What is Public Sector Reform?

Public Sector reform contains purposeful changes to the structures and methodology of open
division relationships with the objective of giving indications of progress. Essential change may
join consolidating or separating open fragment affiliations while process change may fuse
refreshing structures, setting quality standards, and focusing on limit building.

Public sector reforms in India: -

The process of disinvestment of Government shareholding in Public Sector Undertakings was
initiated in 1991. However, from 1991 to 1999, the Government had primarily sold minority
shares in Public Sector Undertakings.

The disinvestment process, however, was accelerated after the Department of Disinvestment
was set up on December 10, 1999 with the responsibility to deal with all matters relating to
disinvestment of Central Government equity from Central Public Sector Undertakings. With the
setting up of the Department of Disinvestment, the strategic sale of Public Sector Enterprises
with transfer of management control started. The Department of Disinvestment was subsequently
made into a full-fledged Ministry of Disinvestment. Disinvestment Commission has been
reconstituted on July 24, 2001 to give a suitable thrust to the programme of disinvestment.
During the period of three years (1999-2002), disinvestment proceeds (inclusive of dividend,
dividend tax etc.) have provided more than Rs. 11,300 crore to the exchequer. The Government
has successfully disinvested through strategic sale companies like Modern Foods Industries
(India) Ltd. (MFIL), Bharat Aluminium Company Ltd. (BALCO), CMC Ltd., HTL Ltd., IBP
Ltd., Videsh Sanchar Nigam Ltd. (VSNL), Paradeep Phosphates Ltd. (PPL), Hindustan Zinc Ltd.
(HZL), Indian Petrochemicals Corporation Ltd. (IPCL) and Maruti Udyog Ltd. (MUL) and a
number of hotels of India Tourism Development 67 Corporation Ltd. (ITDC) and Hotel
Corporation of India Ltd. (HCI). By selling loss making companies like Paradeep Phosphates
Ltd. (PPL), some hotels of ITDC/HCI etc., the Government obviated the need for substantial
future budgetary support. Disinvestment through strategic sale has raised the value of PSUs
listed stocks (and therefore their total market cap) by over 80 per cent in value from around Rs.
90,000 crore in October, 2001 to over Rs. 1,66,000 crore in June, 2002. This has benefited all
those who have invested in PSU stocks, including small retail investors and financial institutions
etc. The small investor who had stake in PSUs has substantial gains from the open offer after
strategic sale in CMC, VSNL, IBP, Hindustan Zinc Ltd. (HZL) and IPCL. Security of
employment has continued and no retrenchment has taken place due to disinvestment. In most of
the companies disinvested, employees have gained by way of raise in pay and allowances, which
will lead to growth in their buying power and, therefore, growth in the region.

Before the year 2000, the govt had primarily sold minority shares publicly sector

companies. The price realised through the sale of shares, even in blue chip companies like
Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd. (BPCL), Hindustan
Petroleum Corporation (HPCL), Gas Authority of India Ltd. (GAIL) and Videsh Sanchar
Nigam Ltd. (VSNL) was low. On the other hand, the prices realised through strategic
disinvestment have been very high. During the amount 1991-2000, the sale of minority
shares of public sector undertakings had led to an income of about Rs. 19,000 crore. Most of
the shares during this period were picked-up by financial institutions. Unit Trust of India
(UTI) was one such institution, which had picked up sizeable number of shares. Since,  the
general public perception of public sector companies is that they might not perform well, the
costs of shares fell during a number of cases after sale, with the result that UTI lost Rs.
5,056 crore over an investment of Rs. 6,403 crore made by them. However, with the market
prices of PSU shares picking up after a few major disinvestments, the loss to UTI on PSU
portfolio has decreased to Rs. 3,673 crore. The performance of a very large number of
public industries is disappointing, often owing to reasons beyond the management’s control.
Performance is particularly poor in public sector manufacturing industries. Some of the
public industries have done extremely well, but these are in monopoly sectors like
Petroleum, Power and Telecom, where Government determines prices on a cost plus basis.
Once these monopolies go, public industries come under severe pressure and generally
become loss making. Steel Authority of India Ltd. SAIL is a classic example where the 70
company has started making heavy losses after it has had to compete with private sector
industries, after liberalisation. The deteriorating performance of PSU companies has forced
the Central Government to offer huge subsidies within the sort of equity and loans,
guarantees, waivers etc. Since the CPSUs haven't performed well except in companies
where Public Sector features a monopoly, the share prices of Public Sector have performed
badly. Often, these shares are termed as non-performing shares within the market resulting
in huge losses to investors in such shares. With increasing liberalisation in the Indian
economy the areas of monopolies are fast diminishing. Hence, it was felt that the
disinvestment policy of the Government should be implemented at a very fast pace. This
policy was implemented with vigour during the previous couple of months. This has led
to an enormous upside within the marketplace for CPSU shares.

CURRENT REFORMS IN INDIA

In the last 6 years, there have been four positive developments with respect to the reform of
India’s public sector enterprises. According to Dr. Bimal Jalan, the Governor of the RBI, the
most significant for the future is the partial disinvestment of equity of selected enterprises. In
most cases, however, the extent of disinvestment is very small (less than even 20% of equity).
But it is no doubt an important first step in the commercialisation of enterprises and in making
them subject to public scrutiny and accountability.

Secondly, public sector enterprises including commercial banks are now encouraged to raise
fresh equity directly from the public rather than depend on government subsidy. If this measure
is properly taken the future expansion of enterprises would depend on their ability to attract
capital from the public. This, of course, will depend to some extent on their financial
performance.

Thirdly, public sector monopolies called ‘natural monopolies’ are now forced to face
competition from new private enterprises in most sectors.

There are many Central Public Sector Enterprises (CPSE) which are functioning under
Government of India and Navratna, Miniratna and Maharatna are the three terms which
government uses to categorize all those CPSEs. The categorization depends upon various
factors such as turnover, Net worth, Net profit on yearly basis and company’s presence in
stock Exchange as per the SEBI’s rules. Questions may be asked in written exams under
current affairs or general knowledge section on this topic.
Let us discuss all these three terms in details here:
As said above Central Public Sector Enterprises (CPSE) are divided into following three
categories:
1. Navratna
2. Miniratna (Category 1 and Category 2)
3. Maharatna
Details are provided as under:
What are Navratna companies?
IN 1997, government gave the status of Navratna to 9 Public Sector Enterprises (PSEs)
giving them greater autonomy to compete within the global market so on “support [them] in
their drive to become global giants. Currently there are total 17 companies having the status
of Navratna. The conditions to urge the Navratna status are as Under:
1. the corporate must score a minimum of 60 out of 100 on various parameters like net
income , net worth, total manpower cost, total cost of production, cost of services, PBDIT
(Profit Before Depreciation, Interest and Taxes), capital employed, etc.
2. It Must be at the status of Miniratna.
3. Should have at least four independent directors on its board.
4. The company must have up to Rs. 1,000 crore or 15% of their net worth on one project or
30% of their net worth within the whole year (not exceeding Rs. 1,000 crores).
What are Miniratnas companies in India?
The concept of Miniratna was coined by government of India in 2002 and this status was
given to total 41 public sector companies. Miniratnas are allowed to enter into joint
ventures, they will set subsidiary companies and may also open offices overseas but with
certain limitations. Currently there are quite 70 companies having status of Miniratna
(CategoryI & II).
Miniratnas are further divided into two categories:-
Miniratna Category I:
To be called as Miniratna under category I, a corporation must have:
1. Made profits for continuously for last three years.
2. The company should have earned a net profit of Rs. 30 crore at least once in three years.
A company with Miniratna Category I can incur cost of up-to Rs. 500 crore or adequate to
their net worth, whichever is lower without the necessity of approval from Government.
Currently total 59 companies holds the status of Miniratna Category I.
Miniratna Category II:
A Public sector Company are often called as Miniratna of Category II if:
1. it's continuously made profit for last three years.
2. It has positive net worth.
Miniratna Category II company have autonomy to incurring the cost up to Rs. 300 crore or
up to 50% of their net worth whichever is lower without prior approval from Government.
What are Maharatna companies in India?
Maharatna status was started in 2009. The status raises a company’s investment ceiling from
Rs. 1,000 crore to Rs. 5,000 crore. A Maharatna firm have permission to take a position
15% of their net worth during a project.
Below are the conditions for PSEs to accumulate the status of Maharatna:
1. For the last three years company should have the turnover quite Rs. 25,000 Crore.
2. Net worth of the company for last three years should be more than Rs. 15,000 Crore.
3. Net profit on yearly basis should be more than Rs. 5000 Crore after paying tax for last
three years.
4. The company must have its presence at Indian stock Exchange as per the SEBI’s rules of
minimum prescribed public shareholding limit.
5. Currently there are seven Maharatnas and BPCL is that the eights Public sector enterprise
to be included within the list.

COMPANIES
Maharatna CPSEs

1. Bharat Heavy Electricals Limited

2. Bharat Petroleum Corporation Limited

3. Coal India Limited

4. GAIL (India) Limited

5. Hindustan Petroleum Corporation Limited

6. Indian Oil Corporation Limited

7. NTPC Limited
8. Oil & Natural Gas Corporation Limited

9. Power Grid Corporation of India Limited

10. Steel Authority of India Limited

Navratna CPSEs

1. Bharat Electronics Limited

2. Container Corporation of India Limited

3. Engineers India Limited

4. Hindustan Aeronautics Limited

5. Mahanagar Telephone Nigam Limited

6. National Aluminium Company Limited

7. NBCC (India) Limited

8. NMDC Limited

9. NLC India Limited

10. Oil India Limited

11. Power Finance Corporation Limited

12. Rashtriya Ispat Nigam Limited

13. Rural Electrification Corporation Limited

14. Shipping Corporation of India Limited

Miniratna Category - I CPSEs

1. Airports Authority of India

2. Antrix Corporation Limited

3. Balmer Lawrie & Co. Limited

4. Bharat Coking Coal Limited

5. Bharat Dynamics Limited

6. BEML Limited
7. Bharat Sanchar Nigam Limited

8. Bridge & Roof Company (India) Limited

9. Central Warehousing Corporation

10. Central Coalfields Limited

11. Central Mine Planning & Design Institute Limited

12. Chennai Petroleum Corporation Limited 2

13. Cochin Shipyard Limited

14. Cotton Corporation of India Limited

15. EdCIL (India) Limited

16. Kamarajar Port Limited

17. Garden Reach Shipbuilders & Engineers Limited

18. Goa Shipyard Limited

19. Hindustan Copper Limited

20. HLL Lifecare Limited

21. Hindustan Newsprint Limited

22. Hindustan Paper Corporation Limited

23. Housing & Urban Development Corporation Limited

24. HSCC (India) Limited

25. India Tourism Development Corporation Limited

26. Indian Rare Earths Limited

27. Indian Railway Catering & Tourism Corporation Limited

28. Indian Railway Finance Corporation Limited

29. Indian Renewable Energy Development Agency Limited

30. India Trade Promotion Organization

31. IRCON International Limited

32. KIOCL Limited

33. Mazagaon Dock Shipbuilders Limited

34. Mahanadi Coalfields Limited

35. MOIL Limited

36. Mangalore Refinery & Petrochemical Limited

37. Mineral Exploration Corporation Limited

38. Mishra Dhatu Nigam Limited

39. MMTC Limited

40. MSTC Limited

41. National Fertilizers Limited

42. National Projects Construction Corporation Limited

43. National Small Industries Corporation Limited

44. National Seeds Corporation

45. NHPC Limited

46. Northern Coalfields Limited

47. North Eastern Electric Power Corporation Limited

48. Numaligarh Refinery Limited

49. ONGC Videsh Limited

50. Pawan Hans Helicopters Limited

51. Projects & Development India Limited

52. Railtel Corporation of India Limited

53. Rail Vikas Nigam Limited

54. Rashtriya Chemicals & Fertilizers Limited

55. RITES Limited

56. SJVN Limited

57. Security Printing and Minting Corporation of India Limited

58. South Eastern Coalfields Limited 3

59. Telecommunications Consultants India Limited

60. THDC India Limited

61. Western Coalfields Limited

62. WAPCOS Limited

Miniratna Category-II CPSEs

63. Artificial Limbs Manufacturing Corporation of India

64. Bharat Pumps & Compressors Limited