Indian Economic Reforms part 8

 Okay, here are structured notes in English based on the provided Telugu transcript, covering the key aspects of the 1991 Industrial Reforms and the Privatization process discussed in the video.

Subject: Indian Economic Reforms (Focus on 1991 Industrial Reforms & Privatization)

1. Recap of Previous Discussion (Context)
* The 1991 Economic Reforms package included 8 types of reforms.
* The current focus is on the first type: Industrial Reforms.
* Industrial reforms refer to the changes introduced to restructure and improve the industrial sector.

2. The New Industrial Policy (NIP) of 1991
* Announced on July 24, 1991.
* Marked a significant departure from previous policies that prioritized the public sector.
* Shift in Focus: Prioritized the Private Sector.
* Core Idea: Introduced LPG (Liberalization, Privatization, Globalization) principles into the Indian economy, particularly the industrial sector.

3. Key Components of 1991 Industrial Reforms (Brief Recap)
* These decisions were part of implementing LPG:
* Abolition of Industrial Licensing: Reducing the 'License Raj'.
* Reduction in the Scope of Public Sector: Limiting the number of industries reserved for PSEs.
* MRTP Act Relaxation/Abolition: Monopolies and Restrictive Trade Practices Act changes to encourage private sector growth and competition.
* FERA Replaced by FEMA: Foreign Exchange Regulation Act replaced by the more liberal Foreign Exchange Management Act to ease foreign transactions.
* (These were discussed in detail in the previous video according to the speaker).

4. Privatization Process in India

      *   **Definition:**
    *   Selling ownership (partially or wholly) of Public Sector Enterprises (PSEs) to private individuals or companies.
    *   Transferring shares of PSEs to the public, mutual funds, or other institutions.
    *   Essentially, moving assets/control from the public sector to the private sector.

*   **Rationale Post-1991:**
    *   Pre-1991: Dominance of PSEs, restrictions on private investment.
    *   1991 Crisis: Highlighted inefficiencies and financial burden of many PSEs.
    *   Post-1991: Government initiated the transfer of PSEs to private hands to improve efficiency, reduce fiscal burden, and promote competition.

*   **Dealing with Sick Industries:**
    *   **SICA (Sick Industrial Companies Act, 1985):** Enacted based on N.D. Tiwari Committee recommendation to identify and deal with loss-making ('sick') industries. *(Repealed later)*.
    *   **BIFR (Board for Industrial and Financial Reconstruction, 1987):** Set up to decide the fate of sick units identified under SICA. Options were:
        *   Revival within the public sector.
        *   Closure.
        *   Privatization.
    *   *(BIFR is also now defunct, its functions largely taken over by NCLT under the Insolvency and Bankruptcy Code framework)*.
    *   **NCLT (National Company Law Tribunal):** Currently handles insolvency and restructuring, including for PSEs.
    *   **Definition of Sick/Insolvent Unit (Mentioned in context):** An enterprise whose accumulated losses over 4 consecutive years have eroded 50% or more of its net worth.

*   **Mechanisms & Committees for Privatization/Disinvestment:**
    *   **C. Rangarajan Committee (1992-93):**
        *   Recommended disinvestment levels: Up to **49%** in PSEs reserved for public sector; up to **74%** in other PSEs.
        *   Stressed *against* 100% sale of any PSE.
        *   Advocated for the **Open Auction Method** for transparency.
    *   **Parliamentary Standing Committee:** Initially oversaw the auction process. Faced allegations of collusion and under-pricing assets.
    *   **CAG (Comptroller and Auditor General):** Investigated and found irregularities in the open auction process, confirming under-valuation.
    *   **Disinvestment Commission (1996):** Headed by **G.V. Ramakrishna**. Tasked with overseeing disinvestment more systematically.
        *   Introduced categorization: **Strategic** vs. **Non-Strategic** PSEs.
        *   Proposed **Strategic Sale:** Transfer of management control along with shares when government stake falls significantly (e.g., below 50%). This faced challenges as buyers hesitated to manage sick units.
    *   **Ministry of Disinvestment (2000-2004):**
        *   Headed by **Arun Shourie**.
        *   Accelerated disinvestment, often bundling loss-making units with profitable ones ("Strategic Sale" in practice).
        *   Sold several PSEs, including profitable ones like CMC and Maruti Udyog Ltd (by 2003, 9 PSEs saw 100% disinvestment mentioned: BALCO, VSNL, IPCL, HCI, HZL, MFIL, ITDC units, CMC, Maruti).
        *   Faced criticism and CAG scrutiny for under-pricing and lack of transparency.
        *   Abolished in 2004 by the UPA government.
    *   **DIPAM (Department of Investment and Public Asset Management):**
        *   Created in 2016 (evolving from Dept. of Disinvestment/Investment).
        *   Currently operates under the Ministry of Finance.
        *   Handles the disinvestment process today.

*   **Related Policies for Workers:**
    *   **Golden Handshake Scheme (1988):** Voluntary Retirement Scheme (VRS) to encourage early retirement, especially for older employees in PSEs deemed overstaffed or inefficient.
    *   **Exit Policy (1992):** Framework for closing down unviable PSEs, addressing worker compensation.
    *   **National Renewable Fund (NRF, 1992):** Set up with approx. ₹2200 Crore to fund VRS and retraining/redeployment of workers affected by restructuring/closures. Primarily used for compensation and was wound down around 2000.

*   **Current Disinvestment Policy & Strategic Sectors:**
    *   Government aims to maintain only a "bare minimum" presence, largely confined to **4 Strategic Sectors**:
        1.  Atomic Energy, Space & Defence
        2.  Transport & Telecommunications
        3.  Power, Petroleum, Coal & Other Minerals
        4.  Banking, Insurance & Financial Services
    *   PSEs in non-strategic sectors are candidates for privatization or closure.
    *   **NITI Aayog:** Involved in decisions regarding disinvestment in strategic sectors.
    *   **DIPAM:** Handles disinvestment in non-strategic sectors.

*   **Disinvestment Targets vs. Achievements (Examples):**
    *   2023-24: Target ₹51,000 Cr; Achieved ₹16,507 Cr (as per video timeframe)
    *   2022-23: Target ₹65,000 Cr; Achieved ₹31,100 Cr
    *   2017-18: Target ₹72,500 Cr; Achieved ₹1,00,056 Cr (a successful year)
    

5. National Investment Fund (NIF)
* Established: Jan 7, 2015 (Announced), Nov 23, 2015 (Gazette), Oct 7, 2016 (Operational) (Based on transcript dates).
* Purpose: To professionally manage the proceeds received from the disinvestment of PSEs.
* Allocation of Funds:
* 75%: To finance social sector schemes (health, education, employment) and infrastructure projects.
* 25%: To meet capital investment needs of profitable and revivable PSEs, ensuring they remain efficient or grow.
* Provides a structured way to utilize disinvestment funds for broader economic and social goals.

Conclusion:
The privatization process in India, a key part of the 1991 reforms, has evolved significantly. Driven by the need for efficiency and fiscal prudence, it moved from initial mechanisms like SICA/BIFR through various committee recommendations (Rangarajan), methods (Open Auction, Strategic Sale), dedicated bodies (Disinvestment Commission, Ministry, DIPAM), and faced considerable debate and scrutiny (CAG, political opposition). The current policy focuses on maintaining a minimal government presence primarily in strategic sectors, with proceeds managed through the National Investment Fund.