Liberalisation and PSUs
Assembly of the Working People 2008
Workshop on Liberalisation and PSUs: A Critique
The central public sector undertakings (PSUs) were critical in developing a strong industrial and technological base in the country. They were critical to sectors like heavy engineering, telecommunications, defence production, which required heavy investment in plant and machinery and in R&D. However, with liberalization and a change in government policies in the nineties, there was a significant change in government policy towards PSEs. Three critical areas of change in government policy and impact on PSEs are of direct interest to the future of PSEs.
Summary of receipts from PSU disinvestment 1991-2007 in Rs. crores
| Period | Sale of Minority Interest in PSUs | Intra-PSU Sales | Proceeds from Privatised PSUs | Proceeds from Sale of Minority Holding in Privatised PSUs | Total | Proportion of receipts during the period of total receipt |
|---|
| 1991-92 to 1997-1998 | 11251.50 | 0.00 | 0.00 | 0.00 | 11251.50 | 22% |
| 1998-99 to 2003-04 | 19592.00 | 1317.23 | 6344.35 | 6402.01 | 33655.59 | 65% |
| 2004-05 to 2007-2008 | 2700.06 | 0.00 | 0.00 | 4001.43 | 6701.49 | 13% |
| Total | 33543.56 | 1317.23 | 6344.35 | 10403.44 | 51608.58 | 100% |
| Percentage by type of total receipts | 65% | 3% | 12% | 20% | 100% |
The table gives a summary of period wise disinvestment of government stake in PSUs. We see that nearly two thirds (65%) of total disinvestment was through sales of minority stakes, where the government retained its majority stake and control over the PSUs. 32% of the disinvestment revenues were from sales resulting in privatization of the PSE (12%), and sale of residual government stakes in the privatized companies (20%). Privatisation was where a controlling block of shares was sold to a single strategic investor. The difference in minority sales and disinvestment resulting in privatisation is important. While the first transaction represents a dilution of government shareholding, it does not mean change in ownership and control. However, privatisation represents change in ownership and control of the PSEs.
Three periods of disinvestment are summarized in Table1. We see the first period 1991-92 to 1997-98 broadly represents the period of the first Congress government of the liberalization period, and the Third Front government; 1998-99 to 2003-04 the NDA government led by the BJP; and 2004-05 to 2007-08 the present UPA government led by the Congress. Two factors bear discussion. First, nearly two thirds of the disinvestment (65%) took place during the period of the NDA government. Second, and more important, all of the disinvestment resulting in privatization also took place during the NDA regime. In all, 12 PSEs, and 18 hotels and resorts of the ITDC were privatized during the period.
The effect of the strong trade union and public opposition to the disinvestment process was visible in the brakes put on the process during the UPA regime. The single major disinvestment during the period was the open public offer by the government of residual shares in Maruti Udyog Ltd., which netted the government Rs.4000 crores.
The CMP and PSEs
The Common Minimum Programme (CMP) of the UPA states on public enterprises that “generally profit-making companies will not be privatized.” It further pledges that existing Navaratna companies would be retained in the public sector, while allowing them to raise resources from the capital market; and efforts would be made to modernize, restrict and revive sick PSEs, while chronically loss making companies would be sold off or closed, after all workers got their legitimate dues.
In line with the CMP, the UPA has, in the case of two sick PSEs, Bharat Heavy Plates and Vessels, and Bharat Pumps and Compressors, set in motion a process for the takeover of the two companies by BHEL.
Opening up of industry
Significant sectors of industry previously reserved for PSEs were opened up for the private sector from the nineties. In many of these cases, PSEs were not even allowed to compete with private industry. We have the case of the telecom sector, where the monopoly manufacture of telecom equipment ITI was prevented from participating in the opening up of manufacturing, and forced into sickness. Similarly, in mobile telephones, BSNL was not allowed a level playing field with private industry.
Airlines is another sector, where an unregulated open skies policy has led to a situation of a bankrupt industry. The government has been forced to give concessions to the industry to keep it off the ground.
Employment in PSEs
Through the period of liberalization, one focus of the government was the reduction of employment in the PSEs. The emphasis was on reduction of shop floor employment. This was achieved through a liberal VRS package, and a near blanket ban on new recruitment on shop floor employment. The substantial fund generated through disinvestment in the nineties was available for the VRS. The result was that in many large PSEs, employment fell to less than half. Much of the production activity of these PSEs were either done on contract, or outsourced. Planning Commission figures indicate that total employment in PSEs declined from 21.4 lakhs in 1991 to 16.3 lakhs in 2007 – a decline of 25%.
The impact of the VRS can be seen in the statistics of total employment for 2007-08 in PSEs of the Department of Heavy Industries. In 34 PSEs, there were 65850 workmen, as against 17000 executives and 11700 supervisors. That is, for every nine workers, there were around four executives and supervisors. Clearly this implies substantial employment of contract workers, or outsourcing of production. This is a form of indirect privatization of the business of the PSEs.
Another pressure on PSEs has been for freeing of managerial wages. The recommendations of the Rao Committee Report (2nd Pay Revision Committee for Executives in PSEs) include widening pay gap between executives and workmen to 10:1. This is in keeping with the wage disparities in the private sector, and has been on grounds that otherwise managers of PSEs would migrate to private industry. Other recommendations include executive bonus to be decided by an independent “remunerations committee” of the individual PSE. The direction of these proposed reforms is clearly towards deregulation of wage policy for PSEs. This is against the interest of workers, and the tradition of industry level wage fixation in PSEs.
Class 4 employment
As discussed, the Rao Committee recommendations that public enterprise management have been pressurizing for implementation will widen wage gap in the PSEs between the highest and lowest paid to more than 10:1. We need to also note that the pressure to reduce tenured employment, and replace it with contract employment is maximum at the lowest category of Class 4 employees. It is the Class 4 level that provides the main avenue for employment in the public sector for scheduled caste aspirants. Any measures that adversely effect Class 4 employment are therefore an attack on scheduled castes job aspirants.
Employee demands
The demand from trade unions has to be for ensuring that privatization of the PSEs is prevented. Trade unions have to ensure that even in the absence of formal privatization through share disinvestment, other forms of deregulation, as suggested in the Rao Committee Report are prevented. In the context, NTUI calls for the following demands of PSE workers:
- Regulation of employment relations within PSEs, with government oversee on employment relations, and particularly wage policy for PSEs.
- Regularisation of contract employment, in particular, employment in core and perennial areas of work.
- Regulation of wages and benefits to contract workers, on the basis of equal wages for equal work, and the principle of equal minimum industry wage for both tenured and contract workers. Contract workers to also be included for calculation of legitimate employee dues in closed PSEs.
- Safeguard social security measures for PSE employees, including PF, gratuity and pension schemes, with government guarantees for protection of funds under the schemes.
- Oppose all measures that increase wage disparities, or reduce security of employment.
December 2008