OBJECTIVES OF PRICE AND DISTRIBUTION CONTROLS
Price and distribution controls refer to various policy measures aimed at
regulating prices and supply of key goods and services in the economy.
Some of the key objectives behind such controls are:
Ensuring equity and protecting the vulnerable sections of society
from inflationary pressures by keeping prices of essential
commodities stable
Maintaining quality standards for important goods and services
through pricing policies
Preventing monopolistic, restrictive and unfair trade practices in
pricing and distribution which can harm consumers
Taking steps to increase the supply and availability of essential
commodities to meet demand
Expanding and smoothening the supply and distribution system to
remove imperfections and ensure availability of goods in all regions
Ensuring adequate and timely supply of key inputs like credit,
power, raw materials etc. to priority sectors like agriculture, small
industries etc.
Enabling the government to steer allocation of resources across
sectors in line with plan priorities through pricing policies
Preventing hoarding and blackmarketing of essential goods by
unscrupulous traders, especially during shortages
Using price regulations appropriately to control inflationary and
deflationary tendencies in the economy
Evolution of Price Policy
The importance of price stability and distributive justice was emphasized
since the Third Five Year Plan
Fiscal, monetary and commercial policies were outlined as key
constituents of the pricing policy
The need for selective physical controls and direct pricing for certain
essential commodities was also recognized
Enhancing production capacities was underlined as a sustainable
way to ensure reasonable prices
Instruments of Price Control
Indirect Controls
Monetary policy instruments like bank rate, CRR, open market
operations are used to control money supply and credit availability,
thereby influencing aggregate demand and prices
Fiscal policy tools like taxation, subsidies, public expenditure are
used to affect disposable incomes and purchasing power and
thereby control inflationary pressures
Commercial policy measures like imports, exports, tariffs are used to
adjust domestic supply and demand conditions and stabilize prices
Direct Controls
Administered prices are fixed for some commodities by government
through mechanisms like the Tariff Commission
Dual pricing systems with differential prices for priority and non-
priority users have been used in the past
Subsidies are provided to keep prices low for vulnerable sections for
goods like food, fertilizers
Laws like the Essential Commodities Act empower government to
regulate production, distribution and supply of key commodities
INDUSTRIAL SICKNESS
Introduction
Industrial sickness refers to the poor financial health and operational
underperformance of industrial units. It manifests itself more clearly in
market economies through losses, closure etc. In India, liberalization led to
increased competition and a rise in industrial sickness since the late
1990s.
There are differing perceptions on what constitutes sickness - losses,
negative net worth, loan default etc. RBI defined it as cash losses for
specified period and poor financial ratios. As per the Sick Industrial
Companies Act, it is accumulated losses exceeding net worth.
Common Symptoms and Stages
Common symptoms are non-payment of dues, high inventories, low-
capacity utilization, frequent disputes etc. Units can be sick from birth,
achieve sickness after functioning or have it thrust upon them.
Sickness at Birth
Causes for sickness at birth stage:
Lack of experience, faulty planning and project selection
Inadequate funds and poor financial management
Time and cost overruns during project implementation
Wrong location without supporting infrastructure
Outdated technology, substandard machinery
Incorrect demand assessment and changes in market conditions
Sickness After Commencement
Some reasons for achieved sickness:
Poor management - inexperience, dissensions, lack of
professionalism
Unwarranted expansion and diversion of resources
Defective inventory management
Failure to modernize and adapt to changing environment
Poor labour relations affecting morale and productivity
External Causes
External factors contributing to sickness:
Shortage of power, coal, oil etc affecting production
Inadequate availability of raw materials
Infrastructural bottlenecks like transport
Tight credit conditions due to government policies
Excessive controls on product mix and prices
Magnitude of Sickness
A large number of units are sick, especially in the small-scale sector. Many
are non-viable.
Institutional Framework
RBI monitors incipient sickness when net worth falls by 50%
Sick Industrial Companies Act provides for BIFR to revive viable units
Measures include financial restructuring, change of management,
M&A, sale of assets etc.
Winding up recommended if unviable
EXPANSION AND DEFECTS OF THE PUBLIC SECTOR
Expansion of Public Sector
The public sector in India and many other countries across the world saw
massive expansion in the 1960s and 1970s. Public sector undertakings
were set up across a wide range of industries under the socialist policies
pursued by governments.
In India, the Industrial Policy Resolution of 1956 had reserved several core
and strategic industries exclusively for the public sector. Massive
investments were made in public sector units across sectors like steel,
power, mining, manufacturing, telecom etc over several Five Year Plan
periods. By 1991, public sector enterprises had come to dominate and
almost monopolize several crucial sectors of the economy.
Performance Issues of PSUs
However, the performance of public sector undertakings, in India and
elsewhere, was far from satisfactory over the years. PSUs became a huge
financial burden on governments due to the losses incurred by them.
There were several instances of inefficiency, indifference, lack of customer
orientation, wasteful expenditures, corruption and nepotism associated
with PSUs. Their bureaucratic style of functioning and monopoly powers in
several sectors led to an unresponsive and arrogant attitude.
All this led to growing public discontent with PSUs by the 1980s. It paved
the way for the privatization trend that swept across the world.
Privatization Trend
By the late 1970s, privatization emerged as a universal trend across the
world as a remedy to the ills of state owned enterprises. Privatization
helped governments curb the heavy fiscal burden imposed by loss making
PSUs. It was also aimed at improving efficiencies through private
management and competition.
Different routes of privatization were adopted like divestment of equity,
denationalization, contracting out services to the private sector,
franchising licenses, liquidation of non-viable units etc. However, the
progress of privatization was much slower in developing countries
compared to advanced economies. This was due to factors like political
opposition, underdeveloped capital markets, apprehensions about foreign
ownership etc.
Impact of Privatization
Privatization of public sector undertakings helped in several ways:
It reduced the fiscal burden on governments by lowering losses as
well as the size of bureaucracy.
It enabled raising of resources for the state through disinvestment
proceeds.
It allowed greater focus of governments on essential sovereign and
governance functions.
It was expected to lead to improved management and encourage
private entrepreneurship.
Wider share ownership after privatization made firms more directly
accountable to the people.
Concerns about Privatization
However, there were also concerns voiced about the potentially adverse
impacts of privatization:
It was seen as compromising on the public sector goals and ideals of
self-reliance, social welfare etc.
Privatization of monopolies could encourage concentration of
economic power in the hands of big business houses.
State control was seen as essential in strategic and core sectors
from national interest perspective.
Privatization meant foregoing future income streams from profitable
PSUs for the government.
There were concerns about job losses for employees of privatized
firms.
Pitfalls in Implementation
There were also several pitfalls observed in the design and execution of
privatization programs:
Absence of a coherent policy framework and clear objectives
Presence of vested interests and allegations of corruption
Poor timing of disinvestment without considering industry and
market conditions
Lack of political consensus leading to policy instability
Inadequate handling of labor issues like retraining and voluntary
retirement
Failure to bring about attitudinal changes improving work culture
post-privatization
Conclusion
In conclusion, while public sector expansion had several flaws like
inefficiency, losses etc, a cautious approach was needed on privatization
balancing various socio-economic objectives and national interests.
