Essay on Joint Sector Enterprise in India

In this essay we will discuss about Joint Sector Enterprise in India. After reading this essay you will learn about: 1. Origin and Evolution of the Joint Sector 2. Factors Governing the Joint Sector 3. Meaning and Kinds 4. Scope 5. Government Position 6. Present Position in India.

Contents:

1. Essay on the Origin and Evolution of the Joint Sector
2. Essay on the Factors Governing the Joint Sector
3. Essay on the Meaning and Kinds of Joint Sector
4. Essay on the Scope of the Joint Sector
5. Essay on the Government Position on the Joint Sector
6. Essay on the Present Position of the Joint Sector in India

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Essay # 1. Origin and Evolution of the Joint Sector:

The origin of the Joint Sectors in India can be traced back to the pre-independence period when a good number of industrial enterprises were set up in the princely states of Mysore and Hyderabad. After independence, the Tatas set up Air India International with the participation of the Government of India.

But the real seeds of the joint sector enterprises were introduced with the adoption of the concept of mixed economy as envisaged by the Industrial Policy Resolution, 1956.

This Industrial Policy of 1956 stated, “In suitable cases, the state may also grant financial assistance to the private sector. Such assistance, especially when the amount involved is substantial, will preferably be in the form of participation of equity capital though it may also be in part in the form of debenture capital.”

Although the Resolution of 1956 did not mention specifically the term ‘joint sector’ but the intention of the Government was in line with the participation of the Government in industrial units with private sector.

After the introduction of Industrial Policy Resolution, 1956, good numbers of companies were set up by the Government of India in collaboration with the private sector through its mutual sharing of ownership, management and control. The main examples of such joint sector companies included Cochin Refineries (1963), Madras Refineries (1965), Madras Fertilisers (1965), Gujarat State Fertiliser Company (1956) etc.

Moreover, the Industrial Licensing Policy Inquiry Committee (1969), popularly termed as Dutt Committee categorically recommended the establishment of a joint sector as per the provision of 1956 resolution. Dutt Committee suggested that the major private sector projects be gradually converted into ‘Joint Sector’ by converting the loans from public financial institutions into equities. The Dutt Committee was of the opinion that the setting up of the joint sector would be able to have effective check on the concentration of economic power by the large industrial houses.

Since then both the Central and State Governments have been setting up a good number of companies in collaboration with private entrepreneurs for attaining a higher rate of industrial growth in the economy.

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Essay # 2. Factors Governing the Joint Sector:

The main reasons behind the growth of the joint sector enterprise include:

(a) Integration of both public sector and private sector,

(b) Providing a third avenue for balanced industrial development,

(c) Extension of the idea of the mixed economy and

(d) For pooling of costs and required resources for the development of a new project.

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Essay # 3. Meaning and Kinds of Joint Sector:

The Joint Sector is a kind of simple partnership between the private sector and the Government, about the definition of joint sector enterprise, there were some controversy.

Dutt Committee report mentioned three different concepts of joint sector enterprises:

(i) Existing private enterprises of the large industrial houses may be converted into joint sector by the public sector financial institutions converting all of their loans into equity.

(ii) The joint sector includes those industrial units in which both the public and private sector investment had been taking place and in which the state has been actively participating to control such projects.

(iii) A large industrial unit in schedule B and C categories normally requiring the technical and economic advantages of the large scale should be set up in the joint sector so as to control concentration of economic power.

Again Dr. Paranjape, one of the members of the Dutt Committee, distinguishes between two types of the joint sector units: (a) large enterprises, with state and public financial institutions taking a commanding share in the equity holding of the company; and (b) small medium enterprises with a small percentage of equity with the State and Public financial institutions, where the government will appoint its nominee in the Board of Directors to have certain control over its management.

Tata Memorandum on Industrial Growth:

In 1960, J.R.D. Tata in its memorandum for industrial growth submitted to the Government offered a ‘minimum critical definition’ of the joint sector.

As per this definition, “A joint sector enterprises is intended to be a form of partnership between the private sector and the Government in which state participation in capital will not be less than 26 per cent, the day-to-day management will normally be in the hands of the private sector exercised by a board of directors on which Government is adequately represented.”

Thus, it was found that while the Dutt Committee’s concept of the joint sector was tilted towards the public sector but the definition of Tatas was again tilted towards the private sector. In this definite line of action, the Government considered the intrinsic merits of both the public and private sectors and wanted to make a synthesis of the best of these two sectors in certain projects which led to the emergence of a joint venture of entrepreneurship in both financing and management.

Prospective Industries under the Joint Sector:

While commending for the prospective industrial areas to be developed under the joint sector, the Dutt Committee preferred the core sector alone, the others preferred to expand the activities of the joint sector in Schedule B and C (mentioned in 1956 IPRs). The Tata Memorandum made a distinction between two types of joint sector enterprises i.e., firstly the Major Projects with large sum of investments (with more than Rs 5 crore), and secondly the small projects with lesser volume of investment (less than Rs 5 crore) and finally commends the second type of enterprises to be developed in the backward regions.

Considering all these propositions, we can identify four different types of joint sector enterprises:

(i) Transforming some of the existing private enterprises into joint sector enterprises by converting their loans from public financial institutions into equity or through fresh equity participation.

(ii) Setting up new companies by the Central Government with equity participation by both the Government and private investors.

(iii) Transforming the existing public sector enterprises into joint sector enterprises through its sale of equity shares to private enterprises.

(iv) Setting up of new enterprises by the State Government or by the State Industrial Development Corporations jointly with the participation of private investors in its equity.

It is really interesting to see that although in the pre-1991 period, the joint sector did not make much headway in the country but in the post-1991 period, the country has been experiencing into the growth of all the four different forms of joint sector enterprises, especially of the third type, with the disinvestment of the share of public sector enterprises through its sale to the private sector.

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Essay # 4. Scope of the Joint Sector:

Joint Sector has certain definite rationale and scope for its development in a mixed economy like India.

Following are some of the important rationale and scope of the joint sector enterprise:

1. Failures of Private and Public Sectors:

In a mixed economy like India, both the public and private sectors are facing certain limitations of their own. The private sector of the country suffers from paucity of financial resources and public sector suffers from lack of dynamic management.

Thus, the setting up of joint sector enterprise can provide a compromise solution to provide both the benefit of vast financial resources of the Government and dynamic management efficiency of the private sector.

2. Social Control over Industries:

Under the present growing trend of large private industrial houses, growing volume of loans of these enterprises from public sector financial institutions and concentration of economic power, the best alternative open to the Government is to participate jointly with the private sector in the ownership and management of industries under the schedule of B and C.

3. State Sponsored Industrialization:

With the rationale of state sponsored industrialisation under the joint sector, the Government can make a choice of the industrial projects desirable from the social point of view and can persuade the private investors to join hands in promoting the required industrial projects through increased social orientation. This will also help to attain a balanced pattern of industrial investment in the country.

4. Accelerating Economic Growth:

In order to break the industrial stagnation, especially in the field of small and medium scale industries, the joint sector can play an effective role in accelerating the pace of economic growth of the country. Participation of the Government in the joint sector would also help to provide a built-in-check on the power of the large houses and can utilise the dynamic management efficiency of the private sector for attaining a higher level of industrial growth in the country.

5. Extension of Public Control:

The introduction of the concept of joint sector enterprise can lessen the burden of the public sector in making huge investment with insignificant return and can persuade the private sector to enter into some responsible areas and finally can have increasing social control over industries.

6. Mobilisation of Techno-Managerial Resources:

In order to mobilise the scarce techno-managerial resources created in the private sector, the joint sector can play a useful role by mobilising both the financial and scarce highly developed human resources, urgently required for the development of the industrial sector.

7. Broadbasing Entrepreneurship:

The joint sector can play an effective role of broadbasing entrepreneurship in wide range of industries by promoting a good number of small entrepreneurs, to develop with Government’s supports and facilities. In the meantime, a number of State Industrial Development Corporations have been, playing such role and this has resulted the growth of many joint sector enterprises with the participation of the private sector and State Governments.

8. Reducing the Losses of Public Sector Undertakings (PSUs):

The transformation of the loss incurring PSUs into joint sector undertakings through the disinvestment of its shares can make a total change in their working as well as management pattern. This change in the managerial set up would infuse rational outlook and lessen the political interference which would finally be able to reduce the extent of losses incurred by these PSUs and to bring these units in the mainstream.

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Essay # 5. Government Position on the Joint Sector:

The Joint sector is now gradually occupying a dominant position in the industrial sector of the country. The concept of the joint sector enterprise was initially accepted by the Government of India through its Industrial Licensing Policy, 1970. The position of the Government on the joint sector has been reiterated by its industrial policy decisions of February 1973.

The following are some of the important points finalised by the Government in respect of joint sector:

(i) Joint sector units would be developed and the development of such units must conform to the Government’s social and economic objectives.

(ii) The joint sector will be allowed to participate in those areas where the private sector is not allowed to participate under the existing policy.

(iii) In respect of new and medium entrepreneurs, the joint sector would be a promotional instrument.

(iv) The Government will ensure an effective role in guiding policies, management and operations in all the different forms of joint sector units.

Regarding various joint sector projects, in which the State Government and State Industrial Development Corporations collaborate with private entrepreneurs, the Central Government has laid down the following guidelines:

(a) The Central Government’s permission is necessary to be obtained if the private concern belongs to one of the big houses or a foreign majority company.

(b) In respect of foreign participation there should be: 25 per cent equity for State Government or State Corporations, 20 per cent for Indian entrepreneur, 20 per cent for foreign investor and 35 per cent for investing public.

(c) If there is no foreign participation, there should be: 26 per cent equity ownership for State Government or State Industrial Development Corporations; 25 per cent for private entrepreneurs; 49 per cent for the investing public and financial institutions.

(d) Without the prior permission of the Central Government, no single party is allowed to hold more than 25 per cent the paid up capital.

In the absence of proper statistical data about the joint sector, it can be stated that the process of industrialisation through joint sector has already started. In 1982, the shareholding of 68 joint sector companies assisted by the IDBI reflects that the share of individuals (both resident and non-resident) was to the extent of 36 per cent and the share of joint stock companies and charitable trusts was to the extent of 16 per cent.

On the other hand, the shareholding of the private sector was amounted to nearly 52 per cent and that of the public sector, including both Central and State Government and public sector financial institutions was to the extent- of 42 per cent. It is expected that this trend might have been strengthened in recent years.

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Essay # 6. Present Position of the Joint Sector in India:

It is quite important to paint a picture on the current position of the joint sector enterprise in India. The Annual Survey of Industries (1986-87) reveals that out of the total productive capital invested in the corporate sector amounting to Rs 89,034 crore in 1985-86, the joint sector accounted for only Rs 9,234 crore, i.e., 10.4 per cent of the total.

Again, the share of joint sector in total value added was to the extent of 10.2 per cent. The joint sector of the country has been able to generate employment for 5.3 lakh persons which comes out nearly 7.1 per cent of the total corporate employment of the country in the same year.

Thus, it is found that the joint sector enterprise has started its operation as an infant in right earnest. Considering the nature of Indian economy, the joint sector enterprise has a definite role to play in the years to come. Moreover, the economic liberalisation introduced in India has also opened the chances for the expansion of the joint sector.

The New Industrial Polity, 1991 has also opened the door for the participation of private sector in the equities of public sector enterprises through disinvestment of shares of PSEs. Thus, there is a definite shift in the Government policy to induct more joint sector enterprises instead of complete take over by the Government. Thus, the joint sector is expected to play a positive role in future industrial growth of the country.

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