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LIMITATIONS OF THE PRIVATE ENTERPRISES - EMERGENCE OF THE PUBLIC SECTOR
ROLE, IMPORTANCE AND NEED of Public Enterprises
Prepared By Arshi Naim
LIMITATIONS OF THE PRIVATE ENTERPRISES - EMERGENCE OF THE PUBLIC SECTOR
Economic thinkers like Rodbestis, Cassalle and Wagner believed that national economy should be transferred from the control of an individual to the control of the community in general. Adam Smith, the architect of the classical theory of laissez-faire had to reconcile that it is the duty of the state to maintain certain public works. The need for public enterprises arises out of the fundamental duty of the state to work for the welfare of the people. The French Economist, Dupont-white remarks. They are certain vital things which the individual can never do, either because he has not the necessary strength to perform them or they would not pay him. The state is the only entrepreneur who can undertake such tasks. Public enterprises are promoted for equitable distribution of social products which form the very basis of the general welfare of the society. Private enterprises are guided by profit-motive; it leads to exploitation, inequalities in the distribution of wealth, lopsides development of the country and dependence upon others. The main and sol. objective of the private sector is to maximise their profit. Against this, the management o-f public sector enterprise is enjoined upon to pay: due weight age to special considerations and compulsions which can only be neglected to the despair of the teaming, toiling and moiling millions in the country who wistfully and hopefully look to these enterprises as the harbinger of prosperity in the shape of increased employment opportunities and wages, cheap and plentiful consumer goods, developed infra-structure etc. With these benefits in view, naturally profit goals take a secondary place but by no means it is a -forgotten consideration as eventually the profits are bound to accrue when the public enterprises attain full adulthood.
The economic development of a country is impossible in the absence of infra-structure facilities. No private entrepreneur has ever afforded to build an infra-structure facilities and it is not a part of the philosophy of the private enterprises to undertake an economic activity just because it is good for the nation. In India, in the first 20 years of planning about 75% was devoted to the creation of basic infra-structure facilities.
The Public sector goes in for huge investments in those areas which are left undeveloped by the private enterprise. Private sector cannot undertake a project involving huge investment and risk with remote chances of profit. In the words of Smt. Indira Gandhi (former Prime Minister) "We advocate public sector for three reasons; to gain control of the commanding heights of the economy, to development in terms of social gain or strategic value rather than primarily on considerations of profit ; and to provide commercial surpluses with which to finance further economic development". The task of the public sector is to harmonize the plans and operations of their enterprise and, dovetail them with large national goals that would directly promote the economic well being of the community.
In the present study, we have studied three metal sector enterprise. The history and development of each one of them is given in this chapter.
STEEL AUTHORITY OF INDIA LIMITED
The question of setting up a holding company for steel and associated input industries was first considered in 1971 by the Government of India. The following two objectives were considered by the Government of India of India in this direction :
Rapid growth of the industrial sector of the economy with the state as a leading agent of the combined growth in India.
Ability of the Government td direct investments into areas which are strategic from the point of view of future development.
Based on the above considerations proposal to set up a holding company for steel and associated input industries was approve by the Govt. of India in January, 1972 and finally given shape and born as the Steel Authority of India Ltd. (SAIL) on 24th January, 1973. Further, Indian Iron and Steel Company (IISCI) which came into force in 1952 in the private sector, after successful working for many. Years, ran into trouble and was taken over by the Govt. of India in 1972 and subsequently became a subsidiary company of SAIL.
Consequent upon the public and Steel sector Iron Companies (Restructuring) and Miscellaneous Provision Act, 1978 coming into force w.e.f. 1st May, 1978 the companies dissolved and integrated with SAIL were :
Hindustan Steel Ltd.
Bokaro Steel Ltd.
Salem Steel Ltd.
Rourkela Ispat Ltd. ,
Durgapur Ispat Ltd.
SAIL International Ltd.
All the shares held by the Central Government in the share capital of Indian Iron and Steel Company Ltd. (IISCO) stood transferred to and vested in SAIL. Now IISCO became a fully owned subsidiary of SAIL. Integrated steel plants at Bokaro, Bhili, Durgapur, Rourkela, Salem and alloy steel plant are working under SAIL. Vishakhapatnam and Vijaywada Steel Project are also progressing under SAIL.
ORGANISATIONAL SET UP
The Chairman p-f the Board of Directors of SAIL is appointed by the President. of India. The Board includes at present Chairman, Vice-Chairman, four Managing Directors and five full-time Directors incharge of functions of areas such as finance, personnel, technical production and commercial. The Secretary to the Government in the Ministry of Finance and the Secretary in the Planning Commission are also appointed as non-rotational directors in SAIL to bring to bear- on the decision making process in the Board of SAIL. In addition to the above, part-time directors are also appointed in SAIL by the Government. These part-time directors retire by rotation, one third to retire in every annual general meeting. Representatives of Public Sector financial institutions are also included in SAIL Boar-d. The Managing Directors of plants and subsidiaries are appointed by the Chairman of SAIL but only with the approval of the President of India. The appointment of members of the Boar-d of SAIL in other plants and subsidiary companies has done well with a view to facilitating coordination on important matters.
Gross Block and Net Worth
Table given below .Mows the gross block and net worth position of SAIL from 1981-82 to 1989-90.
Table 2.1
GROSS BLOCK AND NET MORTH IN STEEL AUTHORITY OF INDIA LIMITED
(1981-82 to- 1989-90)
(Rs. in Crores)
Years
Gross Block
Net Worth
1981-82
3177.14
3263.50
1982-83
3480.16
3170.60
1983-84
3646.53
3160.11
1984-85
4711.02
3431.92
1985-86
5596.12
3809.01
1986-87
6007.56
3875.62
1987-88
6875.03
3955.53
1988-89
7658.26
4253.68
1989-90
8674.19
4453.45
Source: Annual Report and Accounts of SAIL from 1981-82 to 1988-89.
The gross block figures were, Rs.3177.14 crores in 1981-82 which increased continuously upto Rs.8674.19 crores in 1989-90. The net worth of the company however showed a fluctuating trend. It was 3263.50 crores in 1981-82. It decreased to 3170.60 crores and 3160.11 crores rupees in the years 1982-83 and 1983-84 respectively. Then again it showed an increasing trend and net worth increased to 3431.92 crores rupees in 1984-85 and 4453.45 crores in 1988-90.
The Steel Authority of was formally India Ltd. incorporated on January 24, 1973 authorised capital, 1973 with an authorised capital of Rs.2000 crores which was increased to Rs.2500 crores and Rs. 3000 in 1978-79. The authorised capital of company increased to Rs. 4000 crores in 1981-82 and Rs. 5000 crores in 1987-88 and it is still unchanged. The issued and subscribed capital of the company as on 31st March, 1989 was Rs. 3985.89 crores.
It is evident from the above description that SAIL in the public sector has been developing but the rate of development has been very slow as compared to other countries in the world like the USSR, the USA, West Germany and U.K. etc. As a result of this slow developing rate today, India is ranked at the 17th position as regards ingot.
Bharat Aluminum Company Limited (BALCO)
The first public sector unit in this industry was Bharat Aluminum Company Limited (BALCO) incorporated on November 27, 1965. The company has been ent1rusted with the implementation of two massive aluminium projects one at Ratnagiri in Maharashtra and the other at Korba in Madhya.
(a) Ratnagiri Aluminium Project :
This project is based on the utilisation of bauxite deposits located at Udgiri and Dhangarwad in Kolhapur district of Maharashtra estimated at about 85 lakh tonnes and 130 lakh tonne. respectively. The smelter is located at Ratnagiri with the power supply from the neighbouring Koyna hydel station.
In January, 1966, this company entered into a technical consultancy agreement with Messers Vareinige Aluminium Works of West Germany. The detailed project report submitted by these consultants placed the project cost at Rs.68.88 crores including Rs.18 crores in foreign exchange plus Rs.4.55 crores for the township. On scrutiny, these estimates were found on the high side. The terms of the consultancy agreement were also too rigid to be acceptable. The West Germari consultants expressed their inability to modify the agreement. The agreement with them had, therefore, to be terminated.
Later in August, 1969 the BALCO entered into a fresh consultancy agreement for this project with Messers Chemo-complex of Hungary who were already associated with the Korba project of the company, Under this agreement, the detailed project report was prepared by the National Industrial Development corporation, the Indian engineering consultants of the BALCO, in association with Messers Chemokomplex who also supplied process and operating know-how and guidance from erection to start-up of the plants. The project report for the smelter plant was submitted to the Government on 16th February, 1972 for approval.
It was decided to set up the smelter with the technical assistance OT the USSR ahead of the alumina plant with a view to utilise the expected surplus from the Korba complex. The government, sanctioned Ratnagiri project on 29th April, L 1974 at an estimated cost of Rs.78.825 crores.
(b) Korba Aluminium Project :
The Korba project is based on the bauxite deposits in L the Amarkantak and Phutkapahar areas in Madhya Pradesh and electric power from the Porba Thermal Power Station. According to the Geological Survey of India, the bauxite deposits at Phutakpahar and Amarkantak were estimated at 25 lakh tonnes and 84 lakh tonnes respectively. Survey and prospecting of neighbouring areas taken up by the Geological Survey of India indicate a further reserve of about 110 lakh tonnes. The Korba aluminium project will produce two lakh tonnes per annum of alumina and one lakh tonne per annum of aluminium metal including about 5,000 tonnes per annum of aluminum semis (rolled and extruded products).
Messers Chemokomplex of Hungary, in association with National industrial Development Corporation Ltd., submitted a detailed project report in December, 1966 for the alumina Plant at Korba. An agreement for the supply of detailed engineering know-how, supervision, etc. for the plant was signed by the company in December, 1967 with Messers Chemokomplex of Hungary. All the major contracts for the technological establishments for the alumina plant have been entered into, civil construction work has been completed. The first stream of the alumina plant have been corresponding to 50 per cent of its rated capacity, was commissioned on April 21, 1973.Upto March, 1975 the total expenditure on this project amounted to Rs.36.00 crores. During 1975, performance trials of the alumina plant were successfully completed. The production of calcined alumina during 1974-75 was 55,350 M.T. as against 11,548 M.T. in 1973-74. The target for 1975-76 was fixed at 70,000 tonnes of alumina and 18,000 tonnes of aluminium. The actual production during this year was 69,700 tonnes of aluminium metal. During 1976-77 the production of alumina increased to 1,04,370 tonnes while the production of aluminium was 24,758 tonnes. The installed capacity of Korba smelter was increased to 50,000 tonnes from 25,000 tonnes on 20th September, 1977.
The company during 1977-78 faced power crises and the actual production of alumina was 1,16,460 tonnees while the production of aluminium was 31,841 tonnes. The production during 1978-79 increase 1,26,650 tonnes of alumina and 33,751 tonnes of aluminium. The protraction of alumina during 1979-80 decreased to 1,16,640 tonnes whi1e the production of alumina increased to 35,751 tonnes. During 1990-91 the installed capacity was increased to 1,00,000 tonnes. The production of the company during 1980-81 to 1984-85 increased steadily. During 1984-85 the production of alumina was 1,60,640 tonnes while that of aluminium was 87,000 tonnes. The production during 1985-86 was 37,320 tonnes of aluminium Ingots which increased to 36,400 tonnes in 1986-87 while it decreased to 28,040 tonnes in 1987-88 and further to 21,609 tonnes in 1988-89.
PUBLIC ENTERPRISES : THEIR ROLE, IMPORTANCE AND NEED
In the early years of the nineteenth century, the era of Industrial Revolution., there was a common belief that the development of human personality and economic growth was best assured when the individual was left to himself and has completely lost its meaning. The most important factor leading to the intervention of the state in economic and industrial spheres was the growth of social evils which accompanied the Industrial Revolution. The Industrial Revolution created 'Private Capitalism', which damaged his security, his welfare and even his whole future. The Inexorable laws of the policy of laissez-faire began to operate in action and reaction, distress and luxury, starvation and plenty, richness and nakedness and they became so visible that state intervention became a historical necessity. The state today has emerged as an active participant in the economic and industrial fields. Today, there is hardly any sphere of human activity which is not controlled and regulated by the state. Almost in all the countries these respective governments are engaged and directly in the setting up and management of economic and industrial enterprises.. These activities range from transport systems - rail, road, air and shipping enterprises and waterways-the generation of power and its distribution, irrigation -with vast networks, the mining and processing of coal, iron and other minerals, banking and insurance, to industrial establishments of all kinds, such as integrated steel plants, machine, tools, fertilizers and chemicals, the manufacture of aircraft, locomotives and of transport equipment, indeed, almost every conceivable sort of industrial and commercial activity.
