JOINT SECTOR AND COOPERATIVE SECTOR IN BUSINESS

Joint Sector

Introduction

The joint sector refers to enterprises that are jointly owned and managed

by the private sector and the government or public sector undertakings. It

is a unique model that combines the managerial expertise and efficiencies

of the private sector with the financial resources and social orientation of

the public sector. The joint sector brings together the best of both worlds.

Formation of Joint Sector Enterprises

There are several ways in which joint sector enterprises may be

established:

The central government and private entrepreneurs can jointly set up

new enterprises from scratch. Sometimes the central government

along with one or more state governments can also partner with

private players to establish joint sector companies.

State governments through their industrial development

corporations can float new joint venture companies by taking equity

stakes along with private partners.

Public financial institutions like IDBI, ICICI etc. can convert part of

their loans and debentures in existing private companies into equity

and thereby transform them into joint sector enterprises.

The government or public sector undertakings can directly acquire

part of the equity in existing private enterprises and convert them

into joint sector companies.

Existing public sector undertakings can sell a portion of their equity

to private entrepreneurs or the general public and get transformed

into joint sector entities.

Rationale behind the Joint Sector

The main objectives and advantages sought to be achieved through the

joint sector model are:

Curbing the concentration of economic power in the hands of large

business houses by allowing joint ownership between state and

private players.

Giving a social orientation and public accountability to the

management of industries by having government participation in

equity and the board.

Accelerating the pace of economic development by harnessing the

combined resources of the state and the private sector.

Promoting the mixed economy model by combining the strengths of

both the public and private sectors.

Broadbasing entrepreneurship by enabling small entrepreneurs with

limited means to participate in large ventures.

Evolution of Government Policy

The idea of the joint sector was implicitly accepted in the Industrial

Policy Resolutions of 1948 and 1956.

Some early Five Year Plans also made references to the joint sector

concept.

The Companies Act, 1956 recognized the possibility of joint state-

private ownership.

The Dutt Committee Report (1969) strongly advocated the joint

sector to curb economic concentration.

Guidelines were issued in 1970 for the joint sector to be utilized in

core and heavy industries.

Public financial institutions were allowed to convert debt into equity

to bring in joint ownership.

Recent disinvestments have transformed some PSUs into joint

sector enterprises.

Cooperative Sector

Introduction

The cooperative sector has been assigned an important role in India's

economic development across agriculture, rural industries, distribution

etc.

Objectives

Some key objectives behind the promotion of the cooperative sector are:

Preventing concentration of economic power in the hands of a few

Enabling wider dispersal of ownership of productive resources

Actively involving people in the process of development

Augmenting productive resources, skills and capacities

Generating employment opportunities and alleviating poverty

Ways in which the State Supports Cooperatives

Equity participation in cooperatives

Providing loans, subsidies and grants

Guarantees and contributions to risk funds

Tax concessions and legal sanctions

Training programs and educational initiatives

Deputing government officers

Major Segments of the Cooperative Sector

Agricultural credit cooperatives form the largest share

Processing cooperatives in sugar, textiles, rice milling etc.

Marketing and distribution cooperatives for farm produce

Functional cooperatives in dairy, fishery, housing etc.

Multipurpose cooperatives in tribal areas

National Level Cooperative Federations

Some important national federations are:

National Cooperative Union of India

National Agricultural Cooperative Marketing Federation

National Cooperative Development Corporation

National Dairy Development Board

Key Problems

Regional disparities exist in the spread of cooperatives

Political interference and control over cooperatives

GOVERNMENT AND PARLIAMENTARY CONTROLS OVER PUBLIC

ENTERPRISES

Introduction

Public enterprises need autonomy for efficient functioning but also public

accountability as they utilize public funds. Government exercises control

through guidelines, board appointments, investment approvals,

performance reviews etc. Parliamentary oversight is through debates,

questions, committees like Committee on Public Undertakings (CPU).

Government Controls

Appointments of top executives and board directors

Approval of major investments and plans

Issuing guidelines on policies and performance

Calling for reports and accounts

Directions in public interest

Scrutiny by ministries through performance reviews

Investments above limit need Public Investment Board approval

Appraisal by Planning Commission and Department of Public

Enterprises

Parliamentary Controls

Debates, discussions and resolutions

Interpellations and questions

Examination by Committees like CPU

CPU studies working of enterprises and gives recommendations

Follow up action on CPU recommendations

Audit by CAG and laying of reports before Parliament

Annual reports of PSUs tabled in Parliament

Department of Public Enterprises

Nodal agency for policy formulation and coordination

Lays down guidelines on performance, finance, HR etc.

Monitors and evaluates PSU performance

Advises on PSU establishment and functioning

Coordinates training programs

Settles disputes

PRICING POLICY IN PUBLIC ENTERPRISES

Introduction

The pricing policy of public enterprises has been extensively debated.

Issues include whether they should earn profits, the appropriate level,

exploiting market power versus social concerns, and pricing approaches

like marginal cost, average cost or no profit-no loss.

Theories of Pricing

Marginal Cost Pricing

Price equals marginal cost of production. Helps consumers under

decreasing costs.

Deficit covered by taxing the rich. Increases welfare.

Practical difficulties in calculating marginal costs. Fluctuating prices.

Average Cost Pricing

Price equals average cost including normal profit. Ensures recovery

of full costs.

Fair as consumers pay for what they consume. Useful where

marginal cost hard to calculate.

No Profit-No Loss Pricing

Price equals total cost without profit. No need for subsidy or cross-

subsidization.

Consumers pay actual costs. No extra burden on non-consumers.

Profit-making Pricing

Price provides surplus over costs. Needed to finance investments in

developing countries.

Indian Public Sector and Profit Objective

Public sector expected to generate surpluses for development.

12% return considered reasonable. Higher for commercial

undertakings.

Pricing should promote growth and investment per experts.

Influences and Guidelines on Pricing

Nature of business, market situation etc affect pricing.

Guidelines by Administrative Reforms Commission and Bureau of

Public Enterprises.

Competitive conditions critical.

Pricing Practices

Administered prices, no profit-no loss prices, cost-plus pricing,

competitive prices, parity pricing, subsidized prices etc followed.

GROWTH OF PUBLIC ENTERPRISES

Public sector assigned a key role in industrialization even before

planning era as per Industrial Policy Resolution 1948.

Phenomenal growth seen after commencement of planning.

Investment in Central PSEs grew from Rs 29 crore in 1951 to over Rs

10 lakh crore by 2015.

Massive growth in sectors like steel, coal, power, petroleum.

Dominant position attained in several core industries.

Growth driven by setting up new units and nationalization of some

private units.

Performance

Played crucial role in developing economy lacking capital and skills.

But performance of many PSEs unsatisfactory.

Problems like cost and time overruns, irrational product mix, lack of

autonomy etc affected efficiency.

Many PSEs incurred huge losses, while profits came from

monopolies.

Inadequate internal resource generation due to pricing constraints,

long gestation periods etc.

Needed redefinition of role in tune with liberalization.

Policy Changes Since 1991

Pruning of industries reserved for public sector. Now only 2 left.

Withdrawal from non-priority sectors lacking public purpose.

Grant of autonomy to profitable PSUs (Navratnas, Miniratnas).

Disinvestment and strategic sale of non-strategic PSUs.

Closure of non-viable sick PSUs.

Ensure PSUs run on business lines.

Forms of Public Enterprises

Ministry (Railways)

Departmental Undertakings

Government Companies

Statutory Corporations

Conclusion

Public sector played important developmental role.

But reforms needed to improve efficiency and competitiveness.

Changes since 1991 have aimed at more commercial orientation.

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