (Mixed Economy).

• PSUs are crucial in strategic sectors and areas requiring large-scale public service/welfare (Banking, Telecom, Railways, Petroleum, Mining, Transport, Communication).

• Private sector brings efficiency (driven by profit motive and accountability).

• Finding the right mix and ensuring PSU efficiency is key.