What is the Economic Reform Policy for the Public Sector?
Economic Reforms and the Public Sector Policy

The public sector policy followed by the government at present including disinvestment programmes were launched after the New Industrial Policy of 1991. The New Industrial Policy, which acts as core policy behind economic reforms, has brought extensive changes in the working of Public Sector Undertakings (PSUs).

The changes made by the Industrial Policy 1991 on PSUs were several; starting from sectors where the PSUs to be concentrated, removal of reservation for PSUs in most sectors, their restructuring by adopting market oriented practices, selling of loss making PSUs, reduction of government ownership through etc. The sum of these reform was that the PSUs are no more occupying the commanding heights of the economy, rather they have to compete with the private sector on an equal footing.

First of all, the public sector policy of the 1991 industrial policy has identified strategic areas and non-strategic areas for the public sector. The government decided to concentrate only on the strategic sector by withdrawing the public sector from most of the non-strategic sectors. Adding efficiency and infusing competitive business practices became the main solution to control the losses of the PSUs.

The following are the maim reform measures introduced for the PSUs as part of the 1991 industrial policy.

1. The public sector will focus on strategic, high-tech and essential infrastructure areas.

2. PSUs which are chronically sick are to be considered for reconstruction

3. To encourage resource mobilization in PSUs, a part of the shareholding of PSUs will be given to the mutual funds, financial institutions and general public and to the workers (often this is described as disinvestment policy).

4. Board of PSUs will be made more professional and given more powers.

5. The PSU management will be given autonomy and for this the government will sign Memoranda of Understanding with the PSU Boards.

Following are the main areas to be engaged by the Public Sector under the 1991 industrial Policy.

  1. Essential infrastructure goods and services.
  2. Exploration and exploitation of oil and mineral resources.
  3. Technology developments and building of manufacturing capabilities in areas which are crucial in the long term development of the economy and where private sector investment is inadequate.
  4. Manufacture of products where strategic consideration predominate such as defense equipment.

The public sector policy and disinvestment of PSEs are derived from the Industrial Policy of 1991. It has introduced a restructuring plan and changed role for PSEs.

Strategic and non-strategic areas for public sector

On 16th March 1999, the Government classified the Public Sector Enterprises into strategic and non-strategic areas for the purpose of disinvestment. It was decided that the Strategic Public Sector Enterprises would be those in the areas of:

  • Arms and ammunitions and the allied items of defence equipment, defence air-crafts and warships;
  • Atomic energy (except in the areas related to the generation of nuclear power and applications of radiation and radio-isotopes to agriculture, medicine and non-strategic industries);
  • Railway transport.

All other Public Sector Enterprises were to be considered non-strategic. For the non-strategic Public Sector Enterprises, it was decided that the reduction of Government stake to 26% would not be automatic and the manner and pace of doing so would be worked out on a case-to-case basis. A decision in regard to the percentage of disinvestment i.e., Government stake going down to less than 51% or to 26%, would be taken on the following considerations:

  • Whether the industrial sector requires the presence of the public sector as a countervailing force to prevent concentration of power in private hands, and
  • Whether the industrial sector requires a proper regulatory mechanism to protect the consumer interests before Public Sector Enterprises are privatised.


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