Ancillary development psu india

1
Ancillary Development &
Public Sector Role in India
Prof. Nand Dhameja
IIPA New Delhi
February 16,2015

2
Coverage
Public Sector : Forms, Significance
Public Enterprises : Growth & Economic Reforms
Public Enterprise L Categories
Disinvestment: Disinvestment : Targets &
Realisation
Ancillary Development
Small Industrial Units & Industrial Clusters: Size
and significance
Public Enterprises: Subsidiaries, Joint-ventures,
Memorandum of understanding: Examples
Challenges for PEs & Ancillary Units

Public Sector
Also known as State Sector or Government Sector
Includes all activities funded out of government budget
and in India it accounts for two-fifth of total gross
investment (or gross capital formation) and contributes
a quarter of gross domestic product (GDP)

Public Sector : significance
Conceived basically as an instrument of
economic development,
to ensure law and order and protection of
individual property, in particular in
developing economies, since attainment
of political independence.
acquired a prominent place and has
witnessed phenomenal growth over the
years.

Public Sector : Significance contd.
To regulate private entrepreneur’s
tendency to make monopolistic profits;
eliminate social, economic and regional
inequalities; investment in socially
profitable ventures,
 to speed up the rate of economic growth
and technological development, so as to
achieve self-sufficiency and self-reliance;
to become main instrument of
entrepreneurial activity; 5

Public Sector : Forms
a). Ministry/ Departmental Form
Headed by a Minister/Accountable to Parliament
b). Unincorporated enterprises, like railways & postal
dept.. operating as ‘commercial departments’,
 Principle of Commercialisation, Limited Access Project or
c). Incorporated enterprises (termed as public
enterprises) set-up under the Company Act or other
enactments
Public Enterprise: CPEs & SPEs

contd.
Government administrative departments : cover
activities relating to fiscal, general administrative,
community and economic services.
 Commercial departments: are controlled by public
authorities, are engaged in production of goods and
services,
 Principle of ‘commercialisation’ to charge for their goods and
services and are in the nature of ‘limited access projects’;
 railways, postal services, dairy and milk supply units, ordnance
factories, state electricity boards, water and sewerage works are
some of the examples.
Public enterprises: Incorporated enterprises
 include government companies wherein government holds 51
percent or more of equity, these include BHEL, ONGC, BEL, MTNL,
SAIL, IOC, OIL

Public Sector : Forms contd.
Over the years a tendency, world wise, to
transform government administrative
departments to commercial departments or to
incorporated enterprises with an objective to
grant autonomy;
Separation of telecom from postal and
setting-up of MTNL, VSNL, BSNL; or
conversion of Indian Airlines or Air India,
statutory corporations under the Civil Aviation
Act to joint stock companies under the Indian
companies are some examples.

Public Sector in India: Policy & Reforms
Industrial Policy Resolution 1956: Public sector had
primary responsibility for setting-up of new
industrial undertakings & all industries of basic &
strategic importance or of public service were to be
set-up in public sector
Industrial Policy 1991-- an era of economic reforms:
abolished monopoly of any sector except for
industries related to security & of strategic
importance. Reservation for small scale sector

Public Sector in India: Policy &
Reforms contd.
Five Year Plans assigned strategic Role
to Public Sector
“….serves a twofold purpose. It helps to remove
certain basic deficiencies in the economic structure
and at the same time it reduces the scope for
accumulation of wealth and large incomes in private
hands. As the relative share of the public sector
increases, its role in economic growth will become
even more strategic and the state will be in a still
stronger position to determine the character and
functioning of the economy as a whole”.
10

11
Economic Reforms: Features
Industrial Policy Reforms: Licensing abolished
for all projects except for a short list of industries
List of areas reserves for public sector pruned to
eight industries from 17 as per Industrial Policy
1956
Allowing existing units to expand or produce any
article without requiring additional investment

12
Economic Reforms : Features
Contd.
Economic Reforms 1991 to Integrate with
Global Economy to:
Reduce Extent of Govt. Control over
various aspects of Domestic Economy
Increase Role of Private Sector
Open up economy to trade & foreign
investment
To unshackle the economy from the
cobwebs of unnecessary bureaucratic
controls

13
contd
Public Sector Reforms: List of industries
reserved for public sector has been pruned.
Public Enterprises (PEs) to run on
commercial principles; Given Autonomy-
Maha-ratnas, Nav-ratnas; Mini-ratnas.
Privatization & disinvestment of PEs to raise
resources & to introduce market forces
Investment plans of PEs to be funded from
their reserves or capital market

14
Administrative Depts. 22%
 Cover activities relating to fiscal services, general administrative services
and community services
Commercial Depts. 26%
 (Postal, Railways, Electricity boards, Ordnance factories
Irrigation): Principle of Commercialisation, Limited Access
Projects
Public Enterprises 52%
(Incorporated Enterprises)

Public Enterprises : Objectives
to help in the rapid economic growth and industrialisation
of the country and create the necessary infrastructure for
economic development;
to earn return on investment and thus generate
resources for development, promote redistribution of
income and wealth;
to create employment opportunities;
to promote balanced regional development;
to assist the development of small-scale and ancillary
industries and
to promote import substitutions, save and earn foreign
exchange for the economy 15

16
Public Enterprises
Number Capital
Employed
(Rs. Bln)
Employees
Centre
(CPE)
259 15,103 1404,000
States
(SLPE)
837 3,334 1871,805

17
Central Public Enterprises
(Operation * 217; $229)
2001-2 03-4 04-05 09-10 12-13
CPEs 231 230 227 249* 259$
CPEs-Profit
making (Rs.
Crore)
120 139 138 158 149
CPEs –Loss
making (Rs.
Crore)
109 89 79 59 79

18
Central Public Enterprises Performance
(Rs.Crore)
2001-
2
02-03 03-04 04-05 05-06
Sales 534,00
1
587,04
0
699,77
6
778,83
0
CE 389,93
4
417,16
0
452,33
6
504,40
7
581,25
0
PBIT 63,190 72,539 95,039 108,42
0
106,53
3
PBIT/S 13.5 16.2 15.5 13.6

Central Public Enterprises Performance (Rs.Crore)
2012 -13 2009-10 2008—09
Capital Employed
(net fixed assets + working capital) 1510,373
910,120 793,240
Total Turnover
1931,499 1235,060
1271,529
Profit of Profit Making CPEs 143,559 108,435 98,488
Loss of Loss Making CPEs 28,260 15,842 14,621
Net Worth 851,245 660,245 665,686
Dividend declared 49,701 33,223 25,501
Contribution to Exchequer 162,761 139,828 151,529
Foreign Exchange Earnings 138,150 77,745 74,206
Foreign Exchange Outgo 646,262 420,415 433,332
19

20
Economic Reforms
Economic Reforms 1991 to Integrate with
Global Economy to:
Reduce Extent of Govt. Control over
various aspects of Domestic
Economy
Increase Role of Private Sector
Open up economy to trade & foreign
investment

21
Industrial Policy Reforms: Licensing
abolished except for industries
related to security & of strategic
importance. Reservation for small
scale sector
Allowing existing units to expand or
produce any article without requiring

22
contd
Public Sector Reforms: List of industries
reserved for public sector has been
pruned.
Public Enterprises (PEs) to run on
commercial principles; Given Autonomy-
Nav-Ratnas; Mini-ratnas.
Privatization & disinvestment of PEs to
raise resources & to introduce market
forces
Investment plans of PEs to be funded
from their reserves or capital market

23
Industrial Policy 1991
Abolish Monopoly of any Sector in any Field of
Manufacture
Industrial Licensing Abolished Except in areas of
Strategic Importance
Areas for Public Sector Pruned down to Four
Public Enterprises to Run on Business Principles
Sick Enterprises to be Referred to BIFR (Bureau of
Industrial Financial Restructuring)
Professionals to be appointed on Boards-Given
more Powers/Autonomy

CPEs : Three Categories
With an objective to grant more autonomy
for operations & investment in a project
Maharatana:
Navaratna
Miniratna
24

25
CPE: Mini Ratna Status
Mini Ratna Status I:
a) Positive NW
b) Profit continuously last three years
c) PBT >= Rs. 30 crore at least in one of three
years
Mini Ratna Status II:
 a) & b) above

PSUs : Disinvestment
As a part of economic reforms: since
1991-92
26

27
CPE- Disinvestment: Categories
Period
Phase I
Target (Rs.cr) Realisation Rs.cr)
1991-92 to 98-99
PhaseII
34,300 16,622
1999-00 to 03-04
Phase III
58,500 24,619
2004-05 to 15
(upto Feb. 11)
Total
236,425
329,225
138,383
179,623

28
Disinvestment in Central P Es
Year Target (Rs.cr) Accruals (Rs.cr)
1991-92 2,500 3,038
1992-93 2,500 1,913
1993-94 3500 0
1994-95 4,000 4,843
1995-96 7,000 168
1996-97 5,000 308
1997-98 4,800 910
1998-99 5,000 5,371
1999-00 10,000 1,585
2000-01 10,000 1,871
2001-02 12,000 3,268
2002--03 1,2000 2,348
2003-04
2004-05
14,500
4,000
15,547
2,765

Disinvestment in Central P Es contd.
Year Target (Rs. Cr.) Target (Rs. Cr.)
2005-06 Nil 1,570
2006-07 0 0
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
*upto Feb 11)
0
0
25,000
40,000
40,000
24,000
19,027
43,425
4,181
0
23,553
22,763
14,035
23,857
21,321
24,338*
TOTAL 329,225 179,625 29

30

Public enterprises enjoy operational
freedom & autonomy to invest in projects
so as to compete in global market
In that process, they set-up subsidiaries,
JVs & enter into Memorandum of
understanding
To procure material parts, components &
services
31

Ancillary Development & Public Sector
 Public Enterprises Objectives include:
 promotion of balanced regional development; and
 assistance towards development of small-scale and ancillary industries
 Company Act requires to disclose in B/S all total outstanding dues
to small scale industrial undertakings, giving their name(s) any sum
together with interest outstanding for more than thirty days.
 It highlights the protection of the interest of small and ancillary units
 Government guidelines relating to procurement of material and
equipment by inviting tenders,
 also tend towards preference for small industrial establishment.
32

Ancillary Development
Industrial development & setting up of big industrial units
requires units for the supply of raw material, components
and services.
 Procurement of a part or raw material is usually
subcontracted and in most cases the sub-contractor is
an ancillary unit
 Sub-contracting is the work of procuring the fabricated
parts and components from outside sources because of
price competitiveness and low investment. This
necessitates the development of small and ancillary
units.
As such, along with industrial units, a cluster of tiny,
small and medium industrial units come up in that region.33

Ancillary Development contd.
Takes the form of setting up of subsidiary units or a joint
ventures for provision of raw material or services,
 Generates employments and leads to manufacturing of
parts and components,
Leads to import substitution,
Generates employment.
 Examples are that automobile manufacturers world-wide procure
parts and components from outside which lead to development of
industrial clusters and these are increasingly recognized as an
effective means of industrial development and promotion of small
and medium-sized enterprises.
34

Ancillary Development & Industrial
clusters
Industrial clusters a means of
industrial development and promotion of
small and medium-sized enterprises
 In India, there are around 7000 clusters
in traditional handloom, handicrafts and
modern SME industry segments.
About 2500 unmapped rural industry
clusters in the country
35

Small Sale Sector
 In developing countries, more than 90 percent of all firms, outside
the agriculture sector, are MSMEs generate a significant portion of
GDP.
 In India MSMEs account for a large share of industrial units: in
2011-12 MSME Sector enterprises numbered 447.73 lakhs
employing 1012.59 lakhs.
 MSMEs’ contribution to rural development as 200.19 lakhs
working enterprises were located in rural areas, 55.34% of the
total working enterprises in MSME sector;
 Urban areas 161.57 lakhs (44.66%) of the working enterprises
 The sector currently produces more than 6,000 quality products,
ranging from handloom saris, carpets and soaps to pickles, auto
and machine parts targeting both domestic and international
markets.
36

Public Enterprises
Set-up subsidiaries, Joint venture & have
memorandum of understanding, dealers
net-work
37

Public Enterprise: SAIL
 Joint Ventures:
 “SAIL RITES Bengal Wagon Industry Pvt. Ltd
 The Steel Complex Limited (SCL)
 Renewable Energy Purchase
 Titanium Project
 Strategic Alliances:
 Kobe Steel Limited, Japan
 Revival of Sindri Project
 Hajigak Iron Ore Deposits owned by Government of Afghanistan
 Memorandum of Understanding (MOU) / Commercial
Agreements entered into with various companies
 Conversion Agents: SPUs and Wet Leasing Agents for TMT Bars for
Regions: Eastern, Northern, Western , Southern
38

Public Enterprise: BHEL
Subsidiary Companies include BHEL
Electrical Machines Ltd
Joint Venture Companies:
 BHEL-GE Gas Turbine Services Pvt. Ltd. (BGGTS):
 NTPC – BHEL Power Projects Pvt. Ltd. (NBPPPL)
 Raichur Power Corporation Ltd
 Dada Dhuniwale Khandwa Power Limited
 Latur Power Company Ltd
 Power Plant Performance Improvement Ltd
Net-work of suppliers and traders
39

Public Enterprise : ONGC
Subsidiaries
 ONGC Videsh Limited
Mangalore Refinery and Petrochemicals
Limited
Joint Ventures
ONGC Tripura Power Company
ONGC Mangalore Petrochemicals Limited
Net-work of dealers, suppliers
40

Public Enterprise: Coal India
 Subsidiary Companies
 Eastern Coalfields Limited (ECL), Sanctoria, West Bengal
 Bharat Coking Coal Limited (BCCL), Dhanbad, Jharkhand
 Central Coalfields Limited (CCL), Ranchi, Jharkhand
 South Eastern Coalfields Limited (SECL), Bilaspur, Chattisgarh
 Western Coalfields Limited (WCL), Nagpur, Maharashtra
 Northern Coalfields Limited (NCL), Singrauli, Madhya Pradesh
 Mahanadi Coalfields Limtied (MCL), Sambalpur, Orissa
 Coal India Africana Limitada, Mozambique
 The consultancy company is Central Mine Planning and Design
Institute Limited (CMPDIL), Ranchi, Jharkhand.
 North Eastern Coalfields (NEC) a small coal producing unit
operating in Margherita, Assam is under direct operational control of
CIL.
41

Public Enterprise :IOC
Group Companies:
Indian Subsidiaries
Foreign Subsidiaries
 Joint Ventures
42

Enterprise: MUL an automobile
manufacturer
 Sales and service network : 933 dealerships across 666 towns and cities in
has 3,060 service stations (inclusive of dealer workshops and Maruti
Authorised Service Stations) in 1,454 towns and cities throughout India
 has 30 Express Service Stations on 30 National Highways across 1,436
cities in India.
 Maruti Insurance
 Maruti Finance
 Citicorp Maruti Finance Limited is a joint venture
 Maruti TrueValue
 N2N Fleet Management
 Maruti Accessories
43

Ancillary Development & Public
Enterprises
To conclude, subsidiaries, joint venture
and memorandum of understanding
developed by public enterprises facilitate
procurement of material and components
highlights the important role of public
enterprises in development of ancillary
industries
44

Ancillary Development & Public
Enterprises
However, government agencies and
public enterprises should take measures
towards policies development for
strengthening of small and medium
industrial units, public enterprise should
take responsibility to provide technical
knowhow and management guidance to
small and ancillary units as regards the
following:
45

Public Enterprises Responsibility
towards Ancillary Development
 PEs have a catalytic role as regards:
 Production process/method, equipment selection and layout.
 Management guidance relating to design, detailed manufacturing drawing,
tooling, jigs and quality control procedure and equipment.
 Manpower planning.
 Organization and procedure for production planning, progressing and
control.
 Management aspects, like cost-accounting, industrial engineering, product
diversification and marketing.
 Sources of financing and procedures for obtaining them
 Imported raw materials and components, scarce/critical
indigenous raw materials and drawings
 Tooling, jigs and fixtures to the extent that these are outside the
capability of ancillary unit.
 Process quality control, training facilities for the development of
supervisory and artisan skills.
46

Ancillary industrial units : Challenges
Have a clear mission and goals ;
Develop strong Business Association, to have dialogue
with the Government
Develop semi-private institutions such as research and
advisory centers and knowledge transfer centers
Undertake market studies useful for alliance participants
Have open mind to invest in technology and innovation
Improve the capacity of specialized input and service
providers
 Undertake joint promotion of specific products in the
local, regional and international markets
47

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