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TRANSCRIPT
FINANCIAL STRUCTURE OF PUBLIC SECTOR ENTERPRISES
- A CASE STUDY O F COAL INDIA LIMITED
THESIS SUBMITTED FOR THE DEGREE OF
Bo t t o r of ^Iii logoplip IN
COMMERCE
BY
SHAKILUR REHMAN KHAN
Under the supervision of
PROFESSOR NAFEES BAIG
DEPARTMENT OF COMMERCE ALIGARH MUSLIM UNIVERSITY
ALIGARH (INDIA)
1991
'1-4343
Professor Nafees Baig M. C o m . , Ph. D . . D . L i l t . , CASr I Manchester)
Office : 2576t & 25674
Depar tment of C o m m e f c t Aligarh Muslim University
ALIGARH - 202002 (India)
CERTIFICATE
Thi6 U, to c.ZKtiiy that tkz Ph.V. the^li e.ntitlzd
"FINANCIAL STRUCTURE OF PUBLIC SECTOR ENTERPRISES -
A CASE STUVy OF COAL JNVJA LIMITEP", AubmUted by
UfL. ShakUJx/L Refifflon Khan been completed andzfc my
-hupe.fiV'i&'ion. Tki^ wofik in my opinion suitable ^oJi
iabmi^iion on. the am^d Ph.V. in Commen.ce.
Vatzd:
ZS.12.1991.
^ r I PROFESSOR NAFEES BAIG )
SupeAviAO^
Rcsidencc N u f e e s Manzi l , 4 / 8 1 4 Sir Sycd Nagar , A l igarh . i g f 2 7 8 6 8
C O N T E N T S
PREFACE & ACKNOWLEDGEMENT
LIST OF ABBREVIATIONS USED
LIST OF TABLES, CHART, MAPS ETC,
1
vi
ix
CHAPTER I : Evolution and Rationale of Public Sector Enterprises.
CHAPTER II :
CHAPTER III:
CHAPTER IV :
CHAPTER V :
Financial Structure of Public Sector Enterprises - A Conceptual Framework.
Financial Performance of Public Sector Enterprises.
Coal India Limited Organisation, Working Financial Structure.
Conclusions and Findings,
and
64
127
186
268
BIBLIOGRAPHY 307
P R E F A C E
Public sector enterprise plays an important role
in the economic development of our country. It has grown
phenomenally in terms of number of enterprises,
investment, employment, export earnings. It is in the
fitness of things that this study on public sector
enterprises deals with the financial structure of these
enterprises with a case study of the performance and
financial structure of the Coal India Limited.
Framework
The study has been divided into five chapters,
covering all most allaspects of public sector enterprises
in general and Coal India Limited in particular. Special
emphasis has been given to the financial structure of
these enterprises. In chapter 1st, an attempt has been
made to highlight the evolution and rationale of public
sector enterprises. The chapter encompasses the
organisational structures, objectives and role of public
sector enterprises in Indian economic scene where the
trends of growth of the sector have also been analysed.
The second chapter is devoted to the study of
conceptual framework of the financial structure of the
Public sector enterprises. The chaptcr also reviews and
ii
Surveys the literature available on the subject.
The third chapter provides an analysis ot the
tinancial pertormance and tinancial structure ot public
sector enterprises in India with the help ot various
parameters such as investment, generation and utilisation
of resources, Contribution to exchequer, pricing,
profitability etc.
The fourth chapter contains an exhaustive and
analytical study of the organisation and the working ot
Coal India Limited. The financial structure ot the company
has also been examined in the chapter.
The Fifth chapter gives a resume ot the
conclusions and findings of the study.
ACKNOWLEDGEMENT
It is with great pleasure that I mention here that
this study was completed under the scholarly supervision
of my respected and learned teacher, Prof. Natees Baig,
Dean, Faculty of Commerce, A.M.U.,Aligarh. Inspite ot his
busy schedule he spared valuable time tor me and gave
invaluable guidance. I express a great debt ot gratitutde
to him.
111.
1 am highly gratetul to Prof. l.H.farooqui former,
Dean and Chairman, Prot. Samidduin, Chairman, Department
of Commerce, Prof. Abdul Farooq Khan, Dr.Asif Ali Khan,
Mr. Qamaruddin Khan, Dr. B.A.lqbal, Dr.1.H.bilgrami ,
Dr.Mohd Talha and Dr.Abdul Qayyum Khan for their positive
guidance and encouragement.
1 acknowledge with thanks the kind of help 1
received from Mr.Arif Mohd. Khan, Ex-Minister of Energy,
Govt, of India, Mr.Nagendra Sharma, Secretary, Ministry of
Energy, Govt. of India, Mr.U.Syryanarrayana, Company
Secretary, Coal India Limited, Calcutta, and Mr. D.J,
Kanvinda, G.M.and Editor, Economic Research Department,
S.B.I.,Bombay. I am also grateful to Prof. Masud Husain
Khan, Prof. Emeritus and Ex-Vice-Chancellor, Jamia Millia
Islamia ,Delhi , and Dr .Mir za Khalil Ahmed liaigj Reader,
Women's College, A.M.U. ,Aligath. It is they who took all
pains in resolving my personal problems from time to time.
1 take this opportunity to express my deep sense
of gratitude to my maternal uncle Mr.Mohd.Wasi Khan tor
his help in the completion of this thesis. 1 also otter my
heart felt thanks toMs.Tasavvur Khan whose constant
encouragement at every stage has been a source of
inspiration tor me during the course of my study.
111.
In rhis study I have been greatly helped and
encouraged by a number of friends and colleagues
particularly Messrs, Aijaz Ahmad, Shoeb Ahmad, Mohd.
Faheem, Tanveer Ahmad, Mohd. Shoukat, Z.U. Kharrowala,
Shabuddin, Shahid Shamim, Ms. Samina Parveen, Ms. Sheba
Manzoor and Ms. Sameena and I thank them.
I wish to place on record the help I received from
the authorities and the library staff of the Ministry of
Energy, Govt, of India, Bureau of Public Enterprises and
Coal India Limited for their constant cooperation and
help from time to time.
I am thankful to the staff of M.A. Library
specially Prof. Nurul Hasan Khan, Mr. Naseemul Islam and
Mr. Wajid Husain who helped me a lot. I also thank Mr.
Rashid Husain, Seminar librarian and Mr. Ali Hasan Lib.
Asstt. for their kind help in providing research
material. I am also thankful to the non-teaching staff
of the office of the Dean, Faculty of Commerce and the
Deptt. of Commerce particularly Mr. Atimad Ahmad Fazli,
Mr. Shahzad Ahmad and Mr. Shamshad Ahmad for their help
in various ways.
Though, I have tried my best to mention the names
of different persons who helped me in the completion of
this thesis, I might have missed some naines for v;hich I
seek their forgiveness.
Finally, I am thankful to Mr. Mohd Owais Khan for
the immaculate job of typing the entire work in a record
time. Hi It
December 1991 (SHAKILUR REHMAN KHAN)
Department of Commerce A.M.U., Aligarh.
LIST OF ABBREVIATIONS USED
vi
AITUC
BCCL
BHEL
BMS
CBA
CEA
CHP
CIL
CISF
CMRS
CMWO
CM
DBMS
DPR
DGMS
DGM
DVC
ECL
EIL
FEW
FRG
HEC
HEMM
All India Union Congress
Bharat Coking Coal Ltd.
Bharat Heavy Electricals Limited
Bhartiya Mazdoor Sangh
Coal Bearing Act
Central Electricity Authority
Coal Handling Plants
Coal India Limited
Central Industrial Security Force
Central Mining Research Station
Coal Mines Welfare Organisation
Cubic Metre
Data Base Management System
Detailed Project Report
Director General of Mines Safety
Director of Geology and Mining
Damodar Valley Corporation
Eastern Coalfields Limited
Engineers India Limited
Four Weeler Wagon
Federal Republic of Germany
Heavy Engineering Corporation
Heavy Earth Moving Machinery
vii
ICPC
IFC
IISCO
ILO
ISM
lUCD
JBCCI
K Cal
KWH
LA
Lie
LT
LTC
MAMC
MECL
MGR
MIS
MT
MW
m
NCL
NCWA
NEC
OC
OCP
International Coal Preparation Congress
international Finance Corporation
Indian Iron and Steel Company
International labour Organisation
Indian School of Mines
Intra Uterine Contraceptive Device
joint bipartite Committee for Coal Industry
Kilo calories
Kilo-watt hour
Land Acquisition
Life Insurance Corporation
Low Temperature/Lakh Tonne
Low Temperature Carbonisation
Mining and Allied Machinery Corporation
Mineral exploration Corporation Limited
Merry Go Round
Management Information System
Million Tonnes
Mega Watt
Metre
Northern Coalfields Limited
National Coal Wage Agreement
North Eastern Coalfields
Open Cast
Open Cast Projects
via
ONGC Oil and Natural Gas Commission
OMS : Output per manshift
PIB : Public Investment Board
RBI : Reserve Bank of India
R & D : Research and Development
RE : Revised Estimates
RCE : Revised Cost Estimates
SAIL : Steel Authority of India Limited
SCCL : Singareni collieries Company Limited
SECL : South Eastern Coalfields Limited
SLC : Standing Linkage Committee
TISCO : Tata Iron and Steel Company
t.p.h. : Tone per hour
t.p.d. : Tonner per day
UG : Under Ground
UK : United Kigdom
USA United States of America
USSR : Union of Soviet Socialist Republic
UT : Union Territory
WCL : Western Coalfields Limited
Wpd : Wagons per day
J.X
L I S T O F T A B L E S
Table I-l Public sector outlays in the plan period 38
1-2 Contribution of Public sector enterprises— Five year Plans.
I 3 Seventh Five Year Plan Public sector outlays.
I-ll Employment and average Annual Emoluments in Public enterprises.
40
42
1-4 Contribution from public enterprises -c (1985-89)
1-5 Growth of production in public sector, Basic Materials and capital Goods. 4 7
1-6 Public sector contribution in total Industrial production. 50
1-7 Cost of production Element~wise. 52
1-8 Cost of production/sales during 1987-88 Enterprises producing goods. 53
1-9 Sales Volume and capital employed. 56
I-IO Top Ten Enterprises In terms of sale _ (1986-87 & 1987-88)
59
1-12 Employment in the Public sector Industries.
III-l Growth of Investment in public sector. 132
III-2 Share of public sector investment in various plans. 134
III-3 Investment in Top Ten public enterprises (1986-1989).
III-4 Sources of Investment •
III-5 Contribution of Central enterprises for generation of internal resources under seventh plan. 145
1-6 Internal resources generated during 1980-81 to 1988-89. 146
1-7 Utilisation of Resources . 148
1-8 Contribution to central Exchequer by
Central Government Enterprises. ^ ^
1-9 Contribution of Central Exchequer . 153
I-IO Net Profits of central Government enterprises. l60 I-11 Elnployment and average annual emoluments in Public Enterprises. ^
1-12 Top Ten profit making enterprises (1988-89) 168
1-13 Top Ten loss making enterprises (1988-89). 170
1-14 Public sector profits— Top Ten enterprises (1989-90 to 1990-91).
1-15 Exports of Goods by public sector • 177
1-16 Export earnings of public enterprises . 178
1-17 Ma/'o- commodity Exporters among public secr-^r undertakings. 180
1-18 Profile of centre's public enterprises
IV-1 Coal production of Coal India Ltd. companies.
IV-2 Production of coking and Non-coking coal.
'V-3B Production of soft coke, hard coke & washed coal (companywise).
20B
212
IV-3A Soft-coke, hard coke, & washed coal production. ^ ^
2L3
V-4A Coal production from underground mines and opencast mines. 214
IV-4B Company-wise production of coal from underground mines and opencast mines. 214
IV-5 CIL subsidiaries production. 212
IV-6 Consumption of Coal India Ltd's Coal. 226 IV-7 Demand and off-take of coal (1984-85 to
9 8 5 - 8 6 ) . • 228
IV-8 Demand and off-take of coal (1988-89 & 1989-90). 231
IV-9 CIL sectorwise coal demand • 234
IV-10 Despatches of coal from CIL• 236
IV-11 Despatches of coal (mode of transport)- 237
IV-12 Despatches and stock of coal
companywise-during last five years. 239
IV-13 Trends in coal sector- 241
IV-14 p.roductivity in CIL (QMS) 244
IV-15 Productvity in CIL subsidiaries. 248
IV-16 Productivity in CIL (1988-89 & 1989-90) 249
IV-17 Coal price and cost of production in Coal India Limited. 2 54 IV-18 Profitability statement. 2S/
IV-19 Profit & loss of CIL and its subsidiaries (1984-85 & 1985-86).
IV-20 Profit & loss of CIL and its subsidiaries (1988-89 & 1989-90).
IV-21 Financial data & ratio ?7i
IV-22 Important Financial data & Relative Ratios. ^ ^
IV-23 Consolidated Assets and liabilities of CIL & its subsidiaries (1983-84 --1985-86). 274
-xi
IV-24 Consolidated Balance sheet of CIL as at 31st March.1986. 27o
IV-25 Consolidated Balance sheet of CIL as at 31st March,1988.
2. Location of coalfields under CIL •
8. Coal price and Cost of production in CIL.
9. CIL Equity (Year end).
279
IV-26 Consolidated Balance sheet of CIL as at 31st March,1990.
Charts, Diagram, Maps etc.
Fi3.N0. 1. Growth of investment in public sector- 130
2. Top Ten enterprises (1988-89)flnvestment leaders.J ^ 138
3. Funds-Resources & utilised.
4. Post tax profit/loss
5. Top ten enterprises (profit leaders & loss leaders).
Map.No. 1. The Major Coalfields of India. 1 9 2
Fig.No.6. Increase: Unit cost V/s Inflation, ^ ^
7. Unit cost of production of CIL • 218 2 52
269
CHAPTER I
EVOLUTION AND RATIONALE OF
PUBLIC SECTOR ENTERPRISES
Public sector is an integral part of Indian
economy. It was conceived as the most potent tool for
providing social justice accelerating the process of
modernisation and ensuring production of wealth for the
all round development of the society. There has been a
massive expansion of public enterprises and these
enterprises have attainded the commanding heights. It
holds 70 percent of India's economic activity and
coverage of these enterprises has extended beyond the
basic and heavy industries into light manufacturing,
variety of consumer goods, electronics, high-tech
products, construction, consulting services even tourism
and hotel industries. The utility of public enterprises
is being debated and discussed at different fora in our
country. In the present chapter an attempt has been
made to analyse the evolution and rationale of public
sector enterprises. The role and growth of these
enterprises in India has also been discussed.
EVOLUTION
Public Sector plays an important and vital role
in developing countries in as much as it helps in
capital formation in the fuller utilization of natural
resources and in achieving more equitable distribution
of income and wealth. Indeed, there is perhaps no
country in the world developed or developing, in which
the public sector does not play a significant role in
the economic affairs. It has emerged as a major tool of
development in the global economy. The countries which
were the champion of the Laissez Faire policy have
realised the importance of state intervention in the
econimic affairs of the nations. The crucial role of
public sector in giving the much needed initial thrust
for economic development is conceded by people of
different ideological predictions, since it happens to
be an almost pragmatic compulsion. It is not as though
such considerations are relevant only in developing
countries like India. Public Sector's presence has
been felt in other developing countries in the Third
world and developed countries of the world also.
In the developing countries like Somalia, Public
Sector is operating in the field of importation
internal marketing and distribution of essential
r'ommodities like food. medicines, construction
materials, motor vehicl es, spare parts etc. In Zambia,.
Goverment controlled organisations play a major role in
domestic and foreign trade. This sector is entrusted
with the distribution of various commodities,
i.e.capital goods, spare parts, raw materials and
promotion of irmpo-rt substitution industries. In Bangla-
Desh, Public sector is emerging as a major force in all
important economic activities aimed at improving the
quality of life of the people.
On the other hand some of the industrially
developed countries such as France have a strong and
huge public sector. "It is large and diverse and covers
a variety of industries and activities such as the
opera, alcohol, stud forms, regie renault. railways,
coal, steels. Gas, electricity etc.^ In Germanyjvolkas
wagon has been developed in the public sector. "In Japan
the military engineering industry was the first to be
state-owned. The next was the mining industry, others
were the railways, telegraphs, s'^lp-Luiiding, civil
1. Farooqi I.H., "Macro structure of Public Enterprises in India" Aligarh, Faculty of Corrimerce A.M.U., 1968 p.70.
engineering and foresty."^ Italy has a large and
flourishing public sector which is highly competitive
and often works in partnership with private enterprise.
"In the United Kingdom the Public sector enterprise has
some well known nationalised industries brought into
public ownership by specific Act of Parliament. These
embrace the entire coal mining industry, the main iron
and steel industry, electricity generation and distribu-
tion, gas manufacture and distribution^ railways, the
national bus company, the largest road haulage network,
the principal national air lines, atomic energy and the
exploitation of north sea oil. To these has been added
what was previously a government department, the post
office and a group of bodies in which the government is
the sole share holder such as the Bank of England and 2
Cable and Wireless Ltd. In Canada, the railways were
owned and managed by private enterprises but it soon
became evident that private enterprise could not run the
railways service efficiently and profitably. In the
interest of the people exercising its responsibility to
see that a
1. Qureshi, Hafizuddin, "Management of Public enterprises in India". Aligarh, Faculty of Commerce, AMU, 1963, p.43.
2. Chatterjee, S.K.. "Management of Public Enterprises. New Delhi, Subject Publications, 1982. p.339.
particular utility service was being performed properly^
the state under took its ownership and management. "In
the United States Government ownership of enterprises
began as early as 1791 when the national government
chartered the United State Bank under Semi-Public
ownership. In the interests of the local businessmen,
congress prohibited foreign owned ship from engaging in
coastal trade. State Government's, with state funds
build turnpikes, canals and rail roads. The federal
government owned and operated the postal service and
developed such services as parcel post and postal
savings which compete directly with privately owned
business. It was owned and operated the Alaska Rail
road company and Panama Canal and several other
enterprises in the canal Zone including the Panama Rail
road company."^ The magnitude and variety of public
sector involvement in these countries may not be the
same as in a developing economy like India. But the
very fact that Public sector has not insignificant
presence demonstrates that as a business and industrial
venture it does not suffer from any inherent handicaps^
whatever be the political ideological or economic set up
under the which it has to work.
1. Qureshi, Hafizuddin. "Management of Public Enterprises in India", Aligarh, Faculty of Commerce A.M.U., 1963 pp.40-41.
The evolution of the public sector in India is
not so old.Prior to 1947, there was virtually no "public
sector" in the country. The only instances worthy of
mention were the Railways, the Posts and Telegraphs
Department, the Post Trusts, the Reserve Bank of India,
the ordnance and aircraft factories and a few
state-managed undertakings like the Government Salt
factories. Quinine factories, etc. This was, of course,
due to historical reasons. In India, it had been the
recognised duty of the state to run productive
undertakings and provide services that may be considered
to be essential to the prosperity of the community and
might of the state since the earliest times. In fact,
the volume of such activity and efficiency with which it
was carried on was often considered as the ideal and the
criterion on which a ruler to be judged as good and
benevolent or bad and repacious.
The treatises of some of the distinguished
writers of the ancient period, such as Shukra and
Kautilya. provide ample evidence of both the prevalent
understanding and the activity undertaken by the state
in those days. The scope of state activity in economic
affairs extended to almost every conceivable item that
could help promote the welfare of the people,add to the
prosperity of the community and strengthen the state.
During the reign of Hindu and the Mughal kings^ public
constructions such as of canals, ghats, fortresses^
tanks, reservoirs and roads were undertaken on a wide
scale. Frequently relief programmes were also
undertaken to alleviate the distress of the people in
situations of natural or other calamities. Testimoney
to their high level of development during these periods
and their subsequent dilapidation and ruin during the
eighteenth century wars and the early period of the East
India company's rule through neglect of the rulers, is
found in the writings sof numerous British observers.
The early period of the company's rule is
characterised by the widespread plunder and drain of the
Wealth of India, and utter disregard for the economic
progress of India and its people. It was only towards
the commencement of the nineteenth century that a change
in approach began and attention was paid towards the
restoration of some canals and undertaking of a few
works. Even then. the consideration of revenue
dominated their outlook, rather than the benefits that
the public works could afford to the people and the
economy. Although the East India company had encouraged
the development of a few indigenous industries in its
8
own interest the policy was later reversed for the
benefit of industries in Great Britain. Even after the
crown had assumed responsibility in 1857 for the
management and good governance of the country. the
policy followed was one on laissez faire. "Perhaps the
earliest reference to government ownership and operation
of industry is contained in the report of the Indian
Famine Commission 1880 which recommended 'development of
industries' and encouragement of occupations" as the
complete remedy from frequent famines."^ The acceptance
of the theory of laissez-faire in England during those
days also must have moulded views. Upto 1904,
therefore, the government's general policy of industrial
development took only two forms a very imperfect
provision of technical and industrial education and the
collection and dissemination of commercial and
industrial information by holding exhibition, starting
commercial museums, examination of industrial resources
and by the publication of a series of provincial
monographs on Indian industries. In 1905; however^ the
Government realised the necessity of the creation of the
Department of Commerce and Industry. The Department
was consequently established at the same year. It was
1. Narain, Laxmi "Principles and Practice of Public Enterprise Management" New Delhi, S. Chand & Co. Ltd., 1982 p.17.
hoped that with the creation of this department
initiative at government level for creating new
industries in the public sector would begin to be taken.
So the handloom weaving was greatly developed- the
chrome process of manufacturing leather was introduced^
irrigation by pumping was started and booring for water
was undertaken, in addition, an organisation was created
for assisting Private individuals to install
power-driven machinery and Plant.^
In the year 1909 , the eastern Bengal and Assam
government at Dacca conference, proposed the
introduction of pioneer factories at governmental
instance. Lord Morley in his official level despatch of
29th July 1910. disapproved of the policy of the Madras
government and sanchioning that state funds may be
expanded upon familiarising the people with such
improvements in the method of production as modern
science and practice of European Countries can suggest,
further than that the state should not go, it must be
left to private enterprise. With the out-break of
First World War^ the British Government realised that an
industrially developed India could have been of greater
1. Indian Industrial Commission Report p.78.
use Lo them even from the limited ot active of winning
the war. Attention was therefcra given to the
development of industries and an Inc-strial Commission
was appointed in 1916 to conduct a cc-prehensive survey
of resources and industrial possibilicies. The Indian
Munitions Board was setup in 191" to foster the
development of certain types of industries. As a result
of all these and other measures, several new industries
were started and many existing c e s were further
developed and extended.
"The Act of 1919 made industry a provincial
subject and many provinces created seperate departments V ^ , -
of industries. One of the most impcrtant development
was the appointment of the Indian Fiscal Commission in
1921 under the Chairmanship of Sir Ibrahim Rahmatullah
which recommended "Discriminating protection." In
pursuance of this recommendation a Tariff Board was set
up in 1923. In spite of criticism frci various quarters
this policy aided some of the ma;.-'r industries of
I n d i a . T h e political struggle of the early 1930's
once again kept the government absorbed in maintaining law and order till the announceme-^t of the 1935 constitution.
1. Farooqi I.H., "Macro struc'.jre of Public Enterprises in India" Alij'arh. "'culty of Corr-nercG A.M. LI., 1968 p. 2 3
11
The congress governments in the provinces came !:o
nffirp in 1 937. A meeting of the ministers of the
department of industry from all over the country, where
congress was in office, was held to evolve some policy
regarding it. This ultimately resulted in the
appointment of the national planning committee by the
President of the congress Sri Subbas Chandra Bose.
Pandit Jawahar Lai Nehru was appointed as its Chairman.^
Within two years when the congress was in office, the
Second World War broke out in Europe which gave a momentum to
Indian industrial development. A large measure of
Government control in the economic sphere was regarded
as essential. The state was to take more initiative.
The establishment of the Board of industrial and
scientific research in 1940, government's assurance to
protect industries established during the war period,
setting up of the Reconstruction committee in 1941, and
the creation of a separate department of planning and
development in 1944, with one of the authors of the
Bombay Plan (Sir Ardeshir Dalai) incharge, paved the way
for government to review its f)er-war policies and adopt
new lines aimed at a concereted development in all spj sre
of economic and social activity.
1. Prasad, Parmanand. "Some economic problems of public
enterprises in India l,cidcn. H K SLenferd Croosc N V 1957 p.92.
12
On 23rcl April 1945, the department of Planning
and Development issued a resolution which announced the
Industrial Policy of the Government. The year 1945
marked the first official step in the expansion of the
public sector in India. The statement while confirming
the continuation of ordnance factories. Railways, Post
office and some public utilities already under
state-ownership and operation. The statement also
declared that the basic industries of national
importance be nationalised provided (i) adequate capital
is not forthcoming, and (ii) it is regarded as essential
in the national interest to promote such industries, for
the purposes of government policy. Basic industries can
be defined as including aircraft automobiles, and
tractors, chemicals and drugs, iron and steel, Prime
movers, transport vehicles, electric machinery, machine
tools, electro-chemical and non-ferrous industries. It
is contemplated also that the government may take over
certain industries in which the tax-element is much more
important than profit and it is necessary and convenient
for the state to take over the industry. All other
industries will be left to private enterprise under
varing degrees of control .
The government of India, appointed an advisory
13
planning Board in October 1946 to examine the problems
closely and recommended in December 1946 that apart
from defence industries and any industry or branch of
any industry which it might be found desirable to start
as a state enterprise due to the reluctance of private
capital to undertake it 5 the nationalisation of the
following should be considered* coal; mineral oils,
iron and steel, motor., air and river transport.
Nothing happened on this recommendation because
Interim national government came to power in 1946 whose
attention was concentrated on the issue of the transfer
of power.
Public Sector After Independence
After the attainment of independence in 1947, the
problems we faced immediately were both urgent and
difficult. It became one of the chief concerns of the
government to accelerate economic development and
repidly industrialise the country so that the Indian
economy could become self-reliant at an early date. By
judging the circumstances in the country, therefore, it
was not considered a wise policy to break things up
without replacing them immediately with some thing
better. going ahead, step by step in a much more
14
constructive spirit. So in spite of washing national
resources in trying to nationalize existing industries
and thus further drying up the production capacity,
enlargement of the field of nationalization was
propagated. For the point of view of technological
advance scientific progress and dynamic future^ it was
considered to be a complete waste of money to acquire
Obsolete machinery, factories and other installation
through nationalization, the most important thing for
the state was the thought of possessing these new and
novel source of production in its hands.
So with this outlook of 'produce or perish' the
government adopted its Industrial Policy Resolution on
April 6th^ 1948. Substantially conscious of stagnant
production conditions of the country, the Resolution
emphasized; Any improvement in the economic conditions
of the country postulates an increase in national
wealth and a mere redistribution of existing wealth
would make no essential difference to the people and
would merely mean the distribution of poverty. Any
dynamic national policy must, therefore be directed to
a continuous increase in production by all possible
means side by side, with measures to secure its
15
equitable distribution.^ The problem of State
participation in industry and the conditions in which
private enterprise should be allowed to operate must be
judged in this context. Although there can be no doubt
that the state must play a progressively active role in
the development of industries but ability to achieve the
main objectives should determine the immediate extent of
state responsibility and the limits to private
enterprise. Under the present conditions 5 the mechanism
and the resources of the state may not permit it to
function forth within industry as widely as may be
desirable. They feel, however, that for some time to
come, the state could contribute more quickly to the
increase of national wealth by expanding its present
activities whenever it is already operating and by
concentrating on new units of production in other fields
rather than on acquiring and running existing units.
Meanwhile, private enterprise properly directed and 2 regulated, has a valuable role to play.
In the light of the above consideration
industries were divided into three categories.
I. Those which would be the exclusive monopoly of
the Central government includes the
1. The Industrial policy Statement of 1948. 2. Ibid.
16
manufacture of arms and ammunition; The
production and control of Atomic energy, and
the ownership and management of Railway
transport.
II. Key industries like coal, iron and steel,
aircraft manufacture, ship-building,
manufacture of telephone, telegraph and
wireless apparatus and mineral oils where
existing private concerns would be allowed to
operate for next ten years, subject to the
inherent right of the state to acquire any of
them in the Public interest and also to the
stipulation that the establishment of new
undetakings in this field would be the
responsibility of the state and other public
authorities.
III. All the remaining industries were normally to
be left for the private enterprise, individual
as well as collective. The state will also
progressively participate in this field nor
will it hesitate to intervene whenever the
progress of an industry under private
enterprise is unsatisfactory.
The 1948 Industrial policy was in fashion till
1956. Meanwhile the approach of the congress and the
17
government was indicating the type of things which were
to shape the country's thinking and action in a
socialistic direction in the near future. The
progressive extension of the public sector according to
the resources and personnel available was acclaimed as
holding the promise of progressive fulfilment of the aim
and objectives of the community. By 1954, the social
thinking definitely shifted from the field of 'mixed
economy' into the domain of 'socialistic pattern of
Society'. In that year, the All India Congress
committee (AICC) Resolution in July, the government
Memorandum and the Parliamentary Resolution of December
1954 had made it sufficiently clear that public sector
in industry was to be extended whenever possible. The
public sector was to be tolerated as it was both
important and necessary in the nation interest. With a
view achieving the twin objectives of socialistic
pattern of society namely employment oriented production
and creative nationalization, the public sector was
declared sacrosanct for the granted statutory
recognition by the state.^
Thus the development of new ideology. the
enactment of the constitution of India guaranteeing
certain fundamental rights and enunciating Directive
1. Jain R.K. "Management of State Enterprises in India. Bombay. C P. Manakala & Sons Pvt. Ltd., 1976 p.22.
18
Principles of State Policy, the experience gained
through the process of planning on an organized basis
and finally the acceptance of the socialistic pattern
of society as the objective of social and economic
policy by the Parliament all these developments
necessitated a fresh statement. The Industrial policy
Resolution issued on 30th April 1956 was the out come.
The Resolution declared that all industries of
basic and strategic importance or in the nature of
public utility services should be in the public sector.
Other industries which are essential and require huge
investment which can be provided by the state were also to
be in the private sector. The government assumed direct
responsibility for the future development of industries
over a wide area. The resolution classified the
industries into three categories. The specific
reference to undertakings is made in the Resolution by
the government of "State trading" on an increasing scale.
The Resolution classified the industries into
three categories as follows:
I. Industries, the further development of which
would be the exclusive responsibility of the
state e.g. defence industries, atomic
19
energy, iron and steel, coal and lignite,
mineral oils, air crafts, air transport,
railway transport, ship-building, telephones
and telelphone cables, telegraphs and
wireless apparatus, heavy plant and
machinery, generation and distribution of
electricity etc.
II. Industries which would be progressively
state-owned but in which private enterprise
would continue to operate e.g. machine
tools, fertilisers, synthetic rubber, road
transport, sea transport, ferrous alloys and
tools etc. and
III. All the remaining industries, the further
development of which would in general be
left to the initiative and enterprise of^the
privace sector; though it would open to the
state to start any industry in this
category.
To meet new challenges from time to time Indian
industrial policy was modified through statements in
1973, 1977, 1980 and 1991.
The Industrial Policy statement of 1973. inter
?o
alia 5 identified high priority industries where
investment from large industrial houses and foreign
companies would be permitted.
The Industrial policy statement of 1977 laid
emphasis on decentralisation and on the role of small
scale, tine and cottage industries.
The Industrial Policy statement of 1980 focussed
attention on the need for promoting competition in the
domestic market, technological upgradation and
modernisation.
A number of policy and procedural changes were
introduced in 1985 and 1986 under the leadership of Mr.
Rajiv Gandhi aimed at increasing productivity, reducing
costs and improving quality. The public sector was
freed from a number of constraints and given a large
measure of autonomy.
The government of India announced its new
Industrial Policy on July 25, 1991. The major
objectives of the new industrial policy package are (a)
To build on the gain already made (b) correct the
distoration which have appeared (c) maintain a sustained
growth in productive and gainful employment and (d)
attain global competitiveness. In pursuit of the above
21
objectives, a series of initiative will be taken in
respect of the policies relating to the following areas.
(1) Industrial licensing (2) Foreign Investment (3)
Foreign technology agreements (4) Public sector
undertakings and (5) Monopolistic and Restrictive trade
Practice Act.
The new Industrial policy aims at (1)
Distributing ZO percent of the government share holding ^ in some of the Public sector units to the mutual funds,
financial institutions^ general public and the workers.
(2) Referring chronically sick Public sector units to
the Board for financial and Industrial Reconstruction
(BIFR) for the formulation of a revival scheme.^
Further. the new Industrial policy the pre-
eminent place of public sector in 8 core areas like
arms and ammunition, atomic energy, mineral oils, rail
transport and mining of coal and other minerals will
continue. Reservation of industries for the Public
sector will remain and there will be no bar on opening
such areas to the private sector selectively. Public
sector may also be allowed entry into areas not reserved
for it.^
Samant Aditya & Joshi Vasudeo 'Need for restructuring Public sector undertakings' The Economic Times, Delhi 22nd August, 1991, M.W. Review. State Bank Economic News letter. Bombay, Vol .XXV, NO. 33 August 19., 1991. p.29,
22
Organisation of Public Sector Enterprises
Soon after the emergence as a free country.
India designated an important role for the public sector
in the Planned development of the country. At a later
stage it became the declared policy of the government
that the public sector should occupy the 'commanding
heights' of the economy. This called for the
establishment over a period of time,, of a large number
of industrial and commercial enterprises in the public
sector covering a wide range of activities.
All the Public sector enterprises in India are
not organised in the same way. The public sector is
boardly divided into three main forms. namely,
deoartmental form^ public corporation and the government
company.
The Departmental Form of organisation is the
oldest form of managing government enterprise. It
does not require any legal or legislative formalities.
They are setup by an executive act of the government.^
The important activities such as railways, Post and
Telegraph are operated departmentally lil<B Tarapur Atomic
1. Farooqui I.H. 'Macro structure of Public Enterprises in India, Aligarh, Faculty of Commerce, AMU, 1968,p.66,
23
Energy Plant, etc. It is run by tVve management concerned
and the Ministers concemedhave a direct responsibility of
its better management* Now the government wanted to
avoid the use of this form for running public
enterprises.
The Public corporation is an autonomous
institution created by an Act of Parliament to provide
either for the nationalization of some business to the
statutory institution established for the purpose. It
works autonomously under a specific statute subject to
the relationships with control by the government as
specified in the statute or regulations and directions
periodically issued by the government. Staffing,
budgeting and other organisational processes are
ordinarily with-in the volition of the Board. The
R.B.I., D.V.C., L.I.C., I.F.C., Warehousing Corporation
etc are some of the forms of public corporations.
Section 617 of Companies Act mentioned that
the government company is that in which not less than 51
percent of the paid up Share Capital is held by the
Central government or by the State government or
governments or jointly by the Central and State
Governments. The relationship with the government is
24
described in the articles which however is a
document amenable to change at the will of the
shareholders^ viz, the government. The audit of these
companies are taken by the Comptoroller and Auditor
General under section 619-B.
The mode of financing of Public enterprises has
been determined by the organisational form which they
have taken, Government investment is in the form of the
share-capital and long-term loans. In other words, the
government plays the role of enterpreneur-cum-investor
as well as that of development banker to the public
enterprises. For their working capital requirements,
public enterprises are ideally expected to depend on
their bankers, though there are cases in which finance
to cover working capital needs,cash deficits etc. is provided
by the government, or bank finance is facilitated
through government guarantees. Each public enterprise
is under the 'administrative control' of a Ministry in
the Government of India which is responsible for the
enterprise and is answerable to Parliament for its
performance. Further, as the agency responsible for the
planned development and regulations of certain sectors
of the economy, the ministry would be interested in and
concerned with the public enterprises in those sectors
as units in the industry as a whole. Many of the
concerns of the Ministry are shared by or form part of
those of the Ministry of Finance and the Planning
Commission. There is also the Bureau of Public
enterprises which undertakes a coordinated overview of
the performance and problems of the Public sector and
brings out periodical reports on these.
Rationale and Obiectives
In India particularly. the present Phenomenal I
growth of the public sector has been a necessary
concomitant of economic planning and the based programme
of economic development launched under a democratic
constitution and under a developing socialistic pattern
of society. The rationale of public sector can be
identified with the rationale of the economic Planning
itself.
Basically the public sector is a means to correct
the imbalances in the economy. The first and the
foremost rationale of public sector, therefore is to
bring out rapid industrial development, particularly in
the sector of heavy of basic industries so as to build
up an cndurini', and firm base for accelerated economic
43
development. Incidentally the expansion of the public
sector will also have an indirect corrective influence
on the agricultural sector in as much as the industries
in the Public sector would draw out surpluses of
manpower employed in agriculture and thereby reduce in
tine the high pressure of population on the soil. The
Second rationale of the public sector follows from the
first viz. that the public sector industries are
expected to provide optimum employment opportunities -
so much so that in some public sector industries there
has been a pronounced employment bias to the sacrifice
of even economic considerations. "The most important
rationale of the public sector, however, is that the
public sector industries are the means through which the
national government is attempting to usher in a •1
socialistic pattern of society in the country.""^ This
actually means two things. The first is that in a
socialistic pattern of Society, the means of production
in vital or basic industries must be publicly owned.
The second is that the concept of the welfare state is
to be translated into reality by making available
basic economic minimum together with amenities and
welfare facilities to each and every employee in the
public sector industries which may in time help to 1. Chatterjee S.K. 'Manapement of Public I'.nLer-rises
Delhi. Surject Publisher, 1982 p. 212.
27
obliterate the present hiatus between the 'haves' and
'have nots.' The next rationale of the public sector
projects is that the public sector industries are the
medium through which the concept of welfare state is
being transformed into reality by the national
government. The public sector industries should act as
model employers in industries not only to promote public
welfare but also to serve as a model for industries in
the private sector to emulate. The other rationale of
public sector is that in order to bring about the
development of basic or vital industries, the quantum of
initial investment necessary is massive. It is now
beyond all dispute that the organisation and the
commissioning of such heavy industries is beyond the
financial or enterpreneurial capacity of private
enterprises. It is also abunduntly clear that in the
present day international conditions such heavy
investments must necessarily involve inter-government
collaboration, huge outlay of foreign exchange and the
development of project reports etc. All this cannot be
arranged except by a national government dedicated to
the task of national resurgence and economic development.
This is perhaps the greatest justification of the Public
sector industries. It would not be disputed that
private enterprise left to itself would not perhaps enter
45
into several lines of economic activity where emergence
of profits may be unduly delayed or where the profits as
and when they arise, would not be sufficiently
attractive. Economic development through private
enterprise alone would^ therefore, leave dangerous gaps
in the overall economic development of the country which
the country just can not afford.
The Public sector is today a large and growing
field of activity with a variety of .industrial units;
construction units, design and engineering units^
training units, financial units and a large variety of
other units. Even the state governments have entered
the field of industry and have their own public sector.
The public sector industries thus constitute a massive
aggregate of investment spread over a very wide field.
In an other decade or two there is every possibility
that the public sector might well be ahead of the
government in terms of investments and employment
potential.
The basic objective for which a public enterprise
is set up is social benefit rather than profit. In
India the twin primary objectives of Public enterprises
are the organisation of production and mobilisation of
rcsourccE for further econo-development. The public
sector has thus become an essential feature and dynamic
instrument for achieving s:cialism. The socialistic
pattern of society which has been accepted as a national
goal and which promises an equitable standard of living
for the vast majority of masses has to serve fully and
justly the cause of economic progress. While there may
be still many flaws in the functioning of the public
sector there is sufficient evidence to prove that have
without the public sector it may not/(been possible to
build the varsatile infrastructure in spheres of
national life which we witness today. "If poverty is to
be banished and if each citizen is to have and enjoy a
basket of minimum essentials of life i.e. food, shelter,
clothing etc. there is a-', urgent need to set up
production of goods and services relevant to the needs
of the masses.^
In nut shell the followir may be indentified as the
objectives of public sector i .terprises in India:
1. To promote self reliance in strategic sectors
and diversify the .economy.
2. To promote econotrij development and growth.
3. I'o prevent concer,: ration of economic power.
4. I'o g,cncrate surpl .-,05 for investment.
Jain S.B. "Mana;',emenL aixl ro!-. if public ent (.'r]-)ri scs jk-l hi Bureau of public enterprise- v'ol . 1. 19H6. p. 120.
JO
5. To reduce regional and social imbalances and
6. To effect equitable distribution of income,
adopt proper employment policy etc.
The major objectives of the public sector in
India have changed over time. Today the public sector
serves:
a) Employment generation and welfare.
b) Balanced regional development.
c) Using resources productivity and giving
adequate return on investments.
d) Raising the level of technology in the
country through constant up gradation.
e) Investment in research and development to
make the country self reliant and
internationally competitive in technology.
f) Training and education of workers to raise
their level of awareness.
g) Introducing innovative management practices
so as to improve the level of managerial
efficiency in the cconomy.
Public enterprises no doubt have a 'Public'
dimension but they also have an enterprise dimension.
There is an increasinj', feeling that the ' cnLcri:)rise'
dir.'cnsion should be predominant if they arc to I unction
31
ef^^ectively They are considered providers of
infrastructure; yet they are required to have commercial
viability. They must earn profits to grow and fulfil
their objectives.^
Role of Public Sector Enterprises
Public sector enterprises play a very
significant role in the economic development of the
country. It emerged as a major tool of development in
the economy of the developing countries like India.
Many roles differing in intensity as per differing conditions
have been assigned to the public sector. While all
these serve several purpose, most of them bear upon the basic
need for the development of underdeveloped countries.
The first and the foremost reason necessitating
the use : of public sector is to develop the under
developed countries. The case of India is a classic
example. It wielded this instrument in a strategy where
in the capital goods sector led the growth. For this
the public sector was made a vehicle for establishing
heavy and basic industries on a priority basis. The
rationale was that a quick building of productive
capacity would strengthen the economy and after some
1. Mathur B.l. "Public enterprises I'olicy and performance .! ii[iiir , Arihanl l iblishcT. 1 HH
32
time the country would be able to produce a much larger
output of consumer goods.
Now in a strategy based rapid expansion of
capital goods sector the private sector could not be
interested. It could not command enough resources Cor
these industries requiring massive investments. Nor
could it be interested in putting resources in projects
which are long-gestating and promise profits after a
very long wait. Nor did it have adequate enterpreneurial
ability for the task. with many private investors
interest mostly in quick money-making lines like trade,
speculation, real estate or the consumer goods industries.^
For Industrial development for all type^ and the
establishment and running the industries in a mixed economy
for the Private sector, it is necessary that the
infrastructure facilities should be developed in the
country. The facilities like railways, roads, ports
water etc., are of the type which can not be under taken
by the private sector. Since many of them are in the
public utilities nature they can not be left to the
private sector on social consideration. Many of these
facilities are provided by the government in the
1. Agarwal A.N. "Indian Economy New Dcllii. WeU'v Eastern Ltd. 1988 p. 342.
3 3
advanced capitalistic countries. It is necessary that
these industries are planned at a national or regional
level and the initial capacity should be large enough to
meet future increases in demand also. It can only be
happen for the proper development of the facilities.
The private enterpreneure can not carry out these
activities because it need a huge amount which is beyond
the meagre means of private enterpreneurs.
For the development of capital goods sector,
provision of infrastructure facilities and the various
other activities, resources are required to be mobilised
in a massive quantities. Obviously it is not possible
for private sector to provide them in the quantities
needed. Private enterpreneurs do not have enough
capital. Nor i capital market adequately organised in
underdeveloped countries for this purpose. In these
circumstances, the government alone can collect enough
resources for the purpose. In addition to taking loans
from the public on the strength of security. It can
organise savings from the people in the form of taxes
and to some extent through deficit financing. Besides it
can arrange resources from outside. Todays in the world
the much greater part of foreign resources is available
from ^governments or the world instiLuLioiis like the
world Bank. These institution prefer to deal with
governments. It is. therefore, necessary that the
government could undertake mobilisation of savings of
the people. The setting up of financial institution for
term-lending in the Public sector is thus a necessary
follow-up action for meeting the needs of development.^
The control of economy is another important role
of the Public sector. It is essential that the
government should have effective control over the
economy. The ownership of a large number of industries,
and of almost all key industries alone can give the
government necessary leverage to manupulate the economy
towards the needs of development. Given ownership of a
large proportion of the means of production. the
government can influence the course of the economy in
various ways. For example, by fixing the prices of its
key products like steely electricity etc. and
controlling the quantities made available it can effect
the cost calculation of the Private sector and determine
the shape of industrial structure. Further because the
public sector will buy large quantities of goods and
services from all sell large quantities to the Private
Sector, it can make the economy move in the desired
1. Ibid., p.343.
35
direction. The government can command the economy only
in this way.
The role of public sector is very important in
term of social change or it may be called the instrument of
social change. This can be made obvious from the following
examples: one is that private monopoly for the sake of
private persons is abolished in spheres where the
government is the owner. The government monopoly thus
established is in fact Public monopoly used in the
public interest. Not only this, public sector is looked
upon as a counter-vailing power against private monopoly
and concentration of power in few hands. Again^ the
establishment of industries in the contest of wider
social criteria means social-orientation of
the development of the economy. Further, resource use
in terms of special and temporal dimensions by the
public sector means that regional balancing is affected
and that future generation are properly provided for.
Similarly, the public sector., by engaging in the
production of certain goods, "meant for certain sections
of population e.g. for those below the poverty line or
and making them available at non-market prices can
change the distribution of resources in favour of the
53
needy sections of population.^
In a nut shell the role of public sector may be
identified as that of building up the infrastructure
which may sustain and promote economic development of
engaging in activities directly leading to rapid or
economic development of reduction in regional,sectoral and sectio-
nal imbalance and inqualities. of breaking up of private
monopolies and the consequent reduction in the
concentration of economic power and of securing national
defence.
In India., the role and activities of public
sector at the national and state level is limited by our
constitution which clearly defines and demarcates its
boundaries.
G R O W T H
In a developing country like India. Public
sector has to stay as an article of faith and an
effective instrument of growth. In pre-independence era^the
public sector was confined merely to railways ports,
post and tele-communications that were owned and managed
by the British government as departmental undertakings.
1. Ibid.. p.384.
37
But these existed mostly to facilitate the
administration of country and to aid British traders to
sell to India manufactured goods and buy raw materials
and food from this country for the British
manufacturing industries in England and the labour
working there.
The growth of Public sector in the country as a
part of the development strategy. started after
Independence with the beginning of economic planning in
the country. The establishment of the industrial unit,
in the field of basic and heavy industries and at the
non-departmental level is a recent phenomenon. Further,
in pursuance of the twin important objectives of
self-reliance and economic growth with social justice,
the public sector has assigned the onerous task of
expanding the production capacity in essential consumer
goods industries like cement, paper^ drugs and
pharmaceuticals and textiles. The rapid growing public
sector has naturally been involved in making large
investment in the country. Table No.I-1 shows that the
larger share of the plan outlays has gone up to the
public sector ind the ratio of distribution of the
public sector and the private sector has been 59.74 :
40.26 in the Sacond five year plan when the total
38
TABLE I-l
PUBLIC SECTOR OUTLAY IN THE PLAN PERIOD (RS. IN CRORES)
Plan Total outlays
public sector outlay including current outlays
Colutnn{ 3) as perce-ntage of column(2)
Private sector outlays
Column(5) as percen-tage of comumn (2)
1 2 3 4 5 6
2nd Plan 7,700 4,6000 59.74 3,100 40.26
3rd Plan 11,250 7,250 64.44 4,000 35.56
4th Plan 24,882 15,902 63.9 8,980 36.1
5 th Plan 69,303 39,303 56.7 27,000 38.96
6 th Plan 1,72,210 97,500 65.62 74,710 43.38
7th Plan 3,48,148 1,80,000 51.7 1,68,148 48.3
Note: Public sector outlays Rs.33,603 crores + Public sector current outlays + Rs.5,700 crores + Inventories Rs.3,000 crores + Private sector outlays + Rs.27,000 crores = Rs.69,303 crores.
Source: Yojana, Fortnightly, Delhi, September 16-30;, 1986, p.13.
39
outlay was Rs.7700 crores. In the third and fourth
plan, the public sector and the private sector outlays
was 64.44 : 35.56 and 63.9 : 36.1 percent respectively.
In the Fourth Plan, this trend was less than the Third
Plan but proportation was near the Third Plan. In the
Fifth and Sixth Plan the percentage share of public
sector and private sector was 56.7:38.96 and 56.62 :
43.38 respectively. It is noticeable that the share of
the public sector came down in fifth. Sixth and Seventh
plan whereas the target contribution of public sector
enterprises was fixed at Rs.2,583 crores and Rs.6,645
crores for the fifth and sixth plan but the actual was
achieved Rs.2,583 and Rs.65645 crores in the fifth and
sixth plan respectively. See Table No. 1-2.
The Seventh Five Year Plan was formulated against
the background of the success of the Sixth Plan. The
main thrust of the seventh plan was to achieve social and
economic self-reliance. The Plai. evisagea a growth rate
of 5 percent per annum. This is more or less the same
as in the sixth plan. The plan also envisaged the
growth rate of 8 percent for the Industrial sector. The
total outlays for the Seventh Plan was fixed Rs.3,48,148
40
TABLE 1-2
CONTRIBUTION OF THE PUBLIC SECTOR ENTERPRISES FIVE YEAR PLANS
(RS. IN CRORES.)
Plans Targets Actual Col.3 as percentage of plan Finance.
First Plan (1951-56) 170(a) 115(a) -
Second Plan (1956-61) 150(a) 167(a) -
Third Plan (1961-66) 550 435 5 .1
Annual Plan (1966-69 587 409 6 .2+
Fourth Plan (1969-74) 2029 1135 7 .0+
Fifth Plan (1974-79) 849(b) 2,583 6 .6-
Sixth Plan (1980-85) 9,395(c) 6,645 6 .8+
Seventh Plan(1985-90) 35,485(d) - 19 .7(c)
Note: Public Enterprises included of Railways, posts and Telegraphs, I.D.C., AHC, REC, ADC, Centeral Power Generation units and other financial institutions excluding the Reserve Bank of India.
(a) Includes contribution of the Railways only, data for other Public Sectors enterprises not sperately available.
(b).From Fifth Plan ownwords, these datas are on gross basis, hence not comparable with the earlier Plans 1974-75 figures at current prices, other years data at 1975-76 prices.
(c) At 1979-80
(d) At 1984-85 Price
Source: Khan AQ, Productivity trends in the Indian Public sector with special referenc to Iron and Steel Industry, unpublished thesis, 1987, Dept. of Commerce, AMU. Aligarh; p.11.
4 1
out of Rs.1,80,000 crores in the public sector and remaining Rs.168148
crores in the (private sector. The Public sector has a
different amount or different outlays for different
sectors of economy which is as per the requirement.
Table No. 1-3 shows the public sector outlays for
different sectors of our economy in the Seventh Plan
period. The highest public sector outlays share for the
centre was allocated to the Energy sector i.e.
Rs.31492.14 crores were as the total public sector out
lay was Rs.54821.26 crores of this sector. A very small
amount of Rs.7.32 crores was allocated to the centre for
nutrition and clothing was allocated to the centre for
special area programmes when the whole amount of
Rs.3144.69 crores were allocated to the states. The
highest and the lowest amount of the public sector
outlay was allocated of Rs.22786.15 crores and
Rs.2268.76 crores to the energy and the power sector
respectively in the states share. The social service
sector received Rs.1816.68 crores and stood 1st for the
allocation of the public sector outlay to the Union
Territories. In the total public sector outlays of
Rs.1,80,000 crores for the Seventh Plan. The centre,
states and union Territories got Rs.95534.00 crores,
Rs.80698.00 crores and Rs.3768.00 crores respectively.
42
TABLE 1-2
SEVENTH FIVE YEAR PLAN-PUBLIC SECTOR OUTLAYS (Rs. crores)
Head of Development Centre States Total Territories
Agriculture 4056.71 6824.40 268.51 10573.62
Rural Development 1901.59 4142.84 29.79 9074.22
Special Area Programmes - 314A.69 - 3144.69
Irrigation and Flood control 834.93 15949.71 193.95 16978.65
Energy 31492.14 22786.15 542.97 54821.26
Power 11051.54 22686.76 535.16 34273.46
New & Renewable Source of Energy 12627.67 - - 12627.67
Petroleum 7400.58 - - 7400.58
Industry and Minerals 18552.97 3785.88 121.98 22460.83
Village & Small Scale 1284.84 1378.52 89.38 2752.74
Large & Medium 17268.13 2407.36 32.60 19708.09
Transport 16459.37 1772.50 739.15 22971.02
Railways 12334.30 0.25 - 12334.55
Roads 1019.75 3666.98 513.31 5200.04
Road transport 203.92 1744.73 41.45 1990.10
Other Transport 2901.40 360.54 1184.39 3446.33
Communications, information and Broadcasting 6365.82 99.33 7.31 6472.46
Science and Technology 2303.43 157.28 5.29 2466.00
Scial Services 10350.90 17182.88 1816.68 29350.46
Education, Culture and Sports 2388.64 3488.71 505.30 6382.65
Health including medical 897.34 2240.33 255.22 3392.89
Cont'd.
Table 1-3 Cont'd.
4 3
Head of Development Centre States ^ Territories Total
Family Welfare 3256.26 - - 3256.26
Housing and Urban Development 457.38 3281.09 520.53 4259.50
Water supply & Sanitation 1236.83 4848.06 437.58 6522.47
Welfate of SC/ST and other, backward classes 281.22 1219.21 20.00 1520.43
Special Central Additive for Scheduled Caste Component Plans 930.00 - - 930.00
Social and Women's Welfare 799.97 191.87 20.52 1012.36
Nutrition 7.32 1693.86 39.00 1740.18
Labout and Labour Welfare 95. A4 219.75 18.83 333.72
Others 216.14 1428.28 42.37 1686.79
Grand Total 95534.00 80698.00 3768.00 180000.00
Source: The Hindustan Times, New Delhi, November 11th, 1985, p.17.
'14
The total contribution from public sector
enterprises in the Seventh Five Year Plan at 1984-85
price was Rs.35,485 crores in which Railways contributed
Rs.4,225 crores and other Central enterprises Rs.31,500
crores. See Table 1-4. The other state enterprises
contributed only Rs.l5 crores. This shows the public
sector • enterprises contribution in the Seventh Plan
period of the other sectors of economy.
The Eighth Five Year Plan 1990-95 is still not
finalised due to change of the government at the Centre.
Now, it is announced by the present government that the
Eighth Plan will be in operation from April 1992. The
first full meeting of the re-constituted Commission
approved a total outlay of Rs.7,92,000 crores for the
Eighth Plan outlay; of this Rs.3,42,000 crores will be
public sector investment and Rs.1,48,000 crores private
sector investment. House hold sector accounts for
Rs.1,48,000 crores. The Public sector investment
4 5
TABLE 1-2
CONTRIBUTION FROM PUBLIC ENTERPRISES ( 1985-90 )
(Rs crores at 1984-85 prices)
Enterprises Amount
1. Railways 4,225
2. Post & Telegraphs 1,729
3. Other Central enterprises 31,500
4. State Electricity Boards (-) 1,569
5. State Road Transport Corporations (-) 415
6. Other State enterprises 15
Total 35,485
Source: The Seventh Five Year Plan 1985-90, Govt, of India,
Planning Commission, New Delhi, p.53.
accounts for about 43 percent of the overall outlay
which is 2 percent less than what was decided for the
seventh plan. During the sixth and seventh Plan it was
44 percent and 47 percent respectively.^
The growth of public sector enterprises can also
be visualised in terms of production. Today, apart from » the entire core sector, most of the basic and strategic
industries considered so vital for economic security and
national self reliance, and in the public sector,
equipment needs of sectors like railways,
telecommunication, nuclear power, defence etc. have
also been entrustled to the public sector. Public
sector accounts for nearly 100 percent of coal
production, 100 percent of lignite, about 40 percent of
saleable steel about 25 percent of aluminiums 100
percent of copper and lead nearly 85 percent of zinc,
nearly 46 percent of nitrogenous and 30 percent of
phosphatic fertilizers, 100 percent of telephones and
teleprinters. Table No. 1-5 would given an idea of
production in public sector basic materials and capital
goods. The production of Raw coal was less than 10
million tonnes in 1984-85. In 1968-69 the highest
1. The Economic Times^ Delhi, September 23, 1991^ p.4.
TABLE 1-5
GROWTH OF PRODUCTION IN PUBLIC SECTOR BASIC MATERIALS AND CAPITAL GOODS
S.No. Item Unit 1958-59 1968-69 1984-85
1. Steel ingots (integra-ted steel Plants) m . t. Nil 3.72 6.25
2.
3.
Raw coal (Coal India)
Lignite
II
II Less than 10 Nil
12.61
3.98
131
7.1
4. Aluminium Tonnes II Nil 87,358
5. Copper metal II II II 41,021
6. Zinc metal 11 II 13,670 50,795
7. Crude extraction m.t. II 3.04 28.99
8. Crude processed II II 9.51 35.56
9. Nitrogenous fertilizer lakh tonnes
less than 1 3.91 18.45
10. Cement m.t. Nil Nil 2.17
11. Coal mining machinery tonnes II 4,100 13,524
12. Heavy plate and vessels process industry II II Nil 12,676
13. Agricultural tractors Nos II II 12,501
14. Power generation equipment NW II 75 1784
Source: Jain, S.B., "Management & role of Public enterprises, Vol.2, Bureau of Public Enterprises, New Delhi, p.219.
48
production of 13670 million tonnes was reported from the
zinc metal which make the increasing trends and produce
50,795 tonnes in 1984-85. The production of Aluminium
was 87 5 358 tonnes in 1984-85 whereas the production for
the same in the public sector was nil in 1958-59 and
1968-69. The aggregate value of production of ninteen
manufacturing public sector enterprises under the
departament of public enterprise during September 1985
was Rs.248.47 crores which was 20 percent higher
compared to the production of Rs.267.04 crores achieved
during the same month of the previous year and 92
percent of the target of Rs.271.23 crores. During
1985-86 the cumulative production of 33 manufacturing
public sector units was valued at Rs.3846.25 crores as
against Rs.3274.29 crores last year. This was 95
percent of the target of Rs.4041.78 crores, which
recorded a growth rate of 18 percent during April
1985-March 1986. The production during 1986-87 amounted
to Rs.4.782 crores as against the target of Rs.4,797
croresAccording to a study of the confederation of
Engineering Industry (CEI) "That the value of production
of Public sector enterprises aggregated Rs.65,034 crores
in 1986-87 of this Rs.45 520.66 crores [101) was
accounted for. by the manufacturing enterprises. The
49
and Rs.19514.09 crores (30%) by the service enterprises.
The value of production represented an increase of 16.3
percent compound per annum over 1977-78. The
engineering industry accounted for 19.6 percent of the
value of production of all enterprises in 1986-87.^
Table No. 1-6 shows the public sector
contribution in the total industrial production. In
1987-88, the production of coal in the public sector was
175.95 million tonnes, where as the national production
was 179.75 million tonnes. The production of lignite,
petroleum, copper, Primary lead and Teleprinters was 100
percent in public sector in the year 1987-88. The
public sector contribution for steel Ingot and Aluminium
was 60.18 percent and 41.93 percent respectively in the
total national production for the year 1987-88. The
national production for zinc and Phosphatic (Fertilizer)
was 6056 thousand tonnes and 1665 thousand tonnes
respectively in 1987-88. The production of these sectois
in the Public Sector was 80.48 percent and 30.63 percent
respectively in the same year. For the betterment and
the planned growth of the public sector enterprises
1. The Hindustan Times, New Delhi. August 1, 1988, p.16.
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51
It is necessary that the public sector enterprises
should reduce considerably in unit cost of manufactures
goods and services. Unit cost of production in India
should definitely be lower than that for similar
projects services etc in a developed country. The
reasons are quite obvious when one takes into account
the wages of labour and supervisory overheads which may
not be more than 15 percent as in a developed country.
The capital cost of Indian projects are always pitched
much higher than that of a similar project in 'a
developed country. The cost of production Element wise
in India is given in the Table No. 1-7 and the cost of
production/sales during 1987-88 is given in the Table
No. 1-8 for which the cost of production of the
manufacturing enterprises and service enterprises and
the cost of production of the enterprises producing
goods can be imagin. It should be the duty of all
managers in the public sector to ensure, come what may
that the unit cost of production of any type of
manufactures, goods and services in India was lower than
that in a highly developed country. The managers of
public sector enterprises have to exert themselves with
a great deal of sense of advanture, managerial integrity
competence to fullfil these obligation of producing
goods and services at competitive price, so that the
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54
1 Indian economy does not remain a high cost economy.
The 33 manufacturing enterprises of the
department achieved a production of Rs.6,568 crores
during 1989-90 which was 18 percent higher than the
production of 5553 crores in the previous year and total
production of Rs.7,573 is anticipated for 1989-90 from 2
these enterprises. The 1990-91 Annual Report of
the department of heavy Industries said the 33
undertakings recorded Rs.8,346 crores production, during
the year and that the production was expected to touch
Rs.10,093 crores in 1991-92.^ These 33 public sector
enterprises improved their production recording 12
percent increase in 1990-91 as compared to the previous
year. Now, the government is giving much emphasis to
increase the production of public sector undertakings
and introduce new production items in the public sector
untertakings. The government is likely to allow one or
two major public sector electronic concerns. ET & T and
ECIL sponsor a large scale VCR/VCP project which will
involve no net out go of foreign exchange.
1. Fazal Mohd. 'Don't make it a 'whipping boy', Yojana Govt. of India. Ministry of Information and Broadcasting. New Delhi, July 16-31, 1484, p.12.
2. The Hindustan Times, New Delhi, Jan 1, 1991, p.17. 3. The Financial Express, Delhi, August 13, 1991, p.4.
bb
In the growth of public sector enterprises, the
sales of these enterprise plays a very important role,
year by year, the sales of public sector enterprises are
increasing. In the year 1976-77 the sales of these
enterprises was of Rs.14,911 crores which was 134.86
percent of capital employed. In the year 1977-78 the
sales of public sector enterprises reach to Rsl8020 crores
where there were only 155 sector enterprises it noted a
annual growth sale of 20.9 percent see Table No. 1-9, in
which the sales of manufacturing enterprises was
Rs.11,687 crores and service enterprises was Rs.6,933
crores. After a decade the sales of public sector
enterprises reached to Rs.81367 crores when the capital
employed was Rs.58125 crores and there were only 221
public sector enterprises in operation.
The highest sales reported from Indian oil
corporation (IOC) in the year 1986-87 was Rs.12515
crores and in 1987-88 it increased to 14.9 percent see
Table No. I-IO. Between two years the highest
percentage increase of sale come from BPCL in the year
1986-87 that was of Rs.2500 crores which jump to Rs.4056
crores in the year 1987-88.
The Public sector enterprise is the major
employer of the country. The growth rate of employment
56
TABLE 1-9 SALES VOLUME & CAPITAL EMPLOYED
(Rs. in crores)
Year No. of Enterpri-ses
Sales Capital employed
Annual Groth rate of
Sale (7o)
Ratio of turnover to C. Employed
1 2 3 4 5 6
1977-78 155 18020 12065 20.9 149.4
1978-79 159 19061 13967 5.8 136.5
1979-80 169 23290 16182 22.2 143.9
11980-81 168 28635 18207 23.0 157.3
1981-82 188 36428 21935 27.4 166.3
1982-83 193 41989 26526 15.1 158.3
1983-84 201 47272 29851 12.6 158.4
1984-85 207 54784 36382 15.9 150.6
1985-86 211 62360 42965 13.8 145.1
1986-87 214 29088 51835 10.8 133.3
1987-88 221 81367 58125 17.8 140.0
Source: Compiled and Computed from various Public Enterprises Survey Government of India, Bureau of Public Enterdprises, Ministry of Industry, New Delhi.
57
TABLE I-IO TOP TEN ENTERPRISES
IN TERMS OF SALE (Rs. in crores)
Enterprises 1986-87 1987-88 7o increase from previous year
IOC 12515 14383 14.92
FCI 7457 8322 11.59
ONGC 5621 6101 8.53
SAIL 4369 5165 18.21
BPCL 2500 4050 62.00
STC 2807 3646 32.09
HPCL 2622 3639 38.78
MMTC 2782 2894 40.02
BHEL 1994 2318 16.24
MRL 1109 1199 8.11
Source: Compiled and computed from Public Enterprises survey 1986-87 & 1987-88 Vol. I, Government of India, Bureau of Public Enterprises, Ministry of Industry, New Delhi.
58
in the Public sector is much higher than the growth rate
of employment in the private sector. The public sector
enterprises have generated considerable employment.
Between 1972-73 and 1982-83, employment in the public
sector enterprises increase from 9.32 lakhs to 20.09
lakhs i.e. 11.6 percent per annum which is much higher
than the growth rate of employment in the private
sector. In the year 1973-74 these enterprises provide
employment to 13.44 lakh persons and the average Annual
per capita emolument was of Rs.5573. Se Table No. I-ll,
From 1956 to 1976-77, the employment in the public
sector increases about 215 percent whereas in 1956 there
were only 5.2 lakh employees in the public sector. In
the year 1977-78 there were 16.38 lakh employees, which
increase 4 percent from the previous year. The number
of persons employed in public enterprises was 17.03
lakhs in 1978-79 which increased to 19.39 lakhs in
1980-81. By the end of 1982-83, public sector
enterprises employed 20.24 lakhs of people with an
average per capita annual emoluments of Rs.18029. It
may be pointed out that while the average All India
consumer Prise Index has Increased by 135 percent during
1972-1982, the average emoluments for Public sector
employees had risen by 210 percent in the same period.
59
TABLE I-ll EMPLOYMENT AND AVERAGE ANNUAL EMOLUMENTS
IN PUBLIC ENTERPRISES
Year No. of Employees (in lakh)
Average Annu-al per capita emoluments (in Rs.)
"Lage of increase from previ-ous year
No. of Employees (in lakh)
Average Annu-al per capita emoluments (in Rs.) Manpower Average annual
emoluments
1971-72 7.01 5920 - -
1972-73 9.32 5805 24.78 (-) 1.98
1973-74 13.44 5573 44.20 (-) 3.99
1974-75 14.32 4702 6.54 32'. 81
1975-76 15.04 8983 5.02 21.35
1976-77 15.75 8940 4.72 (-) 0.47
1977-78 16.38 10048 4.00 12.39
1978-79 17.03 11201 3.96 11.47
1979-80 17.75 12268 4.22 9.52
1980-81 18.39 14239 3.60 16.06
1981-82 19.39 16158 5.43 13.47
1982-83 20.24 18029 4.38 11.57
1983-84 20.72 21549 2.37 19.52
1984-85 21.07 24328 1.69 12.89
1985-86 21.54 25887 2.23 6.40
1986-87 22.11 28820 2.65 11.33
1987-88 22.14 32537 0.13 12.89
1988-89 22.09 39415 (-) 0.22 21.13
1989-90 22.36 43665 1.20 10.78
Source: Compiled and Computed from various Econimic Surveys and Survey of Public Enterprises.
60
The public sector enterprise had by 1983, 18.3 percent
scheduled castes and 8.4 percent scheduled Tribes
persons in their employment. In the year 1983, the
workers employed in the public sector constituted only 7
percent of the total workers in the country and those
employed in the organised Private sector are 3 percent
in which 3266 lakh were employed in the Central
government, 60.38 lakhs in State government, 50.40 lakhs
in Quasi governments and 21.11 lakhs in local bodies see
Table No. 1-12, the largest employees are observe in the
community social and personnel services sector of the
public enterprise. In the year 1988, the public sector
industries provided the employment of 183.20 lakh
person in which 86.35 lakh were placed in community,
social and personnel services. 30.11 lakhs in
Transport, storage and communication and 18.67 in
manufacturing sector. The Average Annual per capita
emoluments were Rs.43665 in the year 1989-90 where as
there were 22.36 lakh employees which is 1.20 percent
increase from the previous year. In the Budget 1991-92,
is the meagre provision for urban employment. The
provision in this regard has been increased by just
Rs.lO crores to 130 crores. Self employment
opportunities are to be provided to 1,45,000 lakh urban
H C/D Q 2
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03 0 1-j CM -3 m N£> CO CTN
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poor in 1991-92 against 1,00,000 in 1990-91.^
The growth of Public sector enterprises, may also
be judged by taken into account the development of other
non-financial factors to our economy. They are not more
important therefore, they are not consider for our study.
Conclusion
Indian statesmen visualised the public sector
enterprise as a motor of economic development. In
pre-independence India, the public sector was confined
merely to Railways, ports, post and Tele-communication
but it expanded and made rapid strides after breaking
the colonial fetters The pre-eminent role for the
Public sector enterprises was assigned in the Industrial
policy Resolution first enunciated in the year 1948,
Eight year later in 1956, a comprehensive policy
document on industrial policy was adopted. Following
the industrial policy Resolution of 1956, The Central
Government public enterprises have witnessed
considerable growth.
During the last 35 years there has been a massive
expansion of public sector enterprises in India. These
1. Roy R.K.. 'Manmohan Package-, First Step of long journey. Times of India, New Delhi, July 26, 1991. p.6.
j 3
enterprises have recorded an accelerated growth and
attained the commanding heights of the economy. But the
performance of these enterprises has declerated. Public
sector enterprises have come under severe criticism on
account of the defective policy and their poor
performance. The policy makers are still groping in
dark to find ways and means to better the pros and cons
of the performance of these enterprises.
In view of these defects and deficiencies of the
public sector enterprises, our aim in the second chapter
will be to analyse the financial performance of public
sector enterprises. The chapter will automatically
examine the concept and meaning of the term financial
structure. A framework of this structure will also be
presented in the chapter so as to explore the financial
soundness of a public enterprise with some important
indicators and parameters. This conceptual framework
will have to be built for analysing the financial
problems in the coal sector of India with a case study
of coal India limited.
CHAPTER - II
FINANCIAL STRUCTURE OF PUBLIC ENTERPRISES
A CONCEPTUAL FRAMEWORK.
In the previous chapter, the evolution and
rationale of public sector enterprises hav?e been
discussed. It has been observed that after the
attainment of independence, there has been an increasing
concern for rapid socio-economic development of our
country. The public sector in India has g ^ w n
phenomenally in terms of number of enterprises,
investment, employment, export earnings etc. Today,
public sector has become so much indispensable that it
is hard to think of its non-existence. The present
chapter is devoted to set the problems of the present
study and its objectives. It also brings about a review
of the literature on the subject. In fact, the chapter
sets the tone for undertaking this study on the
financial structure of public sector enterprises.
Objective of the study
The following are the main objectives of the present
study:
1. To outline the growth and working of public sector
enterprises with special emphasis on Coal India Ltd.
2. To obtain a true insight into the financial position
of the public sector enterprises in the light of the
changing economic and social conditions.
b 5
3. To study the changes that have taken place therein
over a given period of time and to judge financial
soundness.
4. To outline the various non-financial problems that
exert influence on the finances of the enterprises.
5. To find out the main factors responsiable for the
huge losses in the public sector enterprises and the
share of Coal India Ltd. in it.
6. To make appropriate suggestions in the light of the
conclusions and findings which will be helpful for
the management, The Government, the researchers, the
investors, the workers etc, in making these
enterprises financially viable.
Hypothes ;: Finance is a very important and essential
instrument for the development and growth of any
public sector enterprise. These enterprises need huge
financial investment for their organisation and
management. India being a poor developing country
the scarcity of finance is much more marked here. In
fact, these enterprises are not managed properly by
the government. Most of these enterprises are
incurring huge losses. In order to over- come
numerous problems faced by these enterprises, the
66
the government should take some concrete steps. A
separate financial body should be formed for financing
these enterprises. There is a greater need that these
enterprises should be aware of their financial problems
due to a number of distresses such as huge investment,
long gestation period, low rate of reutrn, social
obligation, pricing policy, profitablity etc.
Methodology
The present study has been undertaken with the
help of secondary data as contained in the books,
journals, reports, statements etc. In addition to this
the author has also taken the help of primary sources of
information with his visits to the various concerned
offices of the Ministeries, libraries etc. Some
fruitful discussion with officials in the Coal Ministry
and the Bureau of Public enterprises has also been
helpful in completing this study.
Limitations of the study
The present study has the following limitations
1. The study is based on the information collected from
secondary sources which reduce the degree of
reliability. However^ attempt has been made to
collect maximum information from the official record
o7
of public sector undertakings in general and Coal
India ltd. in particular on the various aspects of
the study.
2. The present study is not a comparative study with the
private sector units which would give more lucid
picture of the study.
3. The public sector enterprises included in the study
and the Coal India Ltd., are the loss making
enterprises. The cause of losses of many of them are
non-financial.
4. For analysing the financial structure of Coal India
Limited a study of only Five Years' annual reports
from 1985-86 to 1989-90 has been taken into account.
This period can be taken as a very short period for
such a study.
Financial Structure - A Conceptual Framework
Finance is the life blood of modern organisations,
No organisation can survive without finance. Just as
apoplexy, anaemia, clotting haemorrhage, variations in
blood pressure beyond limits etc., are harmful to the
health of human body, maintaining a steady flow of
finance is vital for the health of business
organisations. Just as the heart which is an integral
OO
pare of the human body and which regulates the flow of
blood through the arteries and veins, the finance
function in the management is to regulate the inflow and
outflow of each through a proper management of the
assets and liabilities of the organisation.
Usually, Finance serves two important functions.
First, it is a means to assembling the funds necessary
to initiate a new activity. Second, and much more
important, it provides the basis for continued operation
furnishing additional capital, covering the costs of
operation and generally synchronising the various
factors of a going business. Underlying these two
functions is the formulation of policy, which provides
a sense of direction and actual plan of operation.^
Successful carrying out of the finance function by any
enterprise specially in public undertakings where
massive investment have so far been much less productive
than in private enterprise is essential for variety of
reasons. Considering from the point of view of the role
that is played by the finance, of the several factors of
production, the efficient management of the same needs
no special emphasis. Unless the funds are secured
1. Walker, Ernest W. and Banughnen, W. , "Financial Planning and policy, New York, Harper and Raw, 1964, p.4.
69
properly from the least cost sources and properly
mixed, the objective of the profit maximization or
wealth minimisation can not be attained. Not only the
rational mobilisation of funds is important for an
enterprise but also their effective utilisation. A firm
can maximise its value only when the resources are
mobilised or allocated among the various assets in an
efficient manner.
The statement which provides the relations
between the several elements of balance sheet i.e.
assets, liabilities, capital, is called the financial
structure of a concern. Three elements are the
constituents for the financial structure of a business.
They are assets, liabilities and capital. The following
equation indicates the relationship of the three
elements.
1. Assets = Liabilities + capital or
2. Liabilities = Assets - Capital or
3. Capital = Assets - Liabilities
The equation tells us that (1) Assets are the sum
of the liabilities and capital (2) The liabilities are
the difference between the Assets and the capital and
(3) The capital is the difference between the Assets and
7 0
liabilities.
The word, 'Financial structure' refers to the
left hand side of the balance sheet as represented by
'total liabilities'. It provides an insight into the
various types of sources tapped to finance the total
assets employed in a business enterprise. That part of
the financial structure which represents long term
sources is known as capital structure. The term refer
to equity share capital, preference share capital, and
long term debt.^ Thus capital structure is part of the
financial structure representing the permanent sources
of the firms' financing.
The term financial structure may clearly be
understood by the following illustration!—-
Balance Sheet
Liabilities Assets
Fixed Borrowings
Capital Account
Current Liabilities
Miscellaneous Liabilities.
B
Current Assets
Fixed Tangible Assets
Fixed Intangible Assets
Miscellaneous Assets
1. Kul shresthe N. A. "Analysis of financial statements of paper Industry in India, Aligarh, Navman Parkashan", , 1988, p.103.
71
The Financial structure considers all items of
A, B and C. Thus the Balance sheet of a concern gives a
detailed picture of its financial structure. It states
the nature and amount of each of the various assets of
each liabilities and of proprietory interest of the
owners.
A balance sheet shows the various sources of
finance represented by capital structure on the
liabilities side while the assets side of the Balance
sheet shows the way in which these sources have been
applied. The combined picture of liabilities and
Assets and the source of finance and their uses
respectively show financial structure. In a nut shell
the combination of assets structure and liability
structure represents the financial structure of a firm.
Sometimes a distinction is drawn between
'financial structure' and 'capital structure' of a firm.
The sum of the various means of raising funds comprises
net worth and all liabilities (Long term as well as
short-term). When short-term borrowings are omitted from
the list the remaining claims represent the capital
structure. Thus, the distinction, if any, between the
10 1
two depends on the treatment of short-term borrowing.^
According to Burtchett and Hicks, financial
structure is to the affairs of the corporation what
architecture is to the bricks, wood and other materials
with ultimately make a house. That is Financial
structure provides the basic framework or design of the
relations between the several elements composing the
assets and liabilities as reflected in the Balance sheet ^ Thus the financial structure is a combination
of the assets and the liabilities of the Balance sheet.
According to Moyer 'Financial structure' refers
to the amount of current liabilities, loag-term debt, 3 preferred and common stock used to finance of a firm.
The study of the Financial structure can be made
initially from the point of view of length of time for
which funds are needed. As a matter of fact an
enterprise needs funds for financing short-term, medium
term and long-term requirements. However, opinion is
not consistent regarding the duration of each type of
1. Banerjee Bhabatosh, 'Financial Policy and Management accounting, Calcutta, The World Press Pvt. Limited., 1990, p.564.
2. Floyed F. Burtchett and Clifford M. Hicks 'Corporation Finance, New York, Harpar & Brothers, 1948, p.256.
3. Moyer, CR. & Others,'a contemporary Financial Manage-ment, New York, West Publishing Co,1981, p.318.
/3
finance. The dividing line is often arbitrary, hazy and
vague.^
Factors affecting Financial Structure
The following are the few factors which are the
parameters for affecting financial structure.
1. The size of the company
2. The nature of its Assets.
3. The amount and stability of its earnings.
4. The conditions existing the financial market
at the time the capital is raised.
All have an influence on the sources of capital
used by it. From time to time, changes may be made in
the sources employed either because capital can be
secured, more advantageously from some other source or
becuase some lender may desire to withdraw its capital
from the enterprise. Expansion or contraction of the
total amount of capital used will, of course, effect the
relative importance of various sources. The Financial
structure of a company is, therefore, based on the
proper correlation and adoption of financial policies
and existing conditions.
2, Wessel , Robert H. ' Principles of Financial Analysis, New York, Macmil1 an, 1961, p.141.
74
Financial Structure in Public Sector : Some Issues
All the implications that are considered are
applicable to the public sector enterprises but they are
more applicable to a private enterprise. Firstly,
unlike the case of private sector enterprises the
options to public sector projects are not many and it is
doubtful that their securities would be traded in the
market particularly when the government becomes the role
supplier of funds. Also, the considerations of
establishing them are different. Profitability, though
a desirable objective, may not be the only cause of
their establishment. Secondly, the principle of
'trading on equity' is of no significance when all funds
come from the government sources and whether the payment
is made by way of interest or dividend to the government
is of little concern. Thirdly, control of the affairs
of the company is also of no relevance, because in a
government company, majority shares will always be held
by the government and any dilution in the hold of the
government company can never happen.^
Though it seems from these counts that the
proposition between debt and equity is of no
1. G. Parsad & K.V. Roa, "Financial Management in Public sector enterprises, Delhi, Ashish Publishing House, 1989, p.324. 7
10 3
significance, for several other reasons it becomes
pertinent even for public enterprises also. As
indicated earlier, in order to save the enterprise from
financial risk, it is desirable to have a resonable
equity base in its capital sturcture. But at the same
time, there is a necessity of safe guarding against the
evils of 'easy money' for public enterprises.^ Further,
when the equity is large and the company is not making
prifits, the amounts due in respect of interest paid or
not are reflected in the balance sheet, but the dividend
not declared is no where reflected; so that the
community actually foregoes on account of this is not 2 known.
Thus, the Governments are in need of a conceptual
framework in support of their decision making in this
area: Whether they are to make their decisions uniformly
for all public enterprises or dissimilarly for different
sectors of enterprises or whether they are to make them
rigidly over the life time of an enterprise of
flexibility from stage to stage in its growth. Without
such a framework the Governments' decisions tend to be
1. Mohsin M._, 'Financial Planning & Control, Wew Delhi, Vikas Publ ishing House Pvt.Ltd.1980 , p.97.
2. "Mathur B.P., 'Public enterprises in Perespective, liombay, Orient Longman, 1973, p.138.
76
ad hoc and may prove inappropriate in the case of
certain enterprises.^
The analysts of profitability of the public
sector enterprises do not focuss as much attention on
the financial structure as on the management of these
enterprises. They seldom view the factors attributing
to their losses in their totality. The financial
structure of these enterprises is predominantly
determined by the form of their funding by the
government. There is, therefore, a budgetary link
between the government and the public enterprises. Such
a link should be widely appreciated in its proper
perspective for an appraisal of the lackluster financial
performance of these enterprises and for suggesting the
means of improving it.
The government provides funds to the public
enterprises in the form of equity, loans and grants.
Each firm has got different budgetary effects and
implications for both. Equity represents the risk
capital on which a dividend is declared at the
managements' discretion. On loan, interest is to be
paid at the stipulated rate. Interest, therefore,
1. United Nations, Financing of Public enterprises in developing countries - coordination. Forms and sources. New York, United Nation, 1976, p.40.
7 7
becomes a cost to the enterprises'''"aTn3^has to be borne
with the consequent impact on its product prices which
are generally administered. Consequently, its cash flow
and profit position are effected, especially when its
production has got a long gestation period. This
normally happens in the public sector. Its fixed
interest obligation becomes onerous and impairs its
ability to win new business.
The government interest are served better by loan
financing than equity financing for two main reasons:
Firstly, its own funds are largely borrowed and can not
indiscriminately be invested. Secondly, it can pass on
the burden of interest deficit (difference between the
actual interest rate paid by the enterprise and the rate
stipulated originally) to the tax payer. Equity
financing does not provide such an easy escape. Capital
grants for uncovered losses suffer from two
disadvantages from an economic point of view. First,
they are made free and, therefore, entail direct burden
on the tax payer. Second, these do not induce any
financial discipline in the enterprise and the uncovered
losses are accumulated from year to year. In
consequence, they become a drag on the capital account
of the government. In our study all these aspects of
7b
financial structure in relation to the public sector
enterprises in general and Coal India Limited in
particular will be analysed.
SURVEY OF LITERATURE
After the attainment of Independence there has
been an increasing concern for rapid Socio-economic
development of our country and the role of public sector
enterprises in this task has been identified as crucial.
It emerged in India not as a result of nationalisation
of private enterprises but taking up in hand the
responsibilities of industries of national importance by
the state. Today, the public sector has presented the
total spectrum of national industrial and commercial
activities from production of core industrial items to
the production of mass consumption items and from
rendering services by way of consultancy services to the
nation in the domestic as well as in the international
markets in the fields of trading, production and
consumption of goods.
Due to the greater importance of the public
sector enterprises in India, a lot of researches and
studies have been done on different aspects of public
sector enterprises by Bheem Saini Sharma (1969),
79
Bamooclale,M. ( 1969), Chhote Lai (1972), Asif Ali Khan
(1979), Abdul Farooq Khan (1980), Qadeer (1987), Qayuoom n.
Khan ( 1987)and Durgesh Nandani (1988).
Dr. B.L. Verma carried out a study on "Analysis
of Financial statements" in 1986. This study deals with
the structure of published statements of an organisation
viz Profit and loss Account, Balance sheet, reports etc.
The work also analysis various financial aspects viz.
cost structure, profitability, working capital,
short-term financial strength, capital structure and
long-term financial strength, sickness and the
suggestion for the strengthening the financial position
of a particular organisation.
A study entitled "Analysis of Financial
statements" was carried out by Harry G. Guthamann in
1964. The study has been divided into two parts. Part
one deals with the general principles of analysis.
Basic principles of accounting are reviewed but only as
they are important for interpretation. The second part
of the study is devoted to the particular type of
statements under three divisions the public service
industries, industrial and financial corporations and
the public sector enterprise.
oO
The book entitled 'Financial statement Analysis'
written by John N. Myer in 1939 has been divided into
two parts. Part first deals with the introductory
aspect of the financial statements in which early use of
structure statement, nature and limitation of financial
structure, the problem of the unit of measurement etc.
have been discussed. The part Ilnd is devoted to the
techniques of the financial analysis, the comparison of
balance sheet, Income statement, variation in income,
standard ratio etc. A separate chapter has been kept
for the financial structure in which structure equation,
structural relationship, structural ratios, return on
capital, operating ratio etc has been discussed in
detail.
M. Mohsin has made a study on 'Financial Planning
and control' in 1977. In his book he described the
techniques of financial Management as they are actually
used in public and private enterprises in India. He
explained the methods of Planning, controlling of
capital and cash, but the techniques received less
description and more critical treatment than in the
general technical literature. In compairing the
financial management in public and private undertakings,
the author laid more stress on means rather than on
results. Ik" suj',j'c'slc'cl various dcvLct-s lo i-iprove ihe
ILnancial pe r i orniaticc> through beLLer financial planning
and contirol Lechnicjues.
Dr. N.K. Bhargava took the initiative to
undertake a book entitled "Financial structure of Public
sector enterprises" in 1991. The book contained the
introductory aspect of financial structure of public
sector enterprise in the 1st chapter. Further he
discussed the common size analysis, working capital,
financial strength, Fund flow statement and finally the
conclusions and suggestions of the study in the light of
the working of public enterprises in Rajasthan from 1976
to 1980.
The book entitled "Financial Management in Public
sector enterprises" written by G. Prasad and K.V. Rao in
1989 focused so much on the performance of the
ccntrfilly sponsored public undertakings and that the
dismal performance ot innumerable units promoted and
managed by the various state governments. 'Ihe book Is
based on Public enterprise management relating to state
level public enterprises. It covers sone ot the major
fin<incial problems ol st.-ite level p'.iMic enterprise;;
including iLn.ince luncCion, project planning, and
execution, working capital, management tinancing..
C id
capital structure, Pricing and financial control,
Non-financial problems like professionalisation,capacity
utilisation, Privatisation etc.
A book entitled "Financial Management - A
conceptual approach" written by P.V. Kulkarni in 1981
has been divided into thirty three chapters. The author
dealt with the basic concept of financial management and
further he discussed financial planning, internal
financial control, funds flow analysis, ratio analysis,
budgetary and budgeting control and different leverages
with their implications. He explained in detail how
financial decisions are arrived at in the areas of
capital structure, capital budgeting, evaluation of a
firm and the risks involved in them. The author
analytically treated the varied problems which arise in
the management of working capital , cash inventory and
value analysis, he dealt with the Financial management
in public sector undertakings and in the joint sector in
detail.
Dr. Khan M.Y. and Jain P.K. carried out a study
entitled "Financial Management" in 1981. The study has
been divided into six parts. The parL 1st deals with the
introductory aspect .of the financial management. The
second part is devoted to the tools of analysing the
d3
financial management in which the statement of changes
in financial position and the financial statement
analysis has been described. Part 3rd has been assigned
to the long term investment decision or Ca pital
budgeting. The whole of the five chapter discussed the
various aspects of capital budgeting. The part fourth
covered the financial decicson in three chapters. The
relevent dimensions of dividend policy decision has been
discussed in part fifth and finally the last part is
devoted to the management of current assets more
popularly designated as woking capital management.
In his book "Public E.terprises and Economic
Developmenjt" 1959. Prof. A.H.Hanson has discussed in
detail the financial and commercial aspects of public
sector enterprise, the capital structure, pricing policy
profit, etc. .in . separate full chapters. The book has
been divided into two parts. The first part of the book
is devoted to the general study of economic development
with a particular examination of the role of Public
enterprise in development programmes. Three countries,
Turkey, Mexico, and India are selected for special
treatment. The second part which contained the sturcture
control and organisation of Public enterprise and
concentrated especially on certian types of undertaking
which tend to play a more important part in the
economies of under developed countries
o 4
than in those of developed ones.
S.K.Catterjee has written a book in 1982 entitled
"Management of public enterprises with special reference
to India". In his study he dealt with all the aspects of
Public sector enterprise. The first few chaoters of the
book, are devoted to the introductory aspects of public
sector enterprise. Further he discussed the decision
making in a public enterprise, Personnel management in
the Public sector, Financial management of public
enterpreses towards an accounting model for a public
enterprise, the concept of Profitability, managerial
organisation and reseach, advertising needs of a public
enterprises, puolic utilities, social responsibilities of
the public sector, public sector export mangement etc.
and a deeply study has been made by the author for the
evolution and development of public sector enterprise in
other countries of the world such as America, U.K.,
France, Soviet Union, Japan, and China.
The study entitled "Essential of Business Finance"
1986 by R.M.Srivastava, deals with all the important
aspects of business finance from the introduction to the
final stage. The study has been divided into nine parts,
introductory aspects of finance is placed in the first
part. Part second is devoted to a detail discussions on
the important techniques of financial analysis. Part
o5
Third dwells upon^different aspects of financial plannig.
A comprehensive discussion on sources and forms
financing business enterprises is embodied in part
fourth. Part fifth deals with an exhaustive and
analytical discussion of all the prominent financial
institutions of Indian money and capital markets.
Working capital management has been discussed in part VI
and internal financing,dividend policy in part VII. The
author has also attempted to examine episodic aspects of
business finance such as refinancing, recapitalisation
and readjustment mergers and reorganisations in part
VIII. The last part i.e. part IX deals with the
financing of small scale business enterprises and public
sector undertakings in India.
Nabagopal Das carried out a study entitled "The
Public sector in India" in 1961 and discussed the
various aspects of public sector enterprises in detail.
1st five chapters are devoted to evolution and role of
public soctor enterprise in different countries of the
world and in India, Accountability,Industrial relation,
problems of personnel. Profits and the consumer. Price
fixing and the financing of Public enterprise have been
discussed in other chapters. In the last, a whole chapt.-
er is devoted to the thoughts on the future of the
ao
public sector enterprises.
Prof. Laxmi Narain wrote a book entitled
"Principles and Practice of Public enterprise Management"
in 1982. The book has been divided into four parts. It
provide all the necessary information and analysis of
the concept and practice of public enterprise management
in India. Part A of the book is devoted to the Macro
view of the public sector enterprises. Under this, the
Governments Industries policies, objectives, rationale
and the nationalisation has been discussed. The
organisation pattern, The Board of Directors its
functions and constitution. Management structure,
measurement of efficiency, proformance evaluation etc.
has been discussed under part B, Part C deals with the
accountability, relationship with the Government, all
the public relations and the consumer. In the last
part, are discussed some functional areas, the financial
management, pricing policies and practices, personnel
management, Industrial relations, materials and
production management and the project appraisal have
been discussed in detail.
Prof. V.V. Ramanadham has done a lot of work on
the various aspects of public enterprise In this book
entitled "The finances of public enterprises" 1963.
o7
has discussed the financial aspects of public
enterprise.The study deals with the public enterprise
profits, The profits criterion, public enterprise
pricing and finally the financial organisation of public
sector enterprises. The pricing and the profitability of
the public sector enterprise has been discussed in
detail which is a deep study by the author. Another
study entitled "The control of public enterprises in
India" 1964 by the same author carried another aspects
of the public sector enterprise i.e. the control of the
public sector enterprise in India. He examined the
purpose of public control and the background factors in
fluencing the system of control over public enterprises
and critically reviewed the present methods of control
in form and content. The author has given an objective
appraisal of the relative role of statutory control,
direct control by Government and indirect control
through public agencies. He discussed in detail the
financial control of the public sector enterprise and
lastly he suggested improvements in the channels as well
substantive content of control and recommends certain
new adminstrative devices.
Parmanand Prasad made an study in 1957 entitled
"Some Economic Problems of Public enterprises in India".
b d
The study is primarily concerned with the genesis,
motive, scope, organisation and structure of public
enterprises in India. The book has been divided into
seven chapters Chapter 1st deals with the theoretical
discussion about the motives and scope of public
enterprises. This includes brief references to instance
in the west and Japan in the nineteenth and the present
century. The various forms of organisation have been
discussed in chapter Ilnd. The chapter Ilird deals with
the efficiency and accountability of the public sector
enterprises. The chapter IVth which covers an important
topic is devoted to the background in which the issue of
public enterprises in India is set. In the last three
chapters the author has studied the organisation of the
centerally administered public enterprises in India for
the purpose of evaluating them in the light of the
economic development of country.
B.L. Mathur has completed a study on "Public
Enterprises policy and performance" in 1988. The study
is based on the papers written by eminent experts of
public sector enterdprise on the different aspects of the
public sector enterprise. The papers of this book deals
wich policy issues of public sector enterprise.
Government public enterprises interaction Planning and
89
control of public sector eenterprise, Financial
management of public sector enterprise, capacity
utilisation ^ personnel Management and Industrial
relations of public sector enterprise.
Ishrat H.Farooqui, in his book
entitled."Macro sturcture of public enterprise in India"
in 1968 has dealt with the few important aspects of
public enterprises. The book has been devided into five
chapters and deals with the growth of public sector,
Proms of organisation, Board of Directors-Role and
function. The Board of Directors-Appointment,
Remuneration, composition, membership and the Board of
Directors-its relationship etc.
I SankarjMishra and Ravishankar in their book
entitled "Public enterprises in India" in 1983 have
edited the papers presented at a national seminar of
research workers on public enterprise in March 1982. The
book deals with the topics of research, important
'aspects of public sector entperkprise, etc. The main
theme of the book is the overall stress of the
deliberations on promoting comprehensive research on
conceptual and functional areas of public enterprise
management and the author emphasised the urgent need
for paying greater attention to vigorously promote
vo
research on public enterprises.
The same type of work is carried out by S.B.Jain
in 1986 entitled "Management of public
enterprises-Indo-French experience" in two volumes. The
books are based on the papers presented at the
Indo-French seminar on the role and Management of
public sector. The seminar was organised in co-operation
with the French Planning Commission.The book deals with
all aspects of public sector enterprise in the form of
the papers such as criteria for Investment choices,
areas of comparative advantage where the state must
invest ^ State responsibility towards protection of
employment, performance criteria, capital structure,
management culture and the profitability of public
sector enterprise.
Dr. N.K.Kulshrestha carried cut a study entitled
"Analysis of Financial statements of paper Industry in
India"(1964-6^5 . Thr author analysised the financial
position of paper Industry from 1964-68 and an idea for
the financial structure of Indian industries with
special reference to Indian paper Industry. The study
has been divided into nine chapters in which,the
historical aspects of Indian paper Industry^ Financial
statements with special reference of selected paper,
91
units, techniques for financial analysis, activity
analysis in term of size of investments, Profitability
and rate of return, financial structure-sources of
finance in terms of capital gearing and trading equity,
analysis of working capital and lastly the findings and
suggestions of the study have been discussed.
Dr. Anubhuti Ranjan Prasad took the initiative to
undertake research work specially on Indian coal
industry which was later published under the title "Coal
Industry of India" 1986 has dealt with the various
aspects of the subject. The book has been divided into
seven chapters. In the study, the author has very
aptly analysed the life cycle of coal and attempt has
also been made to suggest sophisticated technique of
reasonable long-term projection for coal demand which is
a basic pre-requiste for the formulation of any coal
policy. Chapter 1st of the study is devoted to the
evolution of the energy sources in which the supermacy
of coal over other useable sources of energy has been
shown. The origin, reserves and life cycle of coal has
been analysed in chapter Ilnd. The Ilird chapter deals
with the production, consumption and demand forecasts of
coal from 1878 Lo 1979-80. In chapter IVth a number of
deep-rooted problems faced by the coal Industry has been
dealt with a greater length along with practicable
'2
suggestions. The evaluation gf coal pricing has been
dealt with in chapter Vth. The role of coal in the
changing economic pattern of India has been analysed in
the Vllth chapter and in the last chapter the author has
dealt with a comprehensive energy policy where in a
bright future of coal is envisaged as the most suitable
alternative source of energy in India.
Mr. Rajiv Kumar in his research project sponsored
by the International Development Research Centre (IDRC)
Canada and The National Council for Applied Economic
Research (NCAER), New Delhi which was later published
under the title "Technological Development in the Indian
coal Industry since nationalisation" (1986) has dealt
with a critical evaluation of technological Development
in the coal industry since nationalisation. The
development in different forms of coal mining viz, under
ground and open cast are analysed in depth. The study
brought out the relevance of recent advances in longwall
and open cast mining technology for the Indian coal
Industry. The whole study has been divided into five
chapters. The first chapter is devoted to the
background of the study and a synoptic picture of
technological development during the period after
independence and before nationalisation. The second
third and fourth chapters
of this bool: 3rG the core chapter which deal
with the development in coal extraction technology in
India since the industry's nationalisation. The last
chapter is devoted to an overview of the policy
objectives and the conclusion of the study with a few
suggestions for evolving a rational technology policy
for the coal industry in the future.
"Planning for coal industry" a study carried out
by GopaljK. Kadekodi in 1988 discussed about the various
as;jectG of coal' sector. The book has been divided into
two parts. The study deals exhaustibility with cost of
mining, pricing of coal technological options, coal
beneficiation, soft and beehive cokes, exploring more
coal, and environmental effects. The study is based on
extensive field data from coal mines, coking units and
project areas. It has a focus on planning and policy
options, Econometric models of cost and productivity,
cost benefit analysis of coal mine projects and
optimisation models of choice of techniques from the
basic facts of enquiry into the nature of this important
energy sector.
Mr, A.B. Ghosh carried out a study entitled "Coal
Industry in India- A Historical and Analytical Account" I
part I in 1977 . The study deals with the various
10 1
aspects of coal before independence, A historical
account of the development of coal industry, problems
faced from time to time remedies suggested by experts,
measures adopted and their evaluation. The whole study
has been divided into Ten chapters in which the energy
from coal India's coal resources, Begining of coal
mining in India, Production and consumption upto 1946
structure of the Industry, labour and Mechanisation,
prices, wages, profits and Investment conservation of
coal and distribution marketing and Transport have been
included.
A number of Articles have been published on
different aspect of the public sector enterprises and
the Coal India Ltd. What is public sector enterprise in
the eyes of the law has been analysed by Ramaswamy R.
Iyer in his article entitled "Public enterprise as
'state' and Article 12" (Economic and Political Weekly,
August 25, 1990, p.129). The author observed that "the
legal view that public enterprises are 'state virtually
destroy the difference between departmental and
corporate public enterprises, and renders the corporate
form otiose for all practical purpose, weakness the
managements of public enterprises vis-a-vis their
employees and unscrupulous tenderers and suppliers, and
gravely undermines discipline as well as enterprise-like
behaviour, provides no special protection to the
consumer against monopolist behaviour or restrictive
trade practices, for which other remedies have to be
found and undermines and important instrument of policy
and strategy in developmental planning and virtually
presents the government with only two choices, namely,
to establish departmental undertakings or to leave
matters to the private sector. This clearly represents
the most serious threat to the continuance of the public
enterprise experiment in this country.
In the article entitled "Public Sector
Organisational Structure." Written by Baldeo Sahani (
Economic Times, July 3rd 1983), the author has described
the parameters for the betterment of the public sector.
He observed that there is generally a lack of direction
on the organisational structure of public sector of
major group of undertakings and individual enterprises.
No well considered plan was prepared laying down the
parameters and objectives of this sector before it was lunched.
In his article "Public sector: colossus with fact
of clay" (Economic and political Weekly, May 28th 1983),
Hiten Bhaya reviewed the management and functioning of
public sector. He pointed out some reasons for the
9 b
deviation of the public sector's role from the original
objective set for it. He traces the weakness,
rigidities and malprectices that exist to the heritage,
ultimately of a colonical past he also suggested through
his analysis some remedial steps that could make public
sector managements more professional as well as
consistent with the sector's original aims.
Ajid S. Gopal emphasised the role of bureaucracy
in the public sector enterprises in his article 'Tonning
up public sector bureaucracy" (The Hindustan Times,
December 15th, 1989). He provided many examples of the
bureaucracy influence in the public sector.
"An evaluation of public sector undertakings" in
three issues (Financial Express 14th, 15th, and 16th
August 1991, Gkopalaswami, evaluated the performance of
public sector undertakings in detail. As per his study,
he said while consideration of financial returns of
financial parameters as indicators of performance are
important, the financial criteria can not be the sole
basis for judging the performance. The operational or
physical criteria would be relevant. The public sector
undertakings should be judged by this criteria also. he
concluded that what may be the need of the hour is a
relentless effort to make their operations more and more
cost effective by adopting more realistic pricing
policies than what has been possible hitherto. It is
necessary to take a balanced and erfl.ightened view of the
role and performance of this sector in the past, in the
light of the social obligations, it had borne and
continues to bear and to reorient its functioning for
the future in the light of the experience gained so far.
The Hindustan Times, New Delhi dated Feb. 10th
1985, carried out a detailed article by Ravi K. Zutshi
entitled, "Time to account" on the problems of the
public sector enterprises. The author suggested a new
regime of reforms to place it firmly on a pattern of
higher growth rates. As per his study, project delays,
cost escalations, capacity under utilisation and
managerial efficiency led to losses to the concern
Zulshi concluded with the remark that it is high time
that the public enterprises were made accountable to the
people and the ultimate stoke holders. In the name of
professionalisation these enterprises have become
private empires of a few managers who are accountable to
no one. Some of these enterprises have annual budget
exceeding that of many of the state Governments and the
number of such enterprises are going to increase in the
future. In our distaste Cur political corruption, we
98
tend to forget that the professionals are professionally
trained to hide misdeeds through accounting jugglery.
The crruption and mismanagement in public enterprises
cab be tackled by making these enterprises more open.
This becomes feasible only if they are made responsible
to the parliament.
In The Article "Performance of Public Enterprises:
Some Basic Questions" by S. Balarami Reddy and SCK
Krishnama Charyalu (Southern Economist May 1-15, 1987, \
p.89),"^ the authors highlighted the conceptual and
operational flows of government in shaping the public
sector in India. The performance of Public enterprises
has been discussed with the help of some economic
' parameters. They concluded with the observation that
'the Indian Public enterprises are indispensable in the
socio-economic development context of the nation. For
many maladies plaguing the public sector, the
responsibility lies on the government, he failed to
implement the various principles and guidelines given by
different committees from time to time. Time has come
for the political masters to think rationally and
straintive the financial systems of public enterprises
for the good of the nation.
There had been tilt towards the Public sector
upto the Six Five Year Plan. But according to Dr. Uma
Shankar Prasad Sinha in his paper entitled "As Public
sector being stiffed"? (Yojna, September 16-30, 1986)
who observed that the Seventh Plan this tilt is not
discrernible. Because, according to him, the percentage
increase in the public sector outlay in the Seventh Plan
as compared to the previous plans, is almost negligible.
The private sector has assumed substaintial proportion
of outlays in the Seventh Plan. The public sector is
thus ignored. This the author feels, amounts to
significant diversion of the economy from the declared
goal of realising the socialistic pattern of society.
Public enterprises in India occupy a commanding
position in many areas of economic activity. They
account for an huge investment, many of them have of
course, rendered a good account of themselves,
fulfilling the goals set for them. But a large number
of them continue to be in the red. What is the reason
for their poor profitability? What are the ways of
improving their working in order to make them yield a
good surplus and fulfil their social obligations? G.
Venkata Chalam and D. Dakshina Murthy discussed these
questions in their article entitled "Working of Public
enterprises in India: suggestions for improvement
(Southern Econimist Nov. 15, 1984, p.9). They offerea
so many suggestions and concluded in that "the public
enterprises suffer from a number of non-financial
constraints in addition to the financial problems like
ill defined obectives, too much of government and other
political interference, Industrial unrest, delay in
decision making and non-professionalisation in
management. It these constraints are over come by the
government or at least reduced to the possible extent,
the public sector enterprises would certainly do better.
Though the public sector enterprises were
established basically to achieve commanding heights of
our economy, the public sector undertakings can not
altogether overlook the profit motive factor. The
article entitled "Public Sector Units must be Viable" by
K.S. Mishra (Yojna September, 16-30, 1986 p.18)
suggested various steps to manage the public sector
undertakings more efficiently so that they could
generate enough surpluses to prove their economic
viability. He felt on the threshold of the 21st
century, the public enterprises chiefs need make
tremendous efforts to enalbe their units to make
valuable contribution to the balanced regional
development, removal of poverty and equitable
10 1
distribution of Income and Wealth. In the same issue of
Yojna Dr. S.N. Bansal and Dr. V.K. Agarwal carried out a
study on "Social responsibility of state enterprises".
They raised the question that should the viability of
public sector enterpirses be judged from the amout of
profits to be earned by them? The Answer was no.
According to the authors, if they did not earns any
significant profit but at the same time, they were able
to serve their social goals, they should be regarded as
the once's fulfilling their social responsibility.
However, they felt every effort should be made to
improve the percentage of their profitability and
capacity utilisation. Because they have before them the
stupendous take of guadrupling their contribution from
Rs.9,395 crores during the sixth plan to Rs.35,485
crores during Seventh Plan, thus marking their valuable
contribution during the Seventh Plan.
Mr. P.S. Garg in his study entitled "Public
sector performance—Growth Replacing Profit" (Lok Udyog
Dec-Jan. 1981, p.17) claims that in public sector, the
most commonly used yardstick of evaluating the
performance of public enterprises return on investment
remains to be a lopsided technique due to the presence
of certain specified social objectives set for different
10 2
enterprises to advice. These specific objectives which
are in addition to the normal objectives set out for the
public enterprises, differ from unit to unit. As a
result ROI technique suffers from lack of interunit
performance comparison. Waht the state desires from its
enterprises is to make progress on all the specified
objectives in the same way as it wants growth in all the
other sectors of the economy. Thus to avoid the
difficulty in measuring the performance of public
enterprises by ROI method, the author has suggested for
making use of concept of growth for evaluating the
performance of public sector enterprises.
Public sector was given primacy to serve certain
social purposes. Like other enterprises it is expected
to earn profit but not indulge in profiteering. Its
basic obligation is to generate adequate surpluses for
proper up keep of plant and machinery, up gradation of
technology and expansion. Mr. D.K. Pandiya in his
article "Why do we prefer public sector? (Yojna,
September 16-30, 1986, p.26) has commends the role of
the public sector in setting up industries in the
remotest corners of the country so for untouched by any
industrial activity simply because of its commitment to
remove regional imbalances. It is also ready to face
challenges in the spheres where the private sector has
10 3
either failed or it is reluctant to enter.
India is a developing economy dedicated to
socialistic pattern of society. In this context, the
growth and expansion of public enterprises necessitates
for the economic development of the country. The public
sector enterprises are, however, only the means and not
an end in themselves. The public sector depends upon
the efficiency of the top officials and efforts of the
employees. There is an urgent need for improving
redtapism, producing good quality products at a cheaper
rate, exempting the units from plitical interferrence
and appointing personnel . purely on the basis of ability
and merit. By adopting, these measures public faith can
be restored in these undertakings and they can be an
effective instrument in building a selfreliant economy.
Lastly, it is also possible to improve the capacity
utilisation of public enterprises with the help of 20
point programme. These are the opinions expressed by K.
Narasimlarlu and A. Rama Mohan Reddy in their article,
"Growth structure and development of public enterprises
in India" (Southern Economist, May 1-15, 1987, p.17).
Mohd. Fazal published an article entitled "Don't
make it a whipping boy" (Yojan, July 16-31, 1984, p.11)
calling for inculcation of commercial character in the
104
public sector. As per the opinion of the author the top
management must possess and develop the capacity to take
decisions even under conditions of uncertainity within
the frame of clearly spelt out objectives of the
concern. Besides, the principle of its accountability
would need proper definition. Within the parameters of
our policy management productivity should improve to
achieve excellence in performance for over all economic
developement. The same issue of Yojna carried out
another article entitled "How shoud it be judged"
written by S. Samarapungavan. The author said that the
prformance of Public sector enterprises should not be
judged on the scale of profitability aspect alone,
ignoring the contributions made by it in discharging its
socio-economic objectives: Aspects like development of
backward areas providing public utility services at
subsidised rates, selling basic imports or products at
administered prices, generating employment, providing
basic amenities to its employees, should also be taken
into account. A determined public sector management
with functional autonomy is bound to improve its
effeciency which is vital to the national economy.
"Need for restructuring public sector undertakings" by Aditya Samant and Vabudeo Joshi ( The
10 5
Economic Times, August 22nd 1991) highlighted some
pressing issues confronting the public sector in the
light of the new Industrial policy. Some suggestions
have been provided by the authors for the betterment of
the public sector undertakings such as pricing. In many
cases a rational pricing policy may bring about some
improvement in the economic performance of these
enterprises as irrational pricing policies hamper
growth by leaving little margin for generation of
surpluses. It may be political interference, in still
other it may be bureaucratic red tapisum. The
multilevel combersome procedures for approvals and
sanctions cause delays in project implementation. Time
and cost over runs are the rule rather then the
exception, delay and lack of professional management
that may be the root cause of failure. The causes
which may exist in different combinations, will have to
be clearly identified and dealt with in a business like
manner. Thus minimum government presence leading to
emergence of autonomous leadership, better management of
resosurces and increase in productivity, emergence of a
new dynamic joint sector are the three factors which can
really change Lhe face of the public sector in this
country.
io6
The government has announced a number of measures
to cut down expenditure and save on foreign exchange.
All ministries have been asked to reduce expenses at
least 10 per cent and drastic steps are being taken to
lower imports. As per the opinion of Baldeo Sahai in
his article entitled "Austerity in public sector (The
Hindustan Times, August 18th 1990, p.11) the situation
can be considerably improved if the objectives of the
public sector are properly defined, its functioning is
toned up and it is allowed to operate in an
enterpreneurial environment. It is for this purpose
that a white paper should be publishedon on l±e subject.
The white paper.should settle this issue once of all.
The Government and the Parliament, has every right to
laydown policy to sanction funds, to fix up targets, to
ensure a coordinated approach and to harmonise public
sector approach with national objectives.
Kalyan Raipuria completed a study entitled
"Resource Mobilisation of Public Sector Development"
(Economic and Political Weekly, January 19th 1991,
p.123) where certain issues of resource generation and
mobilisation of public enterprises for financing their
plans has been discussed. He dealt with internal
resource generation in real term and on net foreign
exchange earnings by the public enterprises at lower
lu7
domestic cost. He concluded the article by the remark
that "in the light of the Seventh Plan experience, the
need for a balanced approach has been brought out
internal resource generation in real terms (net of funds
required for cost excalation), is the key to the
balanced approach. The time has come to take note of
this in a serious manner. Equally serious is the role
of Public enterprises in generating net foreign exchange
earnings at lower domestic resource cost."
Delays and cost over runs in public sector
investments can raise the capital output ratio in this
sector and elsewhere bringing down the efficiency of
investments, yet there are estimates of the delays and
cost over runs, and of their opportunity cost. This
opinion expressed in 'Cost and Time Over runs in public
sector project' (Economic and Political Weekly, November
24th, 1990) by Sebastian Morris further stated that the
factors internal to the public sector system and
government largely account for the delays and cost over
runs. Poor project design and implementation in
adequate funding of projects, bureaucratic in decision
and the lack of co-ordination between enterprises.
Appraisal by the government very often is devoid of
meaning when the emphasis is only on the form of the
project proposal rather than on its content since public
108
enterprises particularly those in the core sector have
large dealings with each other where a 'vicious circle
of delays' has been built up. The politically expedient
tendency to take up large number of projects and short
funds than all, except those with the very highest
priority, is perhaps the most important factor in
delays. The governments'ad hoc approach in according
high priority to certain sectors- oil and natural gas
and petroleum - while perhaps over coming the problem in
these sectors have compounded the problem else- where,
particularly in the infrastructural areas - Railways,
steel and coal.
Mr. Braj Kishore wrote an article in two parts
entitled "Study of Trends and Innovation in financing of
Public enterprises" part I (Economic Times, oct . 13th,
1978, p.5). The author described the criteria of
financing the public enterprises* He has made an attempt to
examine the desirability of replacing convennationalism
in public enterprise financing by innovations. The
conventional financial structure of public undertakings
has been largely conditioned such as statutory denial to
private capital, debt-equity policy, loan stipulations,
working capital, financing policy and rules for
expansion finance. In the second part namely "Capital
109
Reconstruction as a last resort" (Economic Times,
October 14th, 1978, p.5.) it is concluded that the
situation leads to unavoidable capital reconstruction.
These enterprise has run into deep irredeemable deficit
and has proved endemically unprofitable, when its
product can not be sold out on economical prices, and
when it becomes obligatory for the government to lend it
for enabling a replacement of its debts. In fact a
capital write-off is equivalent to a continuing subsidy
to the extent of the interest on capital written off.
But a specific subsidy may be adjustable and many prove
to be of a limited duration even if it may pose certain
difficult problems of control and monitoring. The
write-off is a once-and-for-all problem and provide
comparative advantage of a new start and an occasion for
a major re-organisation which is bad for management
morale and efficiency.
The system of effective cash management aims at
making optimum use of the available cash resources in
order to add some thing to the profits. For optimum
utilisation of cash resources, hidden cash potentials
within the business need to be traced out. These cash
potentials can move substantial useable cash available
to the enterprise. This means a business can employ in
lio
tapping the concealed cash which depends, mainly on the
ingenity of the management. Dr. R.R. Bari carried out a
study entitled "Hidden cash in Public sector
undertakings" (Lok Udyog, April 1981, p.11.) The author
tried in this article to explore hidden cash in selected
companies and seek answers to a few vital questions in
expediting collections. Firstly, how much time do the
selected companies take in sending bills to customers?
Secondly, are their customers prompt in making payments?
If not, what may be the probable reasons for delayed
payments? Thirdly, what steps do they take to expedite
collections from debtors? Fourthly, are they prompt in
depositing the received cheques in the bank? Fifthly, do
their banks collect the deposited cheques with in the
reasonable time? If not how much loss they may suffer
due to bank float? Lastly, how the collections can be
expedited?
Public enterpirses account for substantial
investment. Yet little work has been done on how this
investment is financed. The paper entitled "Financing )
public enterprises Investments in India by Anand P.
Gupta (Economic and Political Weekly, December 17th 1988
p.2679) reviewed the way plan investment of control
public enterprises have been financed in recent years,
Ill
with a view to identify some of the main issues of
public enterprise investment financing in India. The
author concluded the paper with the remark, that the
paper provides a prespective on how central public
enterprises plan investment are financed. It reveals
that although budgetary support continues to be a major
source of financing central public enterprise's plan
investments. It also highlighted the issue of internal
resosurce generation by Central public enterprises and
questions the credibility of the Seventh Plan target and
finally the government of India's budgetary support
declining and with internal resosurces adequate to
finance only one-third to two-fifths of their plan
investments.
Mr. O.P. Jain in his article entitled "Financial t structure of public sector" (Economic Times, June 27th
1981, p.l) observed that the analysts of profitability
of public sector enterprises do not focus as much
attention on the financial structure as on the
management of these enterprises. They seldom view the
factors attributing tn their' losses in their totality.
The financial structure of these enterprises as
predominantly determined by the form of their funding by
the government. There is therefore, a budgetary link
112
betweeen the government and the public enterprises.
Such a link should be widely appreciated in its proper
prespective for an appraisal of the lack luster
financial performance of these enterprises and for
suggesting the means of improving it.
In recent years, the increasing involvement of
the public sector in the industrialisation is an
important phenomenon in developing countries. The
pursuit to enlarge the public sector is aimed to deal
with the basic problem of external dependence by laying
and strengthening the foundations of independent
development. The role of foreign collaboration in
Public sector by P. Mohanan Pillai (Economic and
Political Weekly, May 27th, 1978, p.178) discussed the
nature of foreign collaboration in the Indian public
sector and make a comparative analysis vis-a-vis the
private sector with a view to reflecting the
progressive character (If at all it exists) of the
public sector and its manifestation in securing better
terms and conditions in the transfer of technology. He
highlighted the economic implications of foreign
collaboration in the public sector and its relevance to
the over all direction and strategy for the attainment
of social objectives.
113
Capital structure planning keyed to the objective
of profit maximisation ensures maximum rate of return on
investment and maximum cost of capital. As capital is
one of the important elements of business success, the
efficient use of capital needs not only its acquisation
in appropriate amounts at the right time but also
careful formulation of internal policies concerning the
choice of the various sources of finance and the cost
thereof. The results of analysis of the various sources
of capital financing and the cost of funds borrowed for
the capital needs of public enterprises provide a useful
insight into the policy implications concerning their
"capital structure and the cost of capital."
Dr. Rajeshwar Rao & M. Subrahamanya sharma
carried out a study entitled "Some Aspects of Capital
Financing in Public Enterprises" (Lok Udyog, March 1982,
p.17.) where he analysed the trends in the use of
various components of the total interest burden on their
total debt, the average rate of the total interest
calculted as the percentage of total debt and its impact
on gross profits.
M.P. Narayanan, carried out a study entitled
"Coal India raises its sights" (The Hindu Survey of
ii4
Indian Industry, 1990, p.189) highlighted that
currently, coal contributes over 50 percent of the total
commercial energy requirements of the country. The
quality of Indian coal is poor. It is high in ash,
hard, abrasive and poor in calorific value. The survey
indicates that coking coal resources are hardly 15
percent of the total resosurces and are located in
coalfields around Dhanbad in Bihar. Coal India Ltd.
accounts for nearly 88 percent of the total coal
production in the country. The author described the
various measures taken by the Coal India Ltd. , for the
increase of coal production such as safty directorate,
environmental protection and land degradation.
The ups and downs in coal production and supply
affects the productivity in many other industries like
steel, power, railways, cement, fertilizers etc. B.A.
Iqbal in his article "Black gold higher production
needed" (Yojna, January 9th, 1989, p.18), analysed the
various constraints affecting coal production. He
concluded that the need of the hour is to take short
term as well as long term measures ' to reduce the gap
between demand and supply so that interlinked industries
keep pace with productivity targets thereby ensuring
over all development of the country.
115
K.A. Sinha published an article "Coal Mining in
India - In Retrospect and Prospects'^ (The Hindustan
Times, Feb. 9th^l988, p.14). The author discussed the
various aspects of coal Industry and coal India Ltd.
Such as pre-nationalisation days of the industry, the
organisation, production, the productivity, safty,
computerisation, telecommunication, environment and
concluded the article with the remark that 'In view of
continued high investment in plant and Machinery for
desired results in coal India Ltd., it is necessary that
the performance levels of equipments are brought near to
the international standard. And here manufacturers and
suppliers of equipments have special role to play in
terms of reliability (manufacture) of equipments and
spheres with zero defect, back-up service to coal India
by regular and prompt supply of sphares, after-sale
service through properly organised depots and service
centres.
"Coal India - Down the red road" an article
written by Sanjay Gupta and Debashis Basu (Business
world, March 28th - April 10th, 1988, p.50) delat with
various aspects of coal India Ltd. It also included an
interview with the former secretary of coal and the
Chairman Coal India Ltd. It analysed that, fifteen years
liO
after nationalisation of the coal Industry, the
experiment has been officially deemed a failure. The
recently releasd Chari Committee Report pulls no
punches. But there is no going back. The future is
destined to be delight in a sea of red ink. They
concluded that independent India's elected government
should learn from the British example and take similar
measures in the national interest? Must the citizenry
reconcile itself to enduring ever-increasing
administered prices, even larger losses and a still
burgeoning labour force which must be appeased no end to
serve political ends as is happing right now? If all
are agreed that the answers to the latter are decidedly
in negative, then obviously a start must be made
somewhere to stop the force.
"Coal nationalisation: A case of too much, too
soon" is a study carried out by Capital Annual number
1983, p.99. The correspondent described that the coal
industry in the post nationalisation period has cut a
sorry figure even when compared to the banking and
general insurance companies that were brought under
government control about the same time. He suggested
that private agencies may be allowed to work pockets of
coal that are uneconomical for coal India. Britains'
117
naticr.sliaed ccal Industry accepts the working of small
mines under private ownership which presently
contributes about ten percent of British coal output.
They concluded by the remark that the coal Industry must
adopt drastic remedial measures otherwise the epitaph
for nationalisation may well read, Enthusiasm,
Disenchantment, Panic, Search, for quality. Punishment
of the innocent and Decorations for all who took no part.
The Indian Coal Industry has a problem of
mechanisation the developments on the technological
fornt have understandably not matched the pace, scale
and nature of change in the development world. S.
Ramachandran carried out a study namely "options in
colliery mechanisation''^ (The Hindu Survey of India
Industry, 1983). The Author discussed that with the
opportunities thrown up by such an ambitious expansion
and modernisation programme, it is internal to expertise
from various countries like the U.K. France, Poland,
Romania and the Soviet Union. The Indian Coal Industry
is now considering three types of technical
collaboration. Type A, involves limited foreign
assistance generally to cover feasibility and associated
studies to rech investment decisions. This will include
marginal import of equipment and instrumentation.
i Lb
Type B, covers feasibility studies followed by full
equipment supply, training of personnel and assistance
in operations. Type C, concentrates on investment by
the foreign collaborator in exploration, feasibility
studies, opening of mines and their operation on
compensation basis. France, Japan and Belgium which are
net importers of coal have shown interest in
collaborating with Indian coal Industry.
"Public sector Coal and Economy" an article
written by G.L. Tandon, (The Hindustan Times, New Delhi,
January 20th 1987, p.17) emphasised the performance of
public sector coal Industry in the country. He discussed
various parameters for .the performance of the public
sector coal Industry such as coal for Industrial
development, growth/progress of public sector, growth of
coal production, coal despatches and lastly the major
problems of coal India Ltd., few of the problems narated
by the author are training facilities for man and
housing water supply and medical facilities, the minings
are in a primitive state of technology, accountability
etc.
Ravi Ranjan Sinha published a very important
article entitled "Coal Through Pipe Lines (Commerce,
December, 19-25, 1987, p.5). This proposal is still
under consideration by the Coal India Ltd. A number of
119
studies have been made examining the possibilities of
covering coal into oil and other products like pipe line
gas. The author discussed that not much work has been
done in India on slurry transportation except some
laboratory studies in some organisations like the
Projects and Development India Ltd., Sindri, Hydraulic
transportation of coal involves three important steps,
preparation of coal slurry at the intake point, pumping
out the intake point and dematering at the off take
point. Coal is first converted at mine heads or a
centrally situated still where it can be pulverized and
mixed with water or furnance oil with some additive to
make a stable fluid mixture of the pulverized fuel.
This mixture can be pumped through pipe lines with the
help of suitably placed booster stations*Various schemes
have been suggested for the pipeline installation which
will touch all major and industrial cities of the
country.
"Coal price hike: Impact on Industry" an article
written by Tomas Kutty (Economic Times, January 28th
1989, p.5) analysed the impact of the increase of coal
price to the other industrial sector or Indian economy.
Price hike in the coal sector causes cost escalation in
its user industries particularly and cost-push
1/0
inflation, generally in the economy which in turn,
causes cost escalation in Coal Industry as this industry
is dependent on those industries for its inputs.
Another article "Coal price hike eludes basic
problems" by A.K. Bhattacharya (Economic Times, January
4th 1989, p.l) analysed that far from achieving the
stated objective of injecting wealth into the oiling,
coal industry, the price hike decision is at best a job
half-done. The most crucial problem i.e. mounting
losses of around Rs.2,000 crores, has been tackeled only
partially. There are two reasons for which coal India
Ltd. has been accumulating losses over the past several
years. First, unremunerative operations in the
underground mines and secondly, inadequate prices. As is
evident the government is only tackling the price issue
and ignoring the more crucial problem i.e. the huge
losses incurred by Coal India Ltd., in its underground
mines despite better quality coal obtained from these
operations. He concluded that thus hopes of the recent
price hike reducing coal India losses are misplaced.
Despite a price hike, losses may still mount if
fundamental steps to improve • coal India Ltd' s
operations are not taken.
"Coal India Ltd., losses down by over 100 crores"
121
an informative article written by Amitabha Sen
(Financial Express, March 18th, 1989, p.l) informed that
Coal India Ltd., has reached its losses for 1987-88 by
over Rs.lOO crores - from Rs.331.75 crores in 1986-87 to
Rs.224.64 crores. With this, Coal India Ltd's
accumulated losses stand at Rs.2,259.75 crores. This
reduction is attributed to many factors which include
improved equipment utilisation. Productivity and
applications of scientific norms, laid in many cases for
consumption of stores. In another article "Coal India
Ltd. Profit hopes Vanish with coal wage pact" by Balal
Sanyal (Economic Times, April 6th 1989 p. 7) the author
analysed that finalisation of the long pending coal wage
agreement has shattered coal India's hope of closing
1988-89 with a fairly respectable profit. The national
coal wage agreement IV has fixed a minimum basic pay of
a coal miner at Rs.lOOO/- P.M. while increment will
range between Rs.l8/- per annum. maximum quaranter
maney per month will be Rs.85/- over and above the
interim relief. It was decided that every body in the
coal mines, who have served in the organisation for 10
years and more would be shifted to the immediate higher
grade of scale. Transport subsidy has been raised from
Rs.1.30 to Rs.2.30 per day, additional transport subsidy
has been revised from Rs.2 to Rs.3.50 per day. House
rent has been revised from Rs.30 P.M. to Rs.45 P.M.
The common wealth secretariat brought out the
report of the seminar organised by it and the government
of India in New Delhi (February 27 to March 3rd, 1978)
and published it under the title "Issues in Public
Enterprise Development", according to the report, there
was general agreement that, if public sector
undertakings change less than the cost or normal price
in pursuit of social objective, there should be explicit
governmental recognition by way of commensurate grants
to the enterprise to compensate for the loss involved.
In the event that social objectives warrant a lower rate
of return than the opportunity cost of capital, the
difference between the two rates should be clearly
evaluated so that the implication cost becomes an
essential element in policy formulation. The subsidies
should be defined and controlled and as far as possible
they should be confined to the output consumed by the
target group.^
The report of another seminar "Performance
Evaluation of Public Enterprises" organised by the
Commonwealth Secretariate and Institute of Development
1. Institute of Public Enterprise Hyderabad "Programme on financial policy and management of Public Enterprises, Staff papers, New Delhi, March 10-18, 1980.
123
Management (Botswana, Lesotho, Swaziland, April, 1978)
pointed out that "The monitoring and evaluation of such
enterprises should therefore be a straight forward
procedure identical in all significant respects to the
involvement when evaluating any commercial enterprise,
provided that the objectives are explicitly and
precisely stated."^ At the same time it stated that the
"concern was expressed that government subsidies should
be used to disguise inefficiencies and thus convert
subsidies designed to benefit the rural poor into
benefits for higher income groups. This would be
especially true where instead of a well-thought out
policy for awarding subsidies, a government made ad hoc
payments to cover operational losses. In this context
it was noted that Zambia has recently changed its
practice of covering losses with subsidies from public
revenue and is insisting that each enterprise economise
and modify pricing policies, employ more efficient
procedures and otherwise adopt more 'commercial' methods 2 of operation"
Commonwealth secretariat "Issues in public enterprise" Report of a seminar organised by the commonwealth secretariat and the government of India (27th Feb.-23rd March, 1978), New Delhi, (Commonwealth Secretariate, Marlborough House, London, S.W.I. Commonwealth Secretariate "Performance evaluation of public enterprises, report of a seminar organised by the commonwealth Secretariate and the institute of Development Management" (Gaborone,Botswana 3-7 April, 1978, p.4.
i . 4
The Committee on Public undertaking (CPU), since
its inception in 1964 has so far produced more than 200
vartical, horizantal and "action-taken" reports on
public enterprises. In its 15th report of the Fourth
Lok Sabha on "Financial Management of Public
undertakings" the committee on public undertakings
recommended profit oriented pricing policies for public
enterprises.^ It reports on "extraordinarily higher
expenditure on publicity by public undertakings" 2
(1978) . Galloping rise in foreign Tours and costs
thereof undetaken by officials of Public undertakings 3 (1970) . "unusally High expenditure by Public under-4
takings for their Head offices" (1978) atxl Etravagount
expenditure on Guest Houses incurred by Public under-
takings" (1978)^ have pointed out the reasons for the
unoptimality in the price structure of Public
enterprises (1973-74)^ highlighted the importance of
pricing of Public enterprises and said "The committee
1. Committee on Public Undertakings (Lok Sabha Secretariat, New Delhi), 15th report on financial Management in Public undertakings.
2,3,4,& 5. Committee on Public undertakings (Lok Sabha Secretariat, New Delhi, IILS (1978-79) 18th, 6th, 10th & 11th reports. 6. Committee on Public undertakings (Lok Sabha
SccretarlT. .. .jlhi), V.I,.:. 7!-; vcoort on role and achievements of Public undertakings.
i ^ 5
feels that the government should try in this behalf so
as to remove all ambiguity and uncertainly which will
lead to sound financial Management."
The Bureau of Public Enterprises brought out in
its various reports for various years the performance of
Public sector enterprises. The 27th report of this
series which is the latest one has been divided into
three volumes, volume first devoted to a macro-appraisal
and analysis of the performance of public enterprises in
term of board physical and financial parameters was
presented. This analysis includes the contribution made
by these enterprises towards the attainment of the
multi-dimensional objectives for which these enterprises
were set up. Volume Ilnd has analysed the performance
of these enterprises in different sectoral groups,
disaggregated future into individual enterprises.
After the examination of the above said
literature available on the subject, it may be observed
that though there are a lot of books, articles, papers,
reports, statements, brochures, case studies etc., but
they can not be considered as sufficient material for a
definite study. There is scarcity of literature
available on the subject. My attempt to present this
i.
study on the financial structure of public Sector
nterprises- A case of Coal India Ltd., may be taken as
an addition to what is already available on the subject
and will be useful for the researchers^ planners,
managers and the policy makers . In the next chapter
the financial performance of public sector enterprises
in India will be discussed^the chapter will also throw
some light on the financial problems as well as
non-financial problems of these enterprises.
CHAPTER - III
Financial Performance of Public Sector
Enterprises
In the preceeding chapter the objectives of the
study^hypothesis, methodology etc. have been discussed.
The chapter also makfes a survey of the literature
available on the subject. In the present chapter, an
examination of the financial performance and structure
of the public enterprises will be made.
The public sector has behind it a short history
of over 40 years. Yet during these few years, it has
made a noteable contribution to various fields of the
Indian economy. To understand its contribution properly,
it is necessary to evaluate its performance. The
performance of public sector enterprises have been the
subject matter of discussion at all levels i.e. in
government, at different levels of administration,
legislatures, Parliament, private sector, researchers,
intellectuals and public at large. On all these forn
the yardstrick of evaluating the performance of public
sector enterprises had invariably been the return on
investment i.e. how much profit has been earned in
relationship with the amount invested by the government.
The conventional concept of return on investment is
supreme for private sector but generally it has been felt
that this yardstrick has certain limitations in case of
public sector enterprises on account of the reason that
L Jb
apart from profit they have also been established to
achieve certain other social objectives such as the
establishment of capital intensive industries, making
available the products and services at cheaper rates,
providing employment, better wages, substituting
imports, increasing export etc. This list of social
objectives will be a lengthy one if the social
objectives of all type of public enterprise are
incorporated in a single list. However, an illustrative
list is placed here. In the illustrative list there are
some objectives which are uniformly applicable to all
state enterprises. In addition to these uniform
objectives every state enterprise has also certain
specific objectives to achieve. Once these objectives
are finalised they become the indicators for performance
evaluation of the public sector enterprises. In the
given list of performance indicators of public sector
enterprises, a very few of the important financial
indicators have been taken into consideration for our
study. With the help of these financial indicators, the
financial performance of the public sector enterprises
can be examined.
Investment
If the legal independent indentity of each public
LIST OF PERFORMANCE PERFORMANCE INDICATOR OF PUBLIC SECTOR ENTERPRISES 129
S.No. Main Indicators 1. Performance
2. Productivity
3. Profitability
4. Capital Expenditure (New Projects Expansion).
5. Prices of Products/ Services
6. Employment
7. Liquidity
8. Import Substitution 9. Export/Generation. 10. Management Informa-
tion Systems.
11. Research & Develop-ment
12. Contribution to Exchequer (other than interest & dividend)
13. Indirect Employment
14. Any other
Sub Indicators Quantitative -Physical Quantitative -Value Qualitative (No. of Complaints) Capital employed to turnover Capital employed to value Added Labour to turnover Labour to value Added Unit cost of product/service Gross Profit in relation to capital employed. Profit before tax but after interest to Net Worth/Paid up capital. Profit after tax to Net Worth/Paid up Capital. Profit after tax plus interest to Net Worth plus Govt. Loans.
Completed cost per unit of installed capacity. Time of completion. Increase/decrease/stability Margin of profit. Increase/decrease in number. Average emolument per employee. Amount invested per employee Share of weaker section in total force in terms of no and total emoluments. Industrial Relations - Man days lost. Labour - turnover. Current Assets/Current Liabilities Quick Assets/ Current Liabilities Net Working Capital/sales. Value/increase/Decrease Value/increase/Decrease Corporate Plan Annual Budget Timely Completion of Audited Accounts. Managerial Information for decision making Improvement in existing technology. Introduction of New Technology. Corporate Tax Sales Tax Excise Payment of Raw Materials (if any) Through area development/mul i liol ying factor.
8556A GROWTH OF INVESTMENT IN PUBLIC SECTOR
(RUPEES IN C R O R E S )
481 NO OF
E N T E R P R I S E S 21
71123
A2673
18150 15 53A.
94 8 3897
6237
U1 73 84 122 169 179 215 225 232
YE A R S
to IX) to
<r Ci3 to cn U5 O) o oo ID
00 OO CT) 0 0 CO
FIG.
i M
sector enterprise is ignored and if, momentarily, it is
considered that all of them constitute so many separate
units or divisions under one ownership (as in a large
multi-divisional private sector company), then,
theoretically, the most crucial question turns out to be:
what should be the share of investible funds, over a
period of time, that will be channelled to various
industry groups and different enterprises? It is in
response to this question that lies the first major
contact with investment evaluation criteria and
processes.
The investment in public sector has grown
perferably over the years. From a figure of Rs.29
crores as on 01.4.51 in 5 enterprises (see Table
No.III-1), investment stood at Rs.61643 crores in 226
enterprises as on 01.4.1987 and at Rs.71299 crores as on
01.4.1988 in 231 enterprises. The number of Public
enterprises has increased from 5 as on 01.4.1951 to 241
as on 01.4.1988. However, the investment figure of
Rs.71,299 crores mentioned above relates to 231
enterprises. The investment in 10 enterprises coming the not
within the perview of the survey for/first time has/been included for lack of information. In the year 1988-89,
there were 232 public sector enterprises with the total
1 32 TABLE III-l
GROWTH OF INVESTMENT IN PUBLIC SECTOR (Rs. in crores)
Year No. of Enterprises Investment
1.4.51 5 29
1.4.56 21 81
1.4.61 48 953
1.4.66 74 2415
1.4.69 85 3902
1.4.74 122 6237
1.4.79 176 15602
1.4.80 186 18225
1.4.85 221 42791
1.4.86 225 50362
1.4.87 226 61643
1.4.88 231 71299
1.4.89 232 85564
1.4.90 248 130000
Source: Public Enterprise Survey 1988-Public enterprises. Ministry of
-89, Vol. I, Bureau of Industry, New Delhi.
: -3
investment of Rs.85,564 crores. Investment in public
sector enterprises has increased from 212 crores in
1960-61 to Rs.93,122 crores in 1989. At present (1990),
there are 248 public sector undertakings with a total
investment of Rs.1,30,000 crores.
Table No.III-2 indicates that during the first
five year plan investment of Rs.l559 crores has been
made in the public sector out of a total investment
Rs.3360 crores has been made to the total investment
outlay. Thus the share of the public sector was 46.4
percent of the total which further increased in the
second plan to 61.00 percent. The share of public sector
investment in the successive plans has been 58.6
percent, 55.1 percent, 57.6 percent and 47.8 percent in
the Third, Forth, Fifth, Sixth and Seventh Plan
respectively. The share of the industrial sector in the
total investment more than doubled during the second
plan, as compared to the first, jumping from a figure of
11.8 percent to 24.0 percent. During the Third Plan, it
rose to 24.7 percent. It was envisaged to be about 23.4
percent during the fourth Plan and to 31.2 percent in
the fifth Five Year Plan. The share of public
investment in the total investment in the industrial
sector jumped from a mere 15.1 percent in the First plan
1 32 TABLE III-l SHARE OF PUBLIC SECTOR INVESTMENT IN VARIOUS PLANS
(Rs. in crores)
Period Total Invest-ment outlay
Public sector Investment outlay
Share of public sector invest-ment outlay (7J
First Plan 1951-56
Second Plan 1956-61
Third Plan 1961-66
Annual Plans 1966-69
Fourth Plan 1969-74
Fifth Plan 1974-79
Sixth Plan 1979-84
Seventh Plan 1985-90
3360
8710
10400
16089
22250
63751
105990
322366
1559
5410
6100
6571
12250
367030
59130
154218
46.4
61.0
58.6
40.8
55.1
57.6
56.0
47.8
Source: Jain S.B., "Management and Role of Public enterprises, Vol. I, Bureau of Public Enterprises, 1986, p.41.
135
to 47- 5 percent in the second ^ 59* 1 percent in the
Third ^ 55 percent in the Forth^ 57 percent in the fifth,
56 percent in the Sixth and 48 percent in the Seventh
Five Year Plans
The study on public sector for the period from
1951 to 1988 reveals that the public sector with 5
enterprises and an investment of Rs29 crores in 1951 has
grown to 231 with a total investment of Rs- 71299 crores
in 1988 . This has recorded a growth of 23.7 percent
compound per annum . The largest increase in investment
took place at the commencement of the Third Five Year
Plan • The study also reveals that in 1986-87
engineering industry constituted the bulk of total
investment 30-6 percent • During this period , the public
sector invested Rs-6,913 crores in steel, Rs'6,305
crores in coal Rs* 5,105 crores in petroleum^ Rs-5^818
crores in Chemicals Fertilisers and Pharmaceuticals^
Rs. 6,747 crores in minerals and metals and Rs. 5, 190
crores in engineering •
The largest investment of public sector
enterprise j(jas Rrs-9384-34 crores in the National Thermal
Power Corporation as on 31-3-1989 whereas on 31-3-86 the
largest amount of Rs.6304«61 crores was invested in the
Steel Authority of India Ltd (See Table No. 111-3^' The
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156
Coal India Ltd. stood second in terms of investment of
public sector enterprise in 1989 by an amount of
Rs.8183'76 crores which was more than Rs.973*29 crores
for the previous year • The Mahanagar Telephone Nigam
and the National Textile Corporation Ltd; come down from
the list of the top ten public sector enterprises in
term of investment as on 31- 3-1989 when in 1988 the
investment in Mahanagar Telephone Nigam and the National
Textile Corporation Ltd* was Rs.1613'85 crores and
Rs.1435-44 crores respectively. The two new public
sector enterprises entered in the list of 1989 in the
top ten public enterprises in terms of investment namely
National Hydro-electric Poner Corporation and Nuclear
Power Corporstion with the investment of Rs.2256'13
crores and Rs.2064'51 crores respectively.
The main sources of investment of the public
sector enterprises are the equity and loans which are
contributed by the Central Government, State Governments^
foreign participation^ financial institutions and the
private participation • The Central government as the owner
of 231 enterprises has contributed a major share of
investment • At the end of March 1989 the share of
Central Government investment stood at Rs.57237'83
crores which work out to 66.89 percent of the total
investment in all these enterprises (See Table No.III-4)j
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140
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whereas on 31.3.1986, the share of the Centre Government
was 76.58 percent of the total investment. The total
share of state government as on 31.3.1986 was Rs.33.09
crores which came down to Rs.31.65 crores as on
31.3.1989. The foreign participation in the public
sector enterdprise investment was 11.12 percent as on
31.3.1986, 11.73 percent as on 31.3.1987, 11.87 percent
as on 31.3.1988 and 14.39 percent as on 31.3.1989. The
financial institutions have a share of Rs.1661.96 crores
as on 31.3.1986 in the public sector enterprises in
which Rs.46.45 crores come in the form of equity and
Rs.1615.50 crores in the forms of loans but in 31.3.1989
there were Rs.43.06 crores and Rs.2593.86 crores
respectively whereas the total of this sector was
Rs.2636.92 crores, Private Participation also occupies a
very important place in the investment of public sector
enterprises. On 31.3.1986, the share of private
participation in the total investment of public sector
enterprises was 8.93 percent. It was 10.11 percent on
31.3.1987, 11.82 percent on 31.3.1988 and on 31.3.1989
it was 15.60 percent.
Government may disinvest up to 20 percent of its
equity in 47 profit making public sector undertakings in
favour of mutual funds and financial or investment
institutions in the public sector. The decision to
disinvest up to 20 percent equity in public sector
undertakings was announced by the Finance Minister in
161
his Budget speach on March 4th 1991,^ later on with the
change of the government at the Centre the idea for
disinvestment of 20 percent of government equity holding
in selected public sector undertakings to bring in
Rs.2560 crores of non credit capital into the budget has
been deferred. The government has also decided that the
foreign investment upto 51 percent equity may be allowed
in public sector undertakings.
The Union Minister of Industry said that the
government may allow private equity participation in
Public sector undertakings. He said that in the present
cricumstances it would not be possible to pump in more
funds into the 200 odd public sector units where the
Government had already invested Rs.1,00,000 crores.
Despite this huge investment, it was ironical that many
of these units failed to generate either wealth or
surpluses. This has created the worst financial crises
ever for the country since independence. The government
preferred a pragmatic approach and was considering to
allow equity participation to a limited extent of 20
percent in public sector units by financial institutions
and industrial houses. This would help to generate
1. The Hindustan Times, New Delhi, dated April 11th, 1991, p.5.
i;3
2 capital for the development of the units.
Generation and Utilization of resources
A planned and balanced approach to the generation and
mobilisation of resources in the public sector is
paramount for any development. Resource generation by
public enterprises has three important aspects. First,
the public sector enterprises are expected to generate
reasonable profits corresponding to the Investment made
in the past, granting for the utility pricing and
certain social expenditure. Secondly, they are supposed
to provide adequate depreciation which enables them to
maintain the capital stock supporting further growth and
a particular level of service and production. Thirdly,
they are expected to generate, given comparative
advantage and market trends, net foreign exchange to
contribute to improve the balance of payments and
dynamic self-reliance.
A self-sustaining economy has to depend on its
ability to generate resources within itself and utilise
these resources for the furtherance of the development
objectives. The generation of internal resources has
2. The Economic Times, New Delhi, September 10th, 1991, p.16.
144
assumed a greater significance in the context of the 7th
Five Year Plan (See Table No.III-5). The table shows
the contribution of Central public enterprise for the
generation of internal resources under the 7th plan.
The generation of internal resources by central public
enterprises accounted for Rs.31500 crores. In addition,
they are expected to contribute through additional
resource mobilisation measures, an amount of Rs.11,490
crores under the Seventh Plan. The public enterprises
have to contribute gross internal resources of Rs.31,775
crores and utilisation of resources of Rs.7834 crores.
The generation of internal resources by the
public sector has greater importance because the
financing of the expansion and development -activities
of the central public enterprises have to depend to
generate internal resources. The gross internal
resources generated during the plan period was Rs.287
crores in the Third Plan, Rs.l260 crores in the Fourth
Plan, Rs.3439 crores in the Fifth Plan, Rs.11721.25
crores in Sixth Plan (see Table No.III-6). The number
of enterprises generating internal resources goes up
from 126 in 1985-86 to 133 in 1988-89 and the quantum of
gross internal resources generated by the public sector
enterprise has also increased from Rs.5067.95 crores to
Rs.8898.83 crores during the same period, showing an
TABLE III-5 CONTRIBUTION OF CENTRAL ENTERPRISES FOR GENERATION OF INTERNAL RESOURCES
UNDER SEVENTH FLAN (Rs. in crores at 1984-85 price)
Gross Internal Resources: i) Retained profits 5,184 ii) Depreciation 24,893 iii) Deposits etc 1,698
Total I 31,775
II. Utilization: i) Loan repayments 4,917 ii) Working Capital 2,600 iii) Other charges 317
Total II 7,834
H I . Total internal resources available for the plant (I-II) 23,941
IV. Accrual to oil industry Development Board 5,259
V. Accrual on account of steel development fund 2,300
Total 31,500
Source: Public enterprise survey 1988-89, Govt, of India, Bureau of public enterprise. Ministry of Industry, New Delhi, p.74.
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increase of 43.04 percent or Rs.3830.88 crores. There
has been an increase of Rs.1790.46 crores in the
'retained profit' component of the internal resources
generation in 1988-89 compared to 1985-86. The public
sector enterprises have generated gross internal
resources of Rs.30,000 crores during the last five years
and contributed more than Rs.60,000 crores by way of
dividends , corporate tax, excise duty, custom duty and
other duties to the government.
The public sector enterprises need resources
which are met from the external resources in the form
of capital loan, cash credit etc. Table No.III-7 shows
that the resources available to public sector enterprise
were Rs.93362.29 crores in March 1987 in which the share
of loan was Rs.33285.77 crores which went up to
Rs.39318.54 crores in 1988 and Rs.50877.18 crores in
1989. The total of the resources available were
Rs.1,30,193.88 crores in 1989 which is more than
Rs.21555.79 crores in the previous year. The public
sector enterprises utilised the resources of Rs.31961.05
crores for Plant and Machinery in 1987 which were 34.23
percent of the resources. In the same year Rs.2018.00
crores were utilized for capital work in progress and
unallocation expenditure Rs.23010.01 crores for working
capital, 26.64 percent of the total resource utilised
1-iO
TABLE III-7 UTILISATION OF RESOURCES
(Rs. in crores)
Resources available as on 31.3.87 Amount
as on 31.3.88 Amount
as on 31.3.89 amount
Capital 28143.76 31807.24 34686.60 Loans 33285.77 39318.54 50877.18 Cash credit/advances 8547.12 7633.57 7845.00 Net internal resources (net of accumulated Deficit and Deferred Revenue Expenditure not written off) 23375.64 29878.74 36785.10
Total 93352.29 108638.09 130193.88
Resource Utilised
Lands, Buildings, Roads and Installation 6543.26 7637.47 9196.11
Plant and Machinery 31961.05 39901.45 48399.40
Miscellaneous Assets 8730.56 11348.56 12511.71 Capital work in progress and unallocation expenditure 20817.00 23262.68 26473.30 Working Capital 23010.01 22041 .'59 26394.86
Investments 2290.41 4446.34 7218.50
Total 93352.29 108636.09 130193.88
Source: Compiled from Public enterprise Survey 1986-87, 1987-88 and 1988-89, Govt. of India, Bureau of Public Enterprise, Ministry of Industry, New Delhi.
149
FUNDS-RESOURCES & UTILISATION 1988-89
(RUPEES IN C R O R E S )
CAPITAL 31*687 26-6UV.
NET INTERNALo RESOURCES 36785
28-25 V. \
L O A N S 50877
39 08 V.
CASH CREDIT/ ADVANCES 78i»5
6 03 V.
PLANT 4 MACHINERY, UOO
37-18 v.
CAPITAL WORK- IN -PROGRESS 261*73 20 -33 V.
LAND BUILDINGS t OTHERS INCLUDING INVESTMENT 28926
22-22%
WORKING CAPITAL 26395 20 •27 V.
FIG.3
150
for land, Building^ roads and installations and
RS.2290.41 crores for investment on 31.3.1988. The
highest share for the resource utilization was
Rs.39,901.45 crores for plant and Machinery which was
36.72 percent of the total resource utilized and in 1989
that was 37.17 percent. The working capital was 20.17
percent in 1987 which reached to 20.28 percent in 1988.
The capital work in progress and unallocation
expenditure got second place in term of resources
utilised in 1989 of Rs.26473.30 or 20.33 percent but in
the previous year it was 21.41 percent.
Contribution to the Exchequer
The public sector enterprises have contributed to
the exchequer a considerable amount of resource in the
form of interest on central government loans,income tax,
dividend, corporate tax, excise outies anu other duties.
Their contribution to central exchequer amounted to crores Rs.2887 crores in 1978-79 and Rs.3539/in 1979-80 (see
Table No.III-8). In both the years the share of excise
duties was the highest which represents 60.82 percent
and 61.26 percent respectively. The amount paid as
dividends in the year 1978-79 was Rs.72 crores or 2.49
percent whereas in the year 1979-80 it was Rs.76 crores
or 2.14 percent. In the year 1980-81 it increased to
Ibi
TABLE II1-8 CONTRIBUTION TO CENTRAL EXCHEQUER BY CENTRAL GOVERNMENT ENTERPRIESES
(Rs. in crores)
1978-79 1979-80 1980-81 1981-82 1982-83
Dividends 12 76 84 109 115
Corporate tax 225 299 222 579 928
Excise duties 1756 2168 2108 2558 2666
Customs duties 707 782 705 1033 1383
Other duties 127 214 183 288 437
Source: Srivastava R.M., Essentials of Business Finance, Bombay, Himalaya Publishing House, 1986, p.698.
10.52 percent more than the previous year. The
corporate tax which stood second in terms of their
contribution was Rs. 225 crores, Rs.229 crores in the
year 1978-79 and 1979-80 respectively. In the fifth
five year plan, the contribution of all kinds to Central
Exchequer was Rs.7895 crores (see Table No.III-9)
whereas in the Fourth Plan, it was Rs.27,570 crores,
During 1984-85, their contribution to the Central
Exchequer was Rs.7610 crores which increased by 430
crores from the year 1980-81. Rs.l76 crores were paid
for dividend, Rs.ll90 crores as corporate tax, Rs.3407
as excise duty, Rs.2363 crores as custom duty, Rs.474
crores as other duties during 1984-85. In the year
1985-86, the contribution to Central Exchequer was
Rs.9061 crores which increased by Rs.3023 crores in the
year 1986-87. It further increased by 20.14 percent in
the year 1987-88 and reached Rs.16331 crores in the year
1988-89 to Rs.16331 crores, the excise duty was Rs.6645
crores or 40.68 percent of the total, the customs duty
was Rs.5602 crores o.r 34.30 percent. The other duties
was Rs.2333 crores or 14.28 percent. The corporate tax
was Rs.1398 crores or 8.56 percent and the dividend was
Rs.353 crores or 2.16 percent.
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173
Pricing:
Pricing is a very important aspect of the public
sector enterprises. In term of the performance of the
Public sector enterprises, the role of the pricing is
much more important. The pricing policy as a measure to
monitor the performance of the public sector enterprises
assumes greater significance. Various principles are
followed in the pricing of the products of public
enterprises depending on the nature of the goods and the
objective the government may keep in view, namely, cost
plus, marginal cost discriminatory, import- based or
externally determined. As a result of the pursuit of
different objectives, public sector enterprises have not
been able to follow any difinite pricing policy. Some
follow pricing policies based on marginal cost, while
others believe that prices of goods should cover the
full average cost of goods.
Soon after Independence the no-profit-no-loss by
principle was followed/most of the Public enterprises in
our country. But the government soon realised its
deficiencies and revised the pricing principle of
no-profit-no-loss. The various Five Year Plans have
recommended for the rational price policy for the public
enterprises. The first Five Year Plan stated,che state
155
must itself raise, to the extent possible, through
taxation, through loans and through surpluses eanred on
state enterprises a considerable proportion of the
saving needed.^
The second Five Year Plan observed "It must be
recognised of course, that taxation has its limites and
this means in turn that it has to be supplemented by
institutional arrangements which bring directly into the
public exchequer the surpluses which accrue from the
sale of goods and service to the public. It is through
divices of this type, that is through appropriate
pricing policies in respect of the products of the
public enterprises and through state trading or fiscal
monopolies in selected lines that some of the under
developed countries with levels of living not much
higher than those in India are raising the resources 2 required for their development effort.
The Third Five Year Plan said "when public sector
enterprises run efficiently and follow a proper price
policy for their goods and services the result of their
operations must be reflected in larger earnings and 3 surpluses.
1. First Five Year Plan, Planning Commission, Govt, of India, New Delhi, p.41.
2. Second Five Year Plan, Planning Commission, Govt, of India, New Delhi, p.41.
3. Third Five Year Plan, Planning Commission, Govt, of India, New Delhi, p.273.
i J O
The Draft out line of the Fourth Five Year Plan
stated, that a rate of return on capital employed of not
less than 11 to 12 percent can be achieved without undue
increase in the prices of products or services sold by
public enterprises.^ The Fifth Five Year Plan observed
"in order that the public sector performs its due role
in economic development it must not only fill physical
gaps in the output of goods and services but also
contribute to ntional savings commensurate with its 2
size. The Sixth Five Year Plan observed "It would be
necessary to improve the rate of return on investment in
these enterprises so as to earn at least 10 percent by
the end of the plan. This should be obtained through
improved operational efficiency, better inventory
management, improvement in managerial capability and
appropriate changes, in price policy.
The Bureau of public enterprises has
categorically stated in its Annual Report that the
pricing policy of the public sector enterprises have to
be broadly guided by the paramount consideration of
1. Fourth Five Year Plan , Planning Commission, Govt, of India, New Delhi, p.83.
2. Draft Fifth Five Year Plan, Planning Commission, Govt, of India. New Delhi, p.47.
3. Draft Sixth Five Year Plan, Planning Commission, Govt, of India, New Delhi, p.59.
157
providing not only an adequate depreciation and return
on capital but also the necessary surplus for further
expansion.^
Thus, the pricing in public enterprises is a
controversial and difficult issue especially in fast
growing changing economy like ours. So it is not
possible to formulate a uniforme pricing policy for all
public enterprises.
Profitability
The observation to the overall performance of
these enterprises ,endering services reveals that these
enterprises are capable of earning a reasonable amount
of profit, which is the basic criteria for judging the
economic viability of the group of enterprises. The
rate of profit on capital in 1959-60 worked out at 3.5
percent for the industrial enterprises roughly similar
to the figure of 3.4 percent in 1958- 59. It was 4.1
percent in 1960-61. In the case of these commercial
etc. enterprises it was 3.1 percent in 1959-60 as
against 2.3 percent in the previous year. It was 1.5
percent in 1960-61. On the whole a profit of Rsl8.13
1. Annual report on the working of Industrial and Commercial undertakings of the Central Government 1972-73, Govt, of India, Ministry of Finance Bureau of public enterprises, New Delhi.
Ib9
crores was earned in 1959-60 on a capital outl aya£ Rs.358
crores by 37 public enterprises which have passed the
stage of gestation and Rs.7.01 crores in 1960-61 on a
capital outlay of Rs.294 crores. Public sector
undertakings have made little profit over the years and
there is no sign of their showing an improvement. The
Administrative Reforms Commission Report reveals that
out of some 40 major running concerns, eight incurred
losses during 1965-66 and the remaining one shows small
profits. The total net profit of these 40 concerns
added upto the paltry sum of Rs.l2 crores as against
Rs.16 crores in 1964-65 (see Table No.III-10). The
Central Government enterprises incurred a loss of Rs.3
crores in the year 1970-71 whereas the Net profit as
percentage of sales was -0.1 percent for the first time.
The public sector enterprises recorded a net profit of
Rs.l8 crores in 1972-73 which increased to Rs.240 crores
in 1976-77. But in 1977-78 these enterprises incurred a
net loss of Rs.91 crores. The biggest losses in 1978-79
were those of Coal India Limited Rs.212 crores, Shipping
Corporation Rs.33 crores, H E C Rs.27.4 crores, IISCO
Rs.27 crores, Hindustan Fertilizer Rs.22.9 crores, DTC
Rs.17.5 crores, FCI Rs.15.2 crores, IPCL Rs.l3 crores
and MAMC Rs.lO crores. The net losses of 159 operating
units of the Central government rose from Rs.32 crores
TABLE III--10 160 NET PROFITS OF CENTRAL GOVERNMENT ENTERPRISES
(Amount in crores of Rs.)
Year Net profits after tax
Net profits as % of sales
Year Net pro-fits after tax
Net pr( fits a 1 of sales
1961-62 11 -3.9 1972-73 13 0.2
1962-63 -8 -2.0 1973-74 59 0.9 1963-64 13 2.5 1974-75 174 1.7
1964-65 16 2.4 1975-76 19 0.2
1965-66 12 1.2 1976-77 184 1.3
1966-67 -5 -0.4 1977-78 -91 -0.5
1967-68 -35 -1.9 1978-79 -40 -0.2
1968-69 -28 -1.2 1979-80 -74 -0.3
1969-70 -3 -0.1 1980-81 -20.3 -0.7
1970-71 -3 -0.1 1981-82 446 1.2
1971-72 -19 -0.5 1982-83 618 1.5
Source; Srivastave, R.M., Essentials of Business Finance,
Bombay, Himalaya Publishing House, 1986, p.693.
180
in 1978-79 to about Rs.280 crores in 1979-80. Despite
an increase in the sales turnover of more than 85
percent between 1975-76 and 1978-79, the gross profit to
sales grew marginally from 5.4 percent to 5.6 percent.
An analysis of the performance during the period 1968-69
to 1978-79 indicates that the Central Public Sector
enterprises had in fact earned a gross profit of Rs.9013
crores including provision of depreciation over the
years. The percentage of gross profit of Public sector
to capital employed has increased from 7.5 percent in
1968-69 to 13.05 percent in 1982-83. These gross
margines have been the resources generated by the public
sector for the over all development of the economy.
Table No.III-11 shows that in the year 1979-80,
there were 169 enterprises in operation .They incurred a
loss of Rs.74.29 crores which increased to 128.68 crores
in the year 1980-81. The public sector enterprises
earned a profit to the tune of Rs.618 crores during
1982-83 which was higher by 38.6 percent of Rs.l72
crores as compared to 1981-82. Thus during these two
years the net profits of these enterprises amounted to
Rs. 1,664 crores as compared to a net loss of Rs.30
crores suffered by them during the previous two years.
Out of the past two decades, these undertakings
io I
TABLE III-ll PROFITABILITY PROFILE OF PUBLIC ENTERPRISES
(Rs. in crores)
s. No. Details 1979-80 1980-81 1981-82 1982-83
1. No. of operating enterprises 169 168 188 193 2. Capital employed 16182 18207 21935 26526 3. Cross Margin 2054.66 1400.89 4012.16 5184.49 4. 7oage of gross Margin
Capital employed 12.70 13.19 18.29 1954 5. Depreciation & Deferred
Revenue Expenditure 825.50 983.06 1357.79 1719.75 6. Gross Profit 1229.16 1417.83 2654.37 3464.74 7. 7oage of Gross Profit to
Capital Employed 7.60 7.79 12.10 13.06 8. Interest 1004.03 1399.15 1629.71 1922.74 9. Pie-tax Profit/Loss ??5.13 18.68 1024.66 1542.00 10 , Tax 299.42 221.65 578.74 928.49 11 . Net Profit/Loss - 74.29 -202.97 445.12 613.51
(a) Profit of Profit-making enterprises 463.90 557.16 1292.92 1596.14 (No. of enterprises) (101) (94) (104) (109)
(b) Loss of loss-making enterprises -538.19 760.13 847.00 982.63 (No. of enterprises) (68) (74) (83) (82)
(c) No of enterprises making neither profit nor loss - (1) (2)
12 . Zage of Net Profit/loss to capital employed -0.46 -1.11 2.03 2.31
13 . Dividends 75.94 83.47 108.83 115.38 14 . Retained Profit -150.23 -286.44 337.09 498.13
Cont'd.
Cont'd.. Table III-ll 16 3
1983-84 1984-85 1985-86 1986-87 1987-88 1988-89
201 207 211 214 220 222 29851 36382 42965 51835 55617 65535
5770.54 7386.21 8270.27 9896.76 11082.36 13424.84 19.33 20.30 19.25 19.09 19.93 19.88
2205.14 2758.40 2982.99 3375.63 4141.95 4879.49 3565.40 4627.41 5287.28 6521.13 6940.41 8545.35
11.94 12.72 12.31 12.58 12.48 12.65 2085.81 2529.20 3114.62 3420.46 3586.97 4168.90 1479.59 2098.61 2172.66 3100.67 3353.44 4376.45 1239.45 1189.31 1000.22 1329.28 1322.98 1395.45 240.14 908.90 1112.44 1771.39 2030.46 2980.96
1777.92 2020.87 2856.64 3477.86 3775.45 4887.47 (108) (113) (119) (108) (114) (118)
1537.78 1111.97 1684.20 1706.47 1744.99 1906.51 (92) (92) (90) (100) (103) (101) (1) (2) (2) (6) (3) (3) 0.80 2.50 2.73 3.42 3.65 4.41
132.85 176.44 191.26 296.52 320.09 352.92 107.29 723.46 981.18 1474.87 1710.37 2628.04
enterprise Source: Complied from various Public/survey. Govt, of India,
Bureau of Public Enterprises, Ministry of Industry, New Delhi.
183
sustained total losses of Rs.520 crores during the 12
years and earned profits of Rs.490 crores over the other
eight years. Even with record profits in 1982-83,
profits as percentage of sales worked out to a not too
encouraging figure of 15 percent. The decline in the
amount of net profit in 1983-84 to the tune of Rs.240.14
crores shows the uncertain nature of these enterprises
and lack of stability in their operation, profitability
and efficiency. After incuring net losses from 1977-78
to 1980-81, the public sector has not only turned the
corner, but has been successful in achieving higher
profits. During 1985-86 public sector enterprises have
achieved highest quantum of over all net profits of
Rs.1199.35 crores. This is after adjusting the losses
incurred by some enterprises, especially the sick
nationalised units which alone account for a net loss of
Rs.257.42 cTores during 1984-85. Among the top ten
Profit making enterprises for the year 1984-85 were : Oil
and Natural Gas Commission, National Hydroelectric Power
Corporation Ltd., Steel Authority of India Ltd., the
Shipping Corporation of India Ltd., etc. The 90 Public
enterprises incurred a loss of Rs.1094.01 crores during
1984-85 compared to Rs.1536.56 crores incurred by 91
enterprises in 1983-84. Delhi Transport CorporaLion was
in the top of the list of Ten loss making enterprises
16 5
v ith a loss of Rs.140.79 crores in 1984-85. As many as
38 Public sector undertakings incurred a total loss of
Rs.320 crores during 1985-86.
Further, though the public enterprises had earned
a net profit equal to Rs.1172.44 crores in 1985-86 and
had touched the figure of Rs.1771.39 crores in 1986-87,
the loss making enterprises continue to neutralise the
greater part of the profits of the profit earning
enterprises. The total rise in net profit of Rs.598.95
crores during 1986-87 over 1985-86, as much as Rs.455.02
crores were continued by manufacturing companies and the
rest of the service enterdprises. The public sector
generally performed better during 1986-87 over 1985-86
to 109 in 1986-87, the total pre-tax profit increased to
Rs.4,803.72 crores in 1986-87 from Rs.3856.80 crores in
1985-86. The top ten major contributors to the pre-tax
profits were Indian Oil Rs.671.22 crores, Oil and
Natural Gas Commission Rs.2104.96 trores, Mahanager
Telephone Rs.136.52 crores, Videsh Sanchar Nigam
Rs.112.81 crores Indian Telephone Industry Rs.52.49
crores, Fertilizers and Chemicals (Travancore) Ltd.
Rs.42.69 crores, NTPC Rs.211.86 crores Hindustan
Petroleum Rs.49.35 crores, Bongaingaon Refinary and
Petrochemicals Rs.23.25 crores and Minerals and metals
Trading Corporation Rs.54.84 crores. The gross profit
of public enterprises have shown an increase of Rs.591.37 crores from Rs.6521.13 crores in
16 c
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167
1986-87 to Rs.7112.50 crores in 1987-88 and increase of
9.07 percent. The profit before tax also registered an
increase of Rs.420.47 crores compared to the previous
year from Rs.3100.67 crores in 1986-87 to Rs.3521.14
crores in 1987-88 which work out to an increase of 13.56
percent. After taking into account the tax provision of
Rs.1337.79 crores, the net profit for the year work out
to Rs.2183.35 crores against Rs.1771.39 crores from the
year 1986-87, showing an increase of Rs.411.96 ' c.rores or
32.26 percent.
During the year 1988-89, the net profit after
interest payment 'and taxes work out to Rs.2980.96
crores, a clear 50 percent jump from the previous year
and in fact, this was the highest ever over all net
profit earned by Central Public Sector enterprises. The
rate of gross profit from public units come from the oil
sector. In the same year, 118 profit making public
sector enterprises made a net profit of Rs.4887 crores
which reached to Rs.2980 crores as 101 public sector
enterprises incurred a loss of Rs.l907 crores. The top
ten profit making enterprise shown in the table
No.III-12, the Oil and Natural Gas Commission earned
33.34 percent of share and held a top place in the top
168
TABLE III-12 TOP TEN PROFIT MAKING ENTERPRISES
1988-89 (Rs. in crores)
SI. No.
Name of enterprise Pre.tax profit
Percentage share
1. Oil and Natural Gas Commission 2094.58
2. Indian Oil Corporation 676.41
3. Steel Authority of India Ltd. 358.40
4. Mahanagar Telephone Nigam Ltd. 355.56
5. National Thermal Power
Corporation Ltd. 330.82
6. Hindustan Pteroleum Corp. Ltd. 206.57
7. Bharat Heavy Electrical Ltd. 192.56
8. Bharat Pteroleum Corp. Ltd. 130.10
9. Indian Petrochemicals Corp.Ltd. 116.06
10. Videsh Sanchar Nigam Ltd. 104.86
Total 4565.92
Total Pre-tax profits by profit-making enterprises 6282.66
33.34
10.77
5.70
5.66
5.27
3.29
3.06
2.07
1.85
1.67
72.68
100.00
Source: Public Enterprise Survey 1988-89, Government of India, Bureau of Public enterprises, Ministry of Industry, New Delhi, p.14.
ID 9
ten profit making enterprises. After that the Indian
Oil Corporation earned a pre-tax profit of Rs.676.41
crores, SAIL Rs.358.40 crores, Mahanager Telephone Nigam
Ltd. 355.56 crores, NTPC Rs.330.82 crores, HPC Ltd.
Rs.206.57 crores, BHEL Rs.192.56 crores, Bharat
Pteroleutn Company Ltd. Is.lSO lO crores Indian Petrochemicals
Corporation Ltd- Rs.116.06 crores and Videsh Sanchar Nigam Rs.109.86 crores.
On the other hand, the losses of loss making
enterprises, including the 48 sick taken over units have
also increased. In 1987-88, 103 enterprises incurred a
net loss of Rs. 1747.99 crores which went up to
Rs.1906.51 crores in the year 1988-89. The Fertilizer
Corporation of India Ltd., is the highest loss making
enterprise of public sector enterprises for the year
1988-89 (see table No.III-13) and the Hindustan
Fertilizer Corporation Ltd. incurred a loss of Rs.156.38
crores, Indian Iron and Steel Co. Ltd. of Rs.119.55
crores, Delhi Transport Corporation Rs.98.99 crores,
Hindustan Paper Corporation Ltd. Rs.86.24 crores,
Hindustan Steel Works Cont. Ltd. Rs.70.33 crores,
National Jute Manufacturing Corporation Ltd. Rs.55.79
crores. Gas Authority of India Ltd. Rs.52.89 crores,
Indian Road Const. Company Ltd. Rs.47.75 crores, and
South Eastern Coalfields Ltd. Rs.47.56 crores. All gave
a net loss of Rs.1906.51 crores in 1988-89.
TABLE III-13 TOP TEN LOSS MAKING ENTERPRISES
1988-89
170
(Rs. in crores)
81. Name of enterprise No.
Net loss Percentage share
1. Fertilizer Corp. of India Ltd. -)191. 23 10. 03 2. Hindustan Fertilizer Corp. Ltd. -)156. 38 8. 20 3. Indian Iron & Steel Co. Ltd -)119. 55 6. 27
4. Delhi Transport Corp. -) 98. 99 5. 19
5. Hindustan Paper Corp. Ltd. -) 86. 24 4. 52
6. Hindustan Steel Works Cont. Ltd. -) 70. 33 3. 69
7. National Jute Manufacturer corp. Ltd. -) 55. 79 2. 93
8. Gas Authority of India Ltd. -) 52. 89 2. 77
9. Indian Road Const. Co. Ltd. -) 47. 75 2. 51
10. South Eastern Coalfields Ltd. -) 47. 56 2. 50
Total -)926. 71 48. 61
Total loss by loss making enterprises -)1906 1.51 100. 00
Source: Public Enterprise Survey 1988-89, Govt, of India, Bureau of Public enterprise , Ministry of Industry, New Delhi, p.15.
17 1
The net profit earned by 233 operating public
sector enterprises during 1989-90 amounting to
Rs.3,781.73 crores worked out ot 4.06 percent of the
investment. The gross profits of public sector
undertaking have shown an increase of Rs.2050.51 crores
from Rs.8572.22 crores in 1988-89 to Rs.10622.73 crores
in 1989-90, an increase of 23.92 percent. This is
after taking into account the increase in import costs
especially salaries and wages which have registered an
increase of Rs.1054.25 crores over the previous year.
The profit before tax also registered an increase of
Rs.876.75 crores compared to the previous year making an
increase of 19.90 percent. The net profit for the year
works out to Rs.3781.73 crores showing an increase of
Rs.788.20 crores or 26.33 percent over the previous
year.
A detailed analysis of enterprise wise
profitability shows that, during the year, 131
enterprises earned a net profit of Rs. 5740.82 crores
compared to a profit of Rs.4916.74 crores earned by 117
enterprises during the previous year.Cn the other hand,
the losses of loss making enterprises also increased,
though marginally. In 1988-89, 106 enterprises incurred
a net loss of Rs.1923.21 crores which went upto 1959
crores by 98 enterprises during 1988-89 registering an
191
increase of 18.7 percent.
Among the top ten profit, making enterprises are
the ONGC, IOC, NTPC, SAIL etc. (see Table No.III-14).
The total pre-tax profit of the profit-making
organisation is Rs.7239.04 crores. ONGC and IOC
continue to occupy the first and second positions during
the year 1989-90 also. Other companies have changed
their positions such as National Aluminium Company. The
top ten loss making companies are Hindustan Fertilizer
Corporation, Fertilizer Corporation of India Ltd, Indian
Iron and Steel Company, Delhi Transport Corporation,
Engineering projects Ltd, Hindustan Shipyard, Hindustan
Steel works Const. Corporation Ltd., Cement Corporation
of India, National Jute Manufacturer Corporation and
Hindustan Paper Corporation. The net loss incurred by
these amount to Rs.1959.09 crores.
The public sector enterprises earned a net profit
of Rs.2730.27 crores during 1990-91. It has, however,
Rs.1,017 crore less as comapred to the previous year.
The main reason for this was wages were increased
substantially during the year and this led to a decline
in net profit by about Rs.lOOO crores. The fall in
profit of ONGC vac substantial (about Rs.560 crores) and
coal, lignite and airlines sectors accounted for
17 3
TABLE II1-14 PUBLIC SECTOR PROFITS
1989-90 & 1990-91 (Rs. in Crores)
Company 1989-90 1990-91*
Oil and Natural Gas Commission 1625 1400
Indian Oil Corporation 521 400
National Thermal Power Corp. 405 605
Steel Authority of India Ltd. 211 50
National Aluminium Co. Ltd. 172 25
Indian Petrochemicals Ltd. 231 259
Maruti Udyog Ltd. 50 45
Kudremukh Iron Ore Co. Ltd. 25 58
Hindustan Machines Tools Ltd. 7 10
Hindustan Organic Chemical Ltd. 36 40
TOTAL 3283 2892
"The figures are not accurate speically in the case of ONGC, IOC, SAIL AND NAL, CO., However they are good enough as broad indicators.
Source: The Times of India, New Delhi, April 7th 1991, p. 18.
17 4
additional Rs.365 crores. They together accounted for
a drop in net profit of public sector undertakings by
about Rs.925 crores in 1990-91. The profit of public
sector enterprises for the year 1990-91 are shown in the
Table No.III-14, ONGC is on the top position as was in
1989-90 and IOC on the second position. On the other
hand there is every possibility of the top ten loss
makers incurring losses in 1990-91. Higher losses are
certain in case of DTC, IISCO, Hindustan Fertilizers,
Fertilizer Corporation of India Ltd., clearing a
depresing scenario. Instead of providing
infrastructural support, the Public sector in 1990-91
seems to have been more busy finding scapegoats and
ensuring less in the bargain. On 18th July 1991, the
Union Minister of Industry informed in the Rajya Sabha
that a loss of more than Rs.5,000 crores was incurred by
98 public sector enterprises in the last three years.
The enterprises included at least six which have been
incurring losses for the last 10 years and among these
are the FCI and Indian Durgs and Pharmaceuticals Ltd.
Export :
In the sphere of foreign trade the contributions
of the public sector COOalatS j-h dUglnenLing Lilt; Udti-Ulldi
kitty of foreign exchange through exports and reducing
17 1
the foreign exchange bill of imports through
import-substitution. Exports of such products as metal
ores, engineering goods etc., have besides earning
foreign currencies build up and export market for these
and many allied goods. In the sphere of import
substitution, public sector industries like steel ,
chemicals etc. have saved a lot of expenditure of
scarce foreign currencies.
The public sector enterprises have been account-
ing for an increasing share in India's total exports.
Their share in the country's total exports was 21.5
percent in 1971-72 of Rs.345 crores. It jumped to
Rs.1534 crores in 1975-76 and Rs.2246 crores in 1976-77.
However, these foreign exchange earnings stood at
Rs.1562 crores in 1977-78 or 28.9 percent of the total
export and reached to Rs.2217 crores in 1980-81. Among
these enterprises the STC and the MMTC have made a good
progress in the export promotion. STC's export went up
from Rs.97 crores in 1971-72 to Rs.559 crores in 1974-75
and Rs.666 crores in 1976-77, The STC exports were of
the order of Rs.637 crores in 1979-80 and stood at
Rs.461 crores in 1980-81. Similarly, exports through
MMTC have gone up from Rs.87 crores in 1971-72 to Rs.l38
crores in 1974-75 and further to Rs.257 crores in
176
1980-81 (See Table No.III-15). In the year 1981-82 the
percentage share of public sector enterprises in the
country's total export was 35.3 percent. During 1982-83,
the export earnings of these enterprises recorded a
remarkable surge of 70 percent from Rs.2,756 crores to
Rs,4,694 crores, comprising one ninth (11.2) percent of
their total sales during the year and more than half
(53.1) percent o£ total exports of the country in
1982-83. The significant spurt in exports of these
enterprises during the year 1982-83 was largely because
of Rs.1500 crores increase in exports of crude oil and
petroleum products. The export earnings of public
enterprises increased from Rs.l562 crores in 1977-78 to
Rs.4700 crores in 1982-83.
During 1983-84 the total export of the public
sector enterprise was Rs.5532.10 crores in which
Rs.709.89 crores was for the canalised goods Rs.3316.89
crores from non-canalised goods and Rs. 1505.36 crores
for service sector (See Table No.III-16). The export
earnings of Central Public enterprises have increased
from Rs. 1913 crores in 1979-80 to Rs.5418 crores in
1983-84. The share of non-oil exports of all production
and trading^ marketing enterprises in aggregate export
was 38.5 percent in 1984-85 which declined to little
i l l
TABLE III-15 EXPORTS OF GOODS BY PUBLIC SECTOR'
(Rs. in crores)
Year Exports by Aggregate Public Exports Enter-Prises
Percent-age of col (2) in Col (3) per cent)
STC M^C TOTAL 1 age of (5)+ Col (7) (6) in Col(2)
(percent.)
1980-81 1387.7 6710.7 (Nil) 20.7 498.0 257.3 755.3 54.4
1984-85 4524.0 11743.7(1563.2) 38.5 719.6 378.9 1098.5 24.3
1985-86 2552.3 10894.6(-135.2) 23.4 377.4 623.2 1000.6 39.2
1986-87 2501.2 12452.0 (nil) 20.1 542.1 714.2 1256.4 50.2
1987-88 2747.9 15741.0 (nil) 17.5 581.0 730.4 1311.4 47.7
1988-89 3088.3 20281.0 (nil) 15.2 529.5 873.5 1403.0 45.4
Note: Production and trading/marketing agencies, parentheses show oil exports.
Source: Raipuria Kalyan, Resource Mobilisation for Public Sector Development, Economic and Political Weekly, Bombay, January 19th 1991, p.126.
178
EXPORT TABLE
EARNINGS OF III-16 PUBLIC ENTERPRISES
(Rs . in crores)
Year Export of canalised goods
Exports of non-canali-sed goods
Export of Services
Total 7oage Growth from previ-ous year
1 2 3 4 5 6
1983-84 709.89 3316.89 1505.36 5532. 10 16.53
1984-85 2568.02* 1955.93* 1307.50 5831. 45 5.41
1985-•86 . 1545.17 1007.09 1270.06 3822. 32 {-)34.45
1986-•87 1218.77 1282.45 1437.67 3938. 89 3.05
1987-•88 1390,47 1357.47 1428.54 4176. 48 6.03
1988-•89 1336.28 1752.08 1809.71 4898. 07 17.28
*Rs.l854.37 crores worth of exports of petroleum product by IOC was canalised which were shown as non-canalised in the P.E. Survey 1984-85.
Source: Compiled and computed from various Survey of Public Enterprises, Govt. of India, Bureau of Public Enterprises, Ministry of Industry, New Delhi, p.20.
179
more 15.1 percent in the year 1985-86. The major
exporter of Rs.884.30 crores was Oil India Corporation
in the year 1985-86 which is less than Rs.970.07 crores
from the previous year (see Table No.III-17). In the
year 1986-87 the exports of public sector enterprises
come down by Rs.9'i-r crores from the previous year and
the major exporter was the Mineral and Metals Trading
Corporation Ltd. During the year 1987-88, the total
export of the Public sector enterprises was Rs.4176.48
crores in which Rs.1390.47 crores for canalised goods,
Rs.1357.47 crores for non-canalised goods and Rs.1428.54
crores for service sector. The major exporter was
Indian Oil Corporation of Rs.756.62 crores followed by
Rs.730.40 crores, only 305 industrial houses in this
year were analysed as much as 58 percent of their
exports during the period 1983-84 to 1987-88 were
accounted for only 64 of them. Again only 47 of these
305 companies exported more than 20 percent of the sales
turn over and as many as 125 of the 305 companies found
a place in the export list v?ith only 1 percent or less
of their sales turnover.
During the year 1988-89, the export by the Public
sector enterprises was Rs.3088.3 crores and earned a
foreign exchange through goods and services of Rs.4,898
crores which was 17.28 percent more than in the previous
iBO TABLE III-17
MAJOR COMMODITY EXPORTERS AMONG PUBLIC SECTOR UNDERTAKINGS
(Rs. in crores)
Company 1984-85 1985-86 1986-87 1987-88 1988-89
Bharat Petroleum Corporation Ltd. 87.67 102.98 115.61 109.96 119.94
Indian Oil Corpora-tion 1854.37 884.30 516.48 756.62 651.36
Minerals and Metal Trading Corporation Ltd. 375.65 623.18 714.28 730.40 873.48
Project and Equip-ment Corporation of India Ltd. 101.5 114.65 103.05 85.37 81.24
State Trading Corporation of India Ltd. 719.56 377.44 542.12 580.99 529.51
National Aluminium
Co. Ltd. - - _ 15.99 241.62
Kudremxjkh Iron Ore Co. Ltd. 25.34 38.33 61.96 77.62 115.81
Source: Dayal R., Exports in Public Enterprises, The Hindustan Times, New Delhi, August 11th, 1990, p.6.
Id 1
year. Minerals and Metals Trading Corporation Ltd., was
the major commodity exporter of Public sector
undertakings for the year 1989-90 of Rs.873.48 crores
followed by Rs.651.36 crores from IOC. The export
levels may be compared with foreign exchange utilisation
on production and maintenance operations at Rs.7,444.84
crores in 1988-89 compared to Rs.5918 crores in 1984-85^
the base year. There was utilisation also for import
for trading purposes amounting to Rs.621.87 crores in
1988-89. In the year 1989-90, the export earnings of
public sector undertakings have improved by 1473.52
crores or 30.12 percent as compared to the combination
efforts of all sectors, mainly the non-petroleum and
service sectors. India's export have shown a distinct
improvement in December 1990 by recording a growth of
32.2 percent in rupee terms. The export during December
1990 estimated at Rs.2,874.32 crores as against
Rs.2332.74 crores in December 1989.
In nut shell the financial performance of central
public enterprises can be recognised from the table
No.III-18. In year 1980-81 there were only 163 public
sector enterprises which reached to 233 in 1989-90 and
capital employed from Rs.18207 crores to Rs.8,4437
crores respectively. Net profit before tax was Rs.l9
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LW E CO CU 00 a.« •r-l U-l CO iJ 4J OS 4J r-H U (U 4-1 o •r-l •r-4 "S •rH CO U ra -u ro >1 4-1 4J U-l "S 14-1 4J •i-i D-, U) (A O o CO 4J O -H CU (U o 0) CD >- C (0 a Q W v- <u W5 1- a D- C V-, CL CO c W O <D >-i m cu CU a QJ <U o p U-l JJ a O -u iJ 4-1 4J •U C 4-1 V- C O c t—1 CO H <U 2 C Q) t-H 00
CU O Z. 4J
id 3
crores in the year 1980-81 which reached to 5282 crores, in the
year 1989-90 and the net profit after tax was Rs.203 crores
in 1980-81 which jumped to Rs.3782 crores in 1989-90.
It is clear from the above discussion that the
management of working capital has been an important
problem of public enterprises in India. Despite it
being predominant with around 60 percent of the total
investment j it is not being managed properly. The
imprudent manageament of this part of the capital
employed is essential so that instead of incurring
losses these enterprises should earn plausible rates of
return.
Secondly, in the public sector enterprises in
India especially in basic industries, the debt component
in the capital structure is very high. The debt equity
ratio in these enterprises is usually 2:1. The
employment of debt capital in total capital mi£eno doubt
tends to reduce the cost of capital but there are
certain risks inherent in a high protfolio • So the use
of debt need not automatically improve the over all
return to the enterprises unless the profitablity rates
are higher than the interest rates. Due to such
constraints with high debt component in the capital, an
optimal combination should be maintained.
iti4
There were initial heavy costs in setting up of
new and big projects in the public sector. At the
beginning stage of the construction of these units,
India spent a huge amount of money and did not possess a
very high level of technological competence. As a
result, the cost of planning and implementing projects
became high.
Conclusion:
A long and arduous journey has been undertaken by
the public s^ctor^-'^n^rprises in India during its life
of about 40 years. Public sector so far contributed a
great deal to the over all economic development of the
country. These enterprises emerged in India not as a
result of nationalisation of private industries but the
taking up in hand the responsibilities of industries of
national importance by the state. Today, the public
sector has encompassed the total sepctrum of national
Industrial and commercial activities - from production
of core industrial items to the production of mass
consumption items and from rendering services by way of
consultancy services to the nation in the domestic as
well as in the international markets In the field of
trading, production and consumption of goods. But there
lo5
are so many lacunae in the over^ all working and
development of these enterprises which have the direct
impact on the performance of these enterprises. This
has been examined taking into consideration a number of V
financial parameters which go to prove that the
financial structure of public enterprises in the country
is not very sound. The next chapter is devoted to a
case study of Coal India Limited. In the chapter an
analysis will be made of the evolution of the Coal India
Limited with its organisation and working in the present
day . setting. The financial structure of Coal India
Limited in recent years will also be examined in the
chapter. ju ju a* a. k* ju ju «iu o r
CHAPTER - IV
Coal India Limited - Organisation, Working and
Financial Structure
In the previous chapter, the financial performance
of public sector enterprises in India has been
highlighted. It has been observed that due to certain
problems, the working of the public sector enterprises
in India can not be regarded as satisfactory. In this
scenario the role and performance of coal sector can
also be taken as a representative of the whole public
sector. In the present chapter, therefore, an attempt
has been made to highlight the organisation and working
of Coal India Limited. The chapter also examines the
financial structure of Coal India Limited.
Coal India Limited - Historical background
The recpj'ded evidence of coal mining in India
dates back to 1774, when M/s Summer and Heatly were
granted permission by the East India Company for mining
coal at Ethora, Burdwan. The company, however, found it
cheaper to import coal from England then to mine it here
because of prohibitory cost of land transportation.
Coal raisings started at Raniganj in 1814 but the
development of the industry was very slow. The Industry
got a major boost with the layin.p, of 192 Km of Railway
line from Howrah to Raniganj (1855) and steam locomotives
and engines were progressively introduced into the
country which increased the demand of coal and
ib7
accelerated the development of industry. An exploration
of the existing resources was undertaken by the
Geological Survey of India in 1945-46 and a fuller
examination took place in 1858-60. Between 1868-80, the
output increased from 5,00,000 tonnes to 1,019,000
tonnes.
The Indian Coal Industry was not only founded by
British interest when opportunity came but was also
developed by the same interest to meet the growing
demands. Coal imports from Britain., which commenced
practically from the days of Plassy, reached an all time
high of 8.50 lakh tonnes in 1987-88 from which year they
went down as domestic production went up. Bombay
continued to be an important market for imported coal
even by the end of the 19th century as the consumers
there felt that coal imported from Cardiff was no more
expensive than Coal obtained from Calcutta. Thereafter
the spread of the Railway net-work and the development
of cotton, jute and other industries carried the
production to 12,047,000 tonnes in 1910. Then the first
World War and the consequent increased industrial
activity and the establishment of the iron and steel
industry reached very powerfully on the development of
the industry and production rose to 17,962,000 tonnes by
1920. An export trade in the meantime also developed
IbB
and in 1920, 1225,000 tonnes were exported. The history
of the industry therefore, was one of troubles and
anxieties. Railways began to own and operate their own
mines, the exports declined to 77,000 tonnes in 1922 and
increased slowly to 216,000 tonnes only in 1925, and
there was increased use of hydroelectric energy and oil
for power by the mills. Even suburban railways were
electrified. The industry applied for protection but
its claims were rejected by the Tariff Board. Even the
proposal of the Ministry Report to make a contervailing
duty on bounty-fed foreign coal was not accepted by the
Government on the ground of retaliation. The government
of India appointed a committee in December 1945 to
review the recommendations of three committees appointed
during the previous 25 years and to consider (a) which
of their recommendations had been adopted and (b) what
further action on them should be taken by the
Government. They were charged further "to consider and
report what further economic and administrative measures
are necessary to deal with the problem of the industry."
The committee produced a report in 1946 complete with
recommendations.^
Before Independence, the coal industry in India
could not develop properly due to negligence on the part
of the Britishers but after attainment of Independence,
1. Memoria C.B., "Organisation and Financing of Industries in India,Allahabad, Kitab Mahal, 1958, p.257.
169
the government laid much emphasis on its development.
The government in its first Industrial Policy Resolution
1948 broadly defined the role and future prospects of
public and private enterprises in coal industry . In
coal mining industry the exclusive rights were provided
to states to set up new enterprises in the coal sector.
With the start of the planning era, the development and
gorwth of coal industry was given special priority. The
first Five Year Plan provided detailed and systematic
programmes for the development of coal industry.
Special emphasis was laid on physical and chemical
survey of the nature and quantity of coal seams in the
various coal fields. The coal grading Board drew up a
classification of Indian coal mainly for purposes of
export.
The Planning commission recommended legislation
for enforcement of slowing for conservation in addition
to safty, wasting and blending. These were assigned
highest priority in the interest of conservation and
safety. Act 1952 was passed and in pursuance of section
4 of the Act, the Central Government established a Coal
Board. The Board was to examine all questions relating
to coal from a comprehensive point of view and make
recommendation in regard to the evolution and execution
of a coordinated coal policy. The survey of Raniganj,
190
Jharia and Bokaro coalfields was taken up. "The second
Plan called for more detailed geological survey of
existing coal fields and new potential of coal producing
areas. Because of difficulties in obtaining qualified
personnel and necessary equipment, expansion of the
Geological Survey of India and the Indian Bureau of
Mines did not progress as rapidly as had been hoped
during the First Five Year Plan.^ In the Third Plan
much emphasis was given to the opening of a Irage number
of new mines, particularly in the public sector, both in
areas which were already developed in entire virgin
areas. The most important objectives of coal programme
during the Third Plan was to ensure that the necessary
quantities of coking and blendable coals were made
available to the steel plants and of superior grades of
coking coal to the railways and other industries. In
the Forth Five Year Plan, the question of conservation
and scientific development of coal reserves of the
country, including coking coal assumed greater
importance in the context of the large scale programme
of development of the iron and steel industry.
1. Second Five Year Plan, Government of India, Planning Commission, New Delhi, pp.375-80.
2. Parsad A.R., "Coal Industry of India, Delhi, Ashish Publishing House, 1986, p. 141.
17 4
MAP NO. 1
I HK M A J O R COAI.FIELDS OF INDIA
MAJOR ( OM m-.I.D.S 1. K.mic.inj 2. Jhiiria .1. Kiist lliikaro and Wiil llnk.ini 4. I*i'nch-Kurih.in. I ii» j \'alU » 5. SirtKrauli 6. Talchcr 7. Chaiida-N\ardha 9. OlluTs
(II - CriMllndin 1.1(1 .C'jlcnlla Kl.- tjNUriiliuiriiliM Id.. "Sjmiurui \s.irivrli UrCI. - llharjl Cokint ( .mI 1 Id , •Qhjnhjd CCI. - OnlrjU ojiriilds I id , 'Kamhi WCL - S\fMtrn (.ujiriiids l.ld . 'Najpur MCI - or1hfrn ( n.iiru ids I id . 'incr juIi - Vmlh f avurii Ouirulds I Id . 'Hibsiiut t'VIPDII . Ci-iiir.!! Mim I'ljimini; jnd IVsitn Inslilulf I Id . 'It m.' S( CI - .SmuJruii I iiihvnis ( II I id . KMlh.ti:iii|* in M.C -Mc/mIi Lii:nili 0>f|>- l lJ * #utlMdl I
Source: Annual report 1989-90, Dept of Coal, Govt of India, Ministry of Energy. New Delhi.
2
MAP NO. 2
LOCATION OF COALFIELDS UNDER CIL
I ASri KN COAI.HLLUS I TD nil \R \1 fOKING t'OXl 1 1 1) CI \rR\l COALHI LDS LIIJ CIMRM MINE PIG \ IMSIGN INSIT LTD \( iKI HI RN a m I IN l)S 1 11) SOUTH I \.S1LRS * ()\l HI 1 I)S LIO
Ml RN COALHI-i LID N(|RI|| I \sri RS nni iii lds
Source: Annual reports and Accounts 1989-90 Vol. Coal India
Limited, Calcutta.
1^3
In October 1970, a high level fuel Committee was
set up. The work assigned to the committee was to
undertake a survey of fuel potential and the pattern of
its regional distribution and study the efficiency in
the use of fuel, estimated prospective demand by sectors
and recommend a national fuel policy. The imbalance
which had emerged in the demand supply position of coal
during those years was expected to be corrected on the
recommendations of the Committee. One year after the
setting up this committee, the government of India dook
a very important step regarding the coal industry. On of
October 1971, the government took the management / 214
coking coal mines and 12 coke event plants and later on
31st January 1973, the Government of India took over the
management of non— coking coal mines and those mines
were nationalised on 1st May 1973. Two years later on
1st November 1975, Coal India Limited was set up as a
holding company with five subsidiaries, namely Bharat
coking Coal Limited (BCCL), Central Coal fields Limited
(CCD, Western Coalfields Limited (WCL), Eastern
Coalfields Limited (ECL) and Central Mine Planning and
Design Institute Limited (CMPDIL). The major coalfields
of India and the location of coalfields under Coal India
Limited are shown in Maps No.l & 2.
I M
The primary aim of nationalisation was to ensure
adequate supply of coal to the user at reasonable price.
But this particular objectives has been thoroughly
disillusioned.^ The need for nationalising the entire
coal operations emerged as a result of failures in
maintaining scientific mining, planned production and
distribution. For example, as much as the entire coking
coal produced in Giridih mines were consumed by British
railways just because they owned those mines» The
surplus coking coal to the tune of 3.6 million tonnes
per year produced during 1965-70 were used by
non-metallergical industries including railways. .
Unscientific mining by private companies has left the
coal sector with over 2500 million tonnes of coal
standing on pillars in both abandoned and working mines.
Slaughter mining in Jharia coalfield has led to about 70
active underground fires and loss of over 30 million
tonnes coal and another 45 million tonnes are locked
under the fires even now. All such failures and
mismanagement are attributable to both coal producers and
government authorities. Most of the mining companies
did not care much for safelTy measures and scientific
methods of conservation. The government was not quite
1. Iqbal B.A., "Black gold: higher production needed, YojanajNew Delhi, October 1-15, 1989, p.18.
19 5
successful in imposing safety regulations and
monitoring production, distribution and pricing. For
instance, the 'death and serious injured rates' in
mining operations per 1000 persons employed was 0.91 and
5.69 respectively in 1951 which declined only
marginally to 0.50 and 5.15 by 1973. Through various
regulations starting from the Mines Act 1901 to the
latest amendments done in December 1983, the government
clearly specified the labour regulations, procedures on
use of explosives, medical test and health regulations,
mine roof safety regulations, etc. But the extent they
were followed up leaves a lot more to be desired. For
instance, in 1951 of the 695 mines having underground
workings, only 131 had mechanical ventilators. For a
total of 178 thousand underground workers in 1951, only
45 thousand safety lamps were in use. Secondly, the
government was not able to introduce long-term pricing
policies. Undervaluation of coal without a distinction
between the economic values of coking and non-coking
coals, the practice of least average cost as a basis for
pricing, lack of price incentives for amalgamation,
reorganisation and mechanisation and finally,
introduction of price decontrol in 1967 are all
instances of oversight at the government levels in
recognising the economic importance of this exhaustable
19 5
resource in the energy context. Such laxity on the part
of the government led to the collapse of corporate and
large mining companies and leaving more and more room
for fragmented smaller units (with low depreciation
costs but high profits) to surface and grow. However,
the government realised the density of the problem prior
to the first energy crisis, partly also due to pressures
by the trade unions asking for protections of coal mine
workers.
The idea of coal nationalisation was mooted as
far back as 1937 for the government to introduce it.
Solutions to the problems of the coal sector were sought
through take over of the mines in the national interest.
Since then certain major changes are noticable in the
structure of the industry. First, coal production which
stood at 77.22 million tonnes in 1972-73 has doubled by
1984-85. Mine productivity has increased from 0.58 OMS
in 1973-74 to 0.84 by 1983-84. Total employment
increased from 410 thousand in 1972 to 530 thousand by
1983. At the same time, use of machinery in
underground mines has significantly increased.
Machanisation in opencast mines has taken the lead. To
top it all; coal price on average has increased by more
than four-fold. Secondly, the percentage of coal
i n
production has shifted significantly from underground to
opencast mining. Open cast production increased from
19.80 to 62.75 million tonnes during 1973-74 to 1983-84,
whereas the same from underground workings were 58.37
and 75.53 million tonnes, respectively. Thirdly, with
increased opencast operations or otherwise, the ash
content in coking coal (and non-coking coal as well) has
been increased over time touching a high of 40 percent
in certain mines. Fourthly, coal transportation
amounting to about 35 percent of total rail freight
traffic has become the most important task for the
Indian railways. More than 75 percent of coal is
despatched on rail wagons. Last but not the least,
rehabilitation of out going owners by liberally licensing
beehive and soft coke units in the private and public
sectors has led to serious crises in the supply of prime
coking coals. With all these changed scenarios certain
questions have emerged. The structure of production,
technological options, coal beneficiation, environmental
effects, pricing and the role of coal industry in long
term energy management are some of the major issues^
problems and themes based on which an appraisal of
nationalisation has to be carried out.
ORGANISATION
The Government of India nationalised the whole
198
coal operations in two phases. Istly on October 1971
when coking coal mines were nationalised and government
set up a public sector company namely, Bharat Coking
Coal Limited (BCCL) for the management of all coking
coal mines and plant. Secondly, the government
nationalised all the non-coking coal mines on 1st May
1973 expect the captive mines belonging to TISCO, IISCO
and DVC. "The Coal Mines Authority Limited (CMA) was
incorporated on the 14th June 1973 and the National Coal
Development Corporation (NCDC) was converted into a
wholly owned subsidiary of the Coal Mines Authority
Limited. Public ownership of the coal industry was then
split among there companies - Singareni collieries
(Jointly owned by the government of India and the State
of Andhra Pradesh), Bharat Coking Coal Limited and the
Coal Mines Authority.^
The government of India reorganised the coal
industry with a view to attain more efficient
performance and administration, on 1st November 1975,
The public sector organisation were combined into a
single corporation, Coal India Limited. All the
divisions of Coal Mines Authority (CMA) along with
1. Henderson, P.D. India: The Energy Sector, A world Bank Publication, 1975, p.50.
199
National Coal Development Corporation Limited (NCDC) and
Bharat Coking Coal Limited (BCCL)^ were converted into
the five subsidiaries of Coal India Limited namely
Bharat coking coal limited (BCCL), Central Coalfields
Limited (CCD ^ Western Coalfields Limited (WCL) Eastern
Coalfields Limited (ECL) and Central Mine Planning and
Design Institute Limited (CMPDIL). On November, 11th
1985> the certral government dicided to form more coal
companies as subsidiaries of Coal India Limited namely
Northern Coalfields Limited (NCL) and South Eastern
Coalfields Limited (SECL)» It is due to the projected
increase in production and huge investment contemplated
for CCL and WCL group of mines with their entensive
geographical coverage resulting in day-to-day
administrative , technical and communication problem,
these two subsidiaries of Coal India Limited Started
functioning independently from 01.4.1986. Now Coal
India Limited has seven subsidiaries under its control
viz. BCL , CCL^ WCL ECL, NCL, SECL and CMPDIL, except
CMPDIL all the six conpanies are coal producing
companies , While CMPDIL is an engineering Design
institute set up for the task of Planning and Design
1. Parsad A R. , "Coal Industry of India, New Delhi, Ashish Publishing House, 1986, p.149.
200
of coal mines, introduction of newer technologies,
research and development consultancy services etc. In
addition to the Coal India Limited and its subsidiary
coal companies, there is Singareni Collieries Company
Limited (SCCL)^ a joint sector undertaking of the
government of Andhra Pradesh and the government of
India- The coal mines of Assam and its neighbouring
areas are controlled directly by the Coal India Limited.
Similarly, the low temperature carbonisation project at
Dankuni and coal stockyard scheme are also under the
direct administrative control of Coal India Limited,
The Coal India Limited and its subsidiaries are
incorporated under the companies Act and are Private
Limited Companies exclusively owned by the Central
Government.
Coal India Limited is a holding company . It is
headed by a Chairman —cum-Managing director. • The
Chairman-cum-managing director of Coal India Limited is
assisted by the three functional directors namely
Director (Technical)^ Director (Personnel and Industrial
Relations) and Director (Finance). Each subsidiary
company of Coal India Limited has its own Boards of
director headed by a rhsi rman-cufn-tnanaging director-
Each subsidiary also has at least four functional
19 5
directors such as Director (personnel)^ Director
(Finance), Director (Planning and Design) Director
(Coal production and utilisation) and Director ( R & D
and S & T). Recently a post ^ director (Technical) was
created for Orissa coalfields ^ with in over all
functional and administrative juridiction of the SECL
with headquarters at Sambalpur , thus SECL has now five
functional directors » Chairman Coal India Limited is
the Chief Executive of Coal India Limited Board of
Directors comprising of the Chief and managing directors
of the subsidiary company s as members^ three full time
functional directors and part-time directors nominated
by the government. The government has right to appoint
a member as part time director subject to the condition
that the total number of directors on any Board
including functional directors and chief managing
director should not exceed 15 in all < The part time
directors are appointed in accordance with the Articles
of Association of the company and government guide lines
prescribed in this behalf from time to time.
Bharat Coking Coal Limited (BCCL) is a subsidiary
of Coal India Limited. It has 390 nationalised mines in
its charge. The Moonidih and Sudamdih mines are
transfered to it from erstwhile NCDCL. These mines have
been reorganised into 102 units for administration and
202
operational convenience . BCCL is the major producer of
prime coking coal (raw and washed), medium coking, hard
coke and soft coke operated by BCCL. In addition to its
own wahseries, the company was formally managing the
four coal washeries of Central Coal washeries
Organisation owned by the SAIL under a power of
attorney. Now the ownership of the above four washeries
has been transfered from SAIL to BCCL from 01.10.83.
The company has a total of 166 915 employees as on
31.3.1990, in which there are 3689 Executives, 17780
supervisory/clerical staff, 143093 skilled/semi-skilled/
unskilled employees and 2355 non-categorised (other)
employees.
The Western ' Coalfields Limited (WCL) is also a
subsidiary of Coal India Limited. It covers all the
coalfields of Maharashtra and three coalfields of
Madhaya Pradesh namely, Pench, Kanhan and Pathakhere
coalfields. The company meets the requirements of
industries and power stations in this region to a large
extent. The company has employed as on 31.3.1990, 1980
executive, 8514 supervisory staff/clerical staff, 69625
skilled/semi-skilled/un-skilled employees and 2790
non-categorised (others) employees.
Another subsidiary of Coal India Limited is
17 1
Eastern Coalfields Limited. It covers the Raniganj,
Mugma and Rajmahal coalfields of West Bengal and Bihar.
The company produces higher grades of coal which is
needed to the loco and other industries. The company
has employed a total of 178704 employees as on 31.3.1990
with 3329 executive, 20149 supervisory/clerical staff,
152580 skilled/semi-skilled/un-skilled and 2646
non-categorised (others).
The Central Coalfields Limited (CCD is a
subsidiary of Coal India limited. It covers Bokaro,
Ramgarh, Giridih, North and South-Karanpura coalfields.
The company owns most of the mines of former National
Coal Development Corporation Limited (NCDCL) with
several nationalised mines. The company produces coking
coal (raw and washed), non-coking coal, soft coke and
hard coke. The company in all has 100592 employees as on
31.3.1990.
The Northern Colfields Limited is a subsidiary of
Coal India Limited. It covers the entire Singrauli
coalfields of U.P. and M.P. The company started
functioning independently from 1.4.1986 whereas it came
into existence on 28.11.1985. The copmany has 1014
executives, 2258 supervisory/clerical btaff, 10657
skilled/semi-skilled/un-skilled employeesand 4 non-catego-
rised (others) .
0 4
Another company North Eastern Coalfields Limited
(NEC) is a unit directly controlled by Coal India
Limited. The company has a responsibility for the
development and production of coal in the North Eastern
states. Presently the area of activities are confined
to Assam and Meghalaya but the government has a proposal
that the company should take a project in Arunachal
Pradesh. Since million of tonnes of proved reserves of
lowash and high calorific value coal exist in these
states but they are all associated with high sulphar
which prevent their use directly as metallurgical coal.
The company has employed 5348 employees till 31.3.1990.
The South Eastern Coalfields Limited came into
existence on 28.11.1985 but started functioning
independently from 1.4.1986 and is a largest subsidiary
company of Coal India Limited. The company covers Korba
(East and West), Baikunthpur, Chirimini, Hasdeo,
Sohangpur, Jamura, Kotma and Jhila areas in M.P. and
Talcher unit I & II and IB vally areas in Orrisa. The
company employed 112857 personnel in the various
capacities till 31.3.1990.
Central Mine Planning and Design Institute (CMPDI)
is a subsidiary of Coal India Limited. It has its
regional institutes at Asansol, Dhanbad, Ranchi, Nagpur,
X)5
Bilaspur, Singrauli and Bhubaneshwar for the services of
Che coal companies. The company is engaged in the work
of exploration, Project Planning, detailed designing of
system and sub-systems, coordination and integration of
applied research and development absorption of new
techniques of coal mining, beneficiation and utilisation
of coal perspective planning and demand assessment and
caters•to the total Planning and designing needs of new
coal projects to and re-organisation of existing mines
for optimal production of coal. The company is equipped
to take up consultancy jobs in the above fields, both
within and outside the country. the company is
co-ordinating transfer of technology from foreign
countries like USSR, UK, Poland, France, Australia,
Canada etc. to India in various fields relating to coal
mining. CMPDIL is also rendering services to six
organisations outside Coal India Limited, namely IISCO,
SCCL, BGML, NEC, Government of Bihar and NHPC. The
company employed 4239 personnel till 31.3.1990 in the
various capacities.
The Coal India Limited (Hqrs) and DCC has
employed 2208 personnel til131.3.1990 in which 487 as
executives, 1027 supervisory/clerical staff, 683
skilled/semi-skilled/un-skiled employees and 11 as
non-categorised (others). Coal India Limited has the
responsibility for laying down all corporate objectives,
approving and monitoring the performance of subsidiary
companies in the fields of long term planning
conservation research and development production of
finance, recruitment, training, safety, industrial
relations, wages, materials management etc. The
subsidiary companies are responsible for all operational
matters, commissioning and execution of new as well as
on going projects, man management, production, consumer
satisfaction etc. In addition, subsidiary companies
perform related functions, such as maintaining liaision
with concerned state governments, aclquisition of land,
execution of welfare programmes, maintenance of safty
standards, betterment of industrial relations etc.
Worklrig of Coal India Limited
Coal Industry was entirely a private sector
enterprise at the time of country's independence and
continued to remain till the early 70's when
nationalisation took, place. The coal industry at the
time of ntionalisation was generally in poor health and
given the governments policy of encouraging coal
coiibum itiori as a substitute for petroleum products, the
challenge for expanding coal mining and supply became
XjI
sharper in the early seventies. Since the taking over
of the coking coal mines in October 1971, and non-coking
coal mines in February 1973 and later on, November 1975
when the government took an initiative to centerlise the
whole coal operation under one holding company namely,
The Coal India Limited, the performance and achievements
of this Industry has markedly improved. To know much
more about the performance and working of Coal India
Limited, it can be judged by the help of some parameters
such as Production, Consumption. Distribution,
Despatches, Stock, Productivity, Import and Export,
Profitability etc.
PRODUCTION
The production performance of Indian coal existance
industry has improved after the coming into/of the Coal
India Limited (CIL) which accounts for 88 percent of the
total coal production of the country. The production of
coal was 78.98 million tonnes in the year 1974-75 which
was a growth rate of 15.65 percent from 1970-71. The
production of coal reached 88.98 million tonnes in the
year 1975-76 (see table No.IV-1) which was an increase
of 9.99 million tonnes from the previous years. In the
year 1977-78, the production of coal catre down to .02
million tonnes. The production of coal in the year
20B
(A (U c c o 4J c o
•r4 s
1—1 • CO T1
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,U9
1978-79 increased by 1.1 million tonnes from the
previous year. The major producer of coal was WCL by
24.23 million tonnes. In the year 1979-80its share in
the production of coal reached to 26.13 million tonnes
whereas the total CIL production was 91.44 million
tonnes. It maintained a top position by contributing
28.57 percent of the total production.
The production of coal in the year 1980-81
reached in three figures by 100.86 million tonnes
whereas CCL increased its production by 3.3 million
tonnes from the previous year, (WCL 2.62 million tonnes,
ECL 2.09 million tonnes and BCCL 1.34 million tones
Coal India Limited increased its production by 27.68
percent from 1974-75 to 1980-81 and in the year 1981-82,
the production reached to 108.94 million tonnes which
was 8.08 million tonnes higher from the previous year.
In the Coal India Limited, production of coal reached to
121.47 million tonnes in the year 1983-84 whereas in the
previous year it was only 114.77 million tonnes. Coal
India Limited achieved 99.9 percent targeted coal
production for the year 1984-85 whereas the production
of the coal India Limited was 130.81 million tonnes and
the target was fixed at 131.00 million tonnes. From
1980-85 the growth in the production of Coal was 29.70
vO
2 u .
-'ll
percent. In the 1st year of the seventh Five Year Plan
1985-86, the Coal India Limited, achieved 100.5 percent
of the target of coal production by producing 134.11
million tonnes, in which 30.31 million tonnes of coking
coal and 103.80 million tones non-coking coal see Table
No. IV-2. The overall growth rate during 1985-86 over
1984-85 was 2.5 percent, except BCCL, all other
subsidiaries and NEC exceeded their targets for 1985-86.
BCCL, however, could not achieve its targets because of
severe constraints. The production of soft coke, hard
coke and washed coal in 1985-86 were 1.71 million
tonnes, 0.58 million tonnes and 8.05 million tonnes
respectively as against the previous years production of
1.58 million tonnes, 0.51 million tonnes and 9.04
million tonnes respectively. The growth rate works out
to 8.2 percent for soft coke and 13.7 percent for hard
coke, However, in the case of washed coal there was a
decline of 10.9 percent compared to the previous year
(see table IV-3A), while the production of raw coal from
opencast mines for 1985-86 was 73*71 million tonnes as
compared to previous years figure of 69.95 million
tonnes registering a growth rate of 5.4 percent over the
previous years, see Table No. IV-4A.
The Coal India Limited achieved 100.9 percent of
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^ rH rH rH 1 o d CO 0 •H to to 00 > o 00 u 1 o as CM B O CO sD CO CN 0 00 oo lA r-. V-c OS • >3- CO O UH •H rH rH O 1 CO TJ 0 0) o r>. 00 a t r>. rs. r>. E so lA O O as as St O 00 CO lA • so o o OS >3- • > as
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c: 0) to u a ^ u fc rH ^ -J ^ ^ J o u 3 0 u u u CJ o Ui u 0 u} a. u z 3 1/5 z C/3
J TABLE IV-3A
SOFT-COKE, HARD COKE AND WASHED COAL PRODUCTION (In million tonnes)
Year Softcoke Hardcoke Washed Coal Total CIL
1984-85 1.58 0.51 9.04 11.13
1985-86 1.71 0.58 8.05 10.34
1986-87 1.53 0.59 8.04 10.16
1987-88 1.56 0.51 8,37 10.44
1988-89 1.31 0.40 8.73 10.44
1989-90* 9.81 3.94 82.38 96.13
* Figures in lakh tonnes. Source: Compiled and computed from various Annual reports and
Accounts of CIL, Calcutta.
TABLE IV-3B PRODUCTION OF SOFTCORE, HARDCORE AND WASHED COAL
(COMPANIES WISE) (Figures in lakh tonnes)
Company Soft Coke Hard Coke Washed Coal 1989-90 1988-89 1989-90 1988-89 1989-90 1988-89
ECL 4.49 6.09 - - - -
BCCL 1.78 2.70 3.71 3.76 38.90 45.06
CCL 3.54 4.28 0.23 0.19 40.29 38.90 WCL — 3.19 3.29
Total CIL 9.81 13.07 3.94 3.95 82.38 87.25
Source: Annual report and Account Coal India Calcutta, 1989-90,p.1'
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production target whereas the target was fixed for
143.50 million tonnes of coal production. The highest
coal contributing subsidiary was SECL. It contributed
36.15 million tonnes of coal which was 24.97 percent of
the total coal production of Coal India Limited. the
production of soft coke, hard coke and washed coal in
1986-87 was 1.53 million tonne, 0.59 million tonnes, and
8.04 million tonnes respectively. The increase was
recorded only from the Hard Coke by .01 million tonne
only. The decline in the production of soft coke was
10.50 percent from the previous year. The production of
raw coal from open cast mines in the year 1986-87 was
74.16 million tonnes registering a growth rate of 14.1
percent. The production of raw coal from the
underground mines was 59.96 million tonnes, which came
down to 0.55 million tonnes from the previous year when
it was 60.50 million tonnes in the year 1985-86. In the
year 1986-87, the production of coking coal was 29.47
million tonnes which came down to 0.84 million tonnes
from the previous year and the production of non-coking
coal was 115.30 million tonnes, which ws an increase of
9.97 percent from the previous year. Non-coking coal
contributed 79.68 percent of the total coal production
of Coal India Limited for the year 1986-87.
;i6
Coal India Limited made a land mark in the
history of the Indian coal industry by the recorded
production of 159.05 million tonnes of coal during
1987-88. This was the first time that production
exceeded the 150 million tonnes marke in a single year.
The production was also 14.31 million tonnes or 8.99
percent more than from the previous years' production of
144.74 million tonnes which constituted an increase of
9.88 percent which was also a record. Coal India
Limited achieved the target by 100.7 percent inspite of
the six day strike in coal India Limited in March
1988. In the total Coal India Limited production of
159.05 million tonnes, SECL contributed 39.15 million
tonnes and maintained top position in all the
subsidiaries of Coal India Limited in term of production
which was as increase of 3.80 million tonnes from the
previous year. In the year 1987-88, the production of
coking coal was 30.22 million tonnes, the highest
contributing subsidiary of coking coal was BCCL by 14.30
million tonne which was 47.31 percent of the total
coking coal production of Coal India Limited and the
total Non-coking coal production in the same year was
128.80 million tonne which was 80.98 percent of the
total coal nroeuction of Coal India Limited. The
highest 3 9 . m i l i o n tonnes of non-coking coal was
produced by SECL, a subsidiary of Coal India Limited in
. 17
the same year. In the Coal India Limited's, coal
production for the year 1987-88, the production of open
cast mine was 99.98 million tonnes or 62.87 percent of
the total coal production whereas the production of
underground mines was 59.04 million tonnes of the total
coal production of Coal India Limited. The production
of soft coke, Hard coke and washed coal was 1.56
million tonnes, 0.51 million tonnes and 8.37 million
tonnes respectively as against the last years production
of 1.58 million tonne., 0.59 million tonne, and 8.04
million tonne respectively. Washed coal production
incresed by 4.1 percent over 1986-87 and highest washed
coal received from BCCL of 4.20 million tonnes. There
was marginal increase in the production of soft coke by
0.03 million tonnes and Hard coke 0.80 million tonnes
from the previous year 1986-87.
The coal production of Coal India Limited during
the year 1988-89 increased by 7.25 percent from the
previous year. The Coal India Limited achieved the
target of coal production by 100 percent by the
production of 171.50 million tonnes of coal whereas the
target was fixed for 170.00 million tonnes. In the
total Coal India Limiceu's coal production, 5ECL
contributed 44.41 million tonnes which was an increase
JO r-4 O.
o
u .
17 1
of 4.46 million tonnes from the previous year, ECL
contributed 30.13 million tonnes, CCL 28.07 million
tonnes, BCCL 26.30 million tonnes, WCL 22.06 million
tonnes, NCL 19.63 million tonnes and NEC 0.90 milion
tonnes. It is noted that all subsidiaries are showing
an increasing trends of coal production from the
previous years. The production of coking coal in the
year 1988-89 was 31.30 million tonnes which was an
increase of 1.08 million tonnes from the previous year.
In the same year the production of coking coal was
140.20 million tonnes which was an increase of 11.4
milion tonnes from the previous years. The highest coal
was received from SECL of 44.32 milion tonnes which was
31.61 percent of the total non-coking coal production.
The subsidiary is showing an increase of 4.37 million
tonnes of coal from the previous year. The production
of soft coke, hard coke and wahsed coal ws 13.07 lakh
tonnes, 3.9^ lakh tonnes and 87.25 lakh tonnes
respectively (see table no.IV-3B). The production of
coal from the open cast mines was 110.22 million tonnes
during the year 1988-89 which was 64.26 percent of the
total Coal India Limited coal production. The
production of coal from the underground mines was 61.89
million tonnes in the year 1988-89 (see table no.IV-4B).
The most outstanding feature of 1988-89 was that Coal
India Limited could achieve the unprecedented rise of
2.24 million tonnes in the output of the underground
mines. Production of coal from the underground mines
was 61.28 million tonnes in 1988-89 against 59.04
million tonnes in 1987-88. This increase in underground
production was mainly due to succesful adoption of new
technology.
The Coal India Limited has achieved a production
of 178.59 million tonnes during 1989-90 showing a growth
of about 7 million tonnes over the last years production.
The over all annual growth during 1989-90 ws 4.2 percent
over the previous years. The production of the ECL was
less than that obtaianed in 1988-89 by 5-7 million
tonnes. The production of other subsidiaries of Coal
India Limited was 51.76 million tonnes of SECL, 28.61
million tonnes of CCL, 26.62 million tonnes of BCCL,
23.28 million tonnes of NCL, 23.01 million tonnes of WCL
and 0.85 million tonnes of NEC during the year 1989-90
(see table no. IV-5). Except for Coal India Limited and
NEC which ended the year with a short fall in the
targeted production other subsidiaries supassed their
target of production. The production of coking coal in
the year 1989-90 was 24.07 million tonnes which was a
short fall of 7.23 million tonnes from the previous
17 1
2 O M H O Q o in « I cu >
M CO w M
s s S s
CO OQ S CO •J M CJ
o o o CJ i \
0 0 T-l
in CT> 1 0 1-1
U) <U c c o 1-1 •u CT J c 1 o o o •H 0 r-l rH rH •r E c o
CT^
c 1 O o 00 •r CT TH o xs o u a 00 1 1-H 1 o to 00 o CT o TH
c o •t-l •u o 3 X I o »-« a.
X I (U Q) 00 «
m I <1-cr>
CO QJ •r-l •r-l
X !
:3
lA <!• ON
• • 0 T-h in <)•
^ ^ ^ o 8 ^ 3 ^ tH TH vD in CO <N
o o o o o m o g 00 <N (T) 00 «r> CO m Nct ro eg vo
O o r O ^ tM
» • • 0 00 0
vO cvj <1- vD
vO CVJ in •H <1-
• • • • CN rH 00 CM CM Cvl 1 1 Csl
T-l vO TH CO CM • • • • CO CO cr> eg iH rH 1 1 rH
O • •rH CO
CNJ
o O 0 CO 8 CM O 0 CO o •
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(0
222
years. The declined of coking coal production was
reported from all of the CIL subsidiaries but much more
was in CCL by 5.05 million tonnes from the previous
years. During the year 1989-90^ the production of
non-coking coal was 154.53 million tonnes as against
140.20 million tonnes in the previous year. The
production of soft coke, hard coke and washed coal was
9.81 lakh tonnes, 3.94 lakh tonnes, and 82.38 lakh
tonnes respectively during the year 1989-90. The
production of soft coke and washed coal declined by 3.26
lakh tonnes and 4.87 lakh tonnes from the previous year
and the declined of hard coke production was 119.89
million tonnes in the year 1989-90 which was more than
9.67 million tonnes from the previous years and
production of coal from the underground mines was 58.71
million tonnes which recorded a decline of 2.57 million
tonnes from the previous year. The growth in coal
production was 30.16 percent from 1985-1990.
The target for coal production by Coal India
Limited was fixed 194.00 million tonnes for the year
1990-91. The Coal India Limited failed to achieve this
target. Three of the seven subsidiaries of public sector
Coal India Limited failed tc achieve the production
target during 1990-91 although the overall production
223
crossed 189,64 million tonnes the highest so far. The
ECL, WCL and NEC had failed to achieve their production
targets for the year though they could exceed their
1989-90 production levels. The total coal production
remained 4 million tonnes less than the targeted 194
million tonnes while the three subsidiaries had failed
to reach their targeted production, the BCCL, CCL, NCL,
WCL and the SECL crossed their targets during the
period. A number of factors such as heavy rainfall
coupled with un-stable power situation in the eastern
part of the country effected the overall production.^
The target for Coal India Limited's production
has been fixed at 203 million tonnes for the year
1991-92. Nearly 141 million tonnes has to come from
open cast operation and 61 million tonnes would come
from underground mines. For the year 1094-95, 247.00
million tonnes in which 180 million tonnes from open
cast mine and 105 million tonnes from underground mines
and for the year 1999-2000, 374.61 million tonnes which
includes 235 million tonnes from open cast mines and 135
million tonnes from underground mines. The latest
information available for the Coal India Limited's coal
1. The Times of India, New Delhi, April 4th, 1991, p.19.
17 1
production is that "The Coal India Limited excelled in
all sphares of activities in the first quarter (April-
June) of the current financial year. The company
produced 41.68 million tonnes of coal in the period
compared to 39 06 million tonnes in the same year period
of 1990-91 registering a growth of 2.82 million tonnes
(22.2 percent). All the subsidiaries of Coal Indial
Limited barring ECL, exceeded their performance in this
period compared to the same period of 1990 91. The
production of washed coal in spite of unstable power
situation in eastern region came to 2 027 million tonnes
in April-June compared to the production of 1.992
million tonnes in the same period last year.^
CONSUMPTION
The pattern of consumption of coal has under gone
a significant change during the last two decades. Before
the nationalisation of the coal Industry; Railways were
the single largest consumer accounting for a third of
the total consumption with increasing dicselisation and
electrification, the comsumption of coal by railways has
been declining steadly. One the other hand, the demand
for coal by power generation and steel industry has
increased sharply Other major consumers being cement, fertilizers
1. State Bank Economic News Letter Bombay, July 29. 1991, p.119.
17 1
textiles, paper and brick manufacturing industries.
Sectorwise consumption of coal is shown in Table No.IV-6.
In the year 1976, the total CIL's coal consumption was
84.27 milion tonnes. The power sector for the generation
of power consumed 27.77 percent of the total coal
consumption and stood first in term of coal consumption.
The second highest coal consumer was steel by consuming
16.90 million' tonnes or 20.5 percent of the total CIL coal
consumption. Railways was on the third place by
consuming 15.42 percent of total coal consumption, other
sectors of the economy consumed 28.41 million tonnes of
coal.
In the year 1980, the total coal consumption
reached to 90.55 million tonnes which increased 6.28
million tonnes from the year 1976. The consumption of
coal by the power sector reached to 30.71 million tonnes
which was 7.30 million tonnes more than from the year
1976 and maintained the first place in terms of coal
consumption by consuming 33.91 percent of the total coal
consumption. The consumption of coal by the railways
came down to 2.30 milion tonne during four years from
1976- to 1980. The consumption of coal by other sectors
of economy also declined marginally during these four
years. However, the steel and domestic and Boiler use
226
TH O o T - L
v o CJN o m < t CM • • * m « •
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•H m o ^ m o o m 00 m 00 • • • Csl • • c ^ o 00 o • o TH CO TH TH CO CNj CTv
0 0 •
m a m <1- m
m vO t H T-l CM • r\ 0 0 • • m • CM o a ^ ON • • m CM ON TH 1-1 CJN CO CO T H 1
C7N 00 0 ^
CM T-l CO o vO ON
vD O CO T-l CM o • CK
0 0 • • ON vO • CO ON m o • • 0 0 cn 4J •H vD CM CO CO T H •U
o 1—1
m CO vO •H T-l vO O CM CO CJN •
0 0 • • 0 0 M • T H ON T-l ON • • o •
T H r ^ T-l CO T-l X) •u J
CO CO 0 0 CJN •H
0 0 T-i vD 0 0 <1- • T 3 0 0 • • CO • CO C ON ON « « C4 m M i H 0 0 T H vO CO T-l
r - l CO O
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227
sector retained their increasing trend of coal
consumption during 1976-1980.
In the year 1984-85, the demand of coal was 133.00
million tonnes. Against the demand, the actual off-take
was 122.71 million tonnes fulfilling a demand
satisfaction of 92.3 percent. See table no.IV-7. The
demand satisfaction for power sector was 54.0 million
tonnes in the year 1984-85 when the off-take was 54.65
million tonnes of coal in term of coal consumption, power
sector retained its first position in the year 1984-85.
The demand satisfaction for cement, loco, steel, soft
coke, fertilizer was 94.3 percent, 88.7 percent, 87.5
percent, 65.5 percent and 64.0 percent respectively. In
the year 1984-85, the power sector consumped 44.53
percent of the total coal consumption, steel 17.11
percent and loco 6.86 percent of the total coal
consumption. The off-take of steel sector was less than
3 million tonnes from their demand of 24 million tonnes
in the year 1984-85 such as in the fertilizer sector.
The demand was 5.00 million tonnes whereas the off-take
was 3.20 million tonnes which ws 1.80 million tonnes less
than from their demand.
in the year 1985-86, the demand for coal was
144.16 million tonnes which was an increase of 11.16
TABLE IV-7 DEMAND AND OFF-TAKE OF COAL
(Million tonnes)
Sector 1984-85 1985 -86
Sector Demand Off-take 7o Satis-faction
Demand Off-take 7o Satis-faction
Steel 24.00 21.00 87.5 25.96 20.30 78.2
Power 54.00 54.65 101.2 63.52 65.03 102.4 Loco 9.50 8.43 88.7 7.96 7.91 99.4
Cement 6.00 5.66 94.3 6.18 6.00 97.1
Soft-coke 3.30 2.16 65.5 3.10 2.29 73.8
Fertilizer 5.00 3.20 64.0 4.50 3.56 79.1
Export 0.20 0.12 60.0 0.20 0.22 110.0
BRK & Others* 31.00 27.49 88.7 32.74 29.61 90.4
Total 133.00 122.71 92.3 14^.16 134.92 93.6
^including colliery consumption.
Source: Annual report and Account of GIL, 1984-85, Calcutta.
. a
million tonnes from the previous years. The off-take
reached to 134.92 million tonnes which increased to 12.21
million tonnes from the previous year. The total demand
satisfaction was 93.6 percent whereas it was 92.3
percent in the year 1984-85. The demand satisfaction for
power sector during the year 1985-86 was 102.4 percent an
increase of 1.2 percent from the previous year. The
demand satisfaction of loco was 99.4 percent of their
7.96 million tonnes of coal demand. The demand
satisfaction for cement, fertilizer, steel, soft coke
and export was 97.1 percent, 79.1 percent, 78.2 percent,
73.8 percent and 110.00 percent respectively in the year
1985-86. The demand of coal for export sector was 0.20
million tonne and the actual off-take was 0.22 million
tonnes whereas in 1984-85 the demand was 0.20 milion
tonne and the off-take was only 0.12 million tonnes which
fulfils the 60 percent demand satisfaction but in 1985-86
it jumped to 110.00 percent. In the year 1985-86 the
power sector consumed 48.19 percent of the total Coal
consumption whereas the steel sector 15.04 percent^loco
5.86 percent and cement 4.44 percent.
The total consumption of coal in the year 1987-88
was 153.93 million tonnes an increase of 12.28 million
tonnes from the previous year. The power sector consumed
17 4
53.38 percent of total coal consumption whereas it was
50.30 percent in 1986-87. The Steel sector showing an
increasing trend in the year 1987-88 by comsuming 19.47
million tonnes of coal. In the previous year it was
19.11 million tonnes. The consumption of Railways and
domestic and Boiler use declined by 0.47 million tonne
and 0.6 million tonne respectively. Coal India Limited
achieved 93.5 percent of demand satisfaction and the
fulfilment of demand for power sector was 101.5 percent
in the year 1987-88.
During the year 1988-89, the demand of raw coal
for CIL was assessed at 173.30 million tonnes against
this demand, the actual of^;>take of raw Coal was 165.02
million tonnes showing demand satisfaction of 95.2
percent as against the corresponding figure of 94.1
percent in 1987-88 on the basis of assessed demand of
163.55 million tonnes and the actual off-take of 153.93
million tonnes (see Table No.IV-8). The demand
satisfaction of cement was 99.7 percent followed by
colliery consumption 99.4 percent, power 98.3 percent,
loco 92.8 percent, steel 90.3 percent and fertilizer 82.3
percent. The major consumer of Coal was power sector by
consuming 54.07 percent of the total coal consumption
and retain top position in term of consumption followed
,—, c t—1 o CO •r-( O 4J O l4-( CO 3 l4-( CO W oi •r-l 4-1 M-i CO o CO cn (1) C C o 4-1 CTN c 00 Q) o 1 ^ •r-l 00 CO 1 00 4-1 1—1 CJN 1 •H TH IW s o c •H <D U X) bO c CO CXH E <U Q
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31
2 32
by BRK/others 20.16 percent, steel 12.3 percent and
cement 4.63 percent.
The total demand of 185.72 million tonnes of coal
was assessed for 1989-90. Against this demand, actual
off-take was 173.59 million tonnes showing a demand
satisfaction of 93.5 percent compared to 95.2 percent
demand satisfaction in the previous year. The demand
satisfaction for power sector was 99.9 present followed
by colliery consumption 98.6 percent, loco 94.6 percent,
cement 92.5 percent and other/BRK 87.5 percent. The
demand of coal by power sector increased by 9.54 million
tonnes in 1989-90 against the demand of coal in the
previous years. Year after year, the demand of coal by
loco declined in the year 1988-89. It was 6.00 million
tonnes which came down to 5.40 million tonnes in the
year 1989-90. It is due to expansion of the
electrification of railways and increase of the desiel
engines.
The total off-take from CIL increasedfrom 173.65
million tonnes in 1989-90 to nearly 182 million tonnes in
1991. The demand satisfaction in respect of power sector
was 92.2 percent, Steel 86 percent and cement 97
percent.^ The demand for coal produced by Coal India
Limited in the current year 1991-92 is expected to be of
1. The Hindustan Times, New Delhi, April 3rd, 1991, p.15.
233
the order of 201.2 million tonnes* Of this the demand of the
power sector (utilities) at 111.87 million tonnes would
be the highest. The demand of the steel sector has been
estimated to be around 21.30 million tonnes and
fertilizer around 3.50 million tonnes respeectively.^
The coal demand for the year 1994-95 is projected at
284.93 million tonnes and 367.96 million tonnes for
1999-2000, see Table No.IV-9. By the end of the Eighth
Plan, the demand for coal is expected to rise to 320
million tonnes. The power sector in expected to be the
highest coal consuming sector for the year 1994-95 and
1999-2000, followed by steel, miscelleneous industries,
cement, brick burning etc. The growth in sectoral demand
between 1984-85 and 1999-2000 is significant, (for power
3000 percent, cement 300 percent, fertilizer 160 percent
and steel 154 percent). Only in the case of Railways
there will be a fall in demand, with the consumption
expected to come down from 9.52 million tonnes 1984-85 to
3.00 million tonnes in 1999-2000.
DESPATCHES
Despatch of coal is one of the indicator for which
the performance and working of the Coal India Limited can
1. The Times of India, New Delhi, April 10th, 1991, p.9.
2J4
TABLE IV-9 CIL SECTORWISE COAL DEMAND
(In million tonnes)
Source Projected 1989-90 1994-95 1999-2000
Steel & Coke ovens
Steel (Direct reduction)
Power (utilities)
Power (Captive)
Railways
Cement
Fertilizer
L.T.C.
Soft coke making
Brick burning
Misc. Industries
Export
Colliery consumption
TOTAL
26.30
105.30 (7.16)
10.00
(1.13)
6.60
8.41
5.50
3.90
26.79
0.50
3.60
206.70 (8.29)
43.10
2.50
155.28 (10.50)
17.24
4.12
11.79
5.20
1.80
5.40
8.50
24.60
1.00
4.40
184.93 (10.50)
53.10
4.50
213.90
17.24
2.40
14.48
5.20
3.60
7.30
9.40
31.38
1.50
4.40
367.96
Nofn:Figure in brackets indicate washery middlings.
Source: The Hindu Survey of Indian Industries, 1986, p.181.
2 35
be judged. In the year 1974-75, the total despatches of
coal by CIL was 75.78 million tonnes which jumped to
81.73 million tonnes in the year 1975-76 showing an
increase of 5.95 million tonnes from the previous years.
(See table no.IV-10). In the year 1978-79 the total
despatches of coal declined by 4.19 million tonnes from
previous year when it was 84.06 million tonnes against
88.25 million tonnes in the previous years. The
despatched position of CIL improved in the year 1979-80
by an increase of 3.23 million tonnes from the year
1978-79. The despatch of coal after five years from
1980-81 to 1984-85 reached 119.02 million tonnes whereas
it was 93.06 million tonnes in the year 1980-81 showing
an increase of 21.81 percent during these five years.
During the year 1984-85, the despatches of coal
and coal products by CIL was 115.18 million tonnes. The
highest despatch has taken place by way of Railway 79.04
million tonnes followed by 22.55 million tonnes from
roads, 7.30 million tonnes from MGR; 4.29 million tonnes
from Belt and 2.29 million tonnes from Rope way. (See
table No.Iv-11). In the year 1985-86, the despatches of
coal and coal products reached to 126.84 million tonnes,
showing a growth rate of 10.12 percent. Railway got
first position in terms of highest transportation of coal
and coal products of CIL by 85.65 million tonnes followed
TABLE IV-10 236
DESPATCHES OF COAL FROM CIL
(In million tonnes)
Year Despatches (+) Increase or (-) dec-rease from the previous year
1974-75 75.78 -
1975-76 81.73 ( + ) 5.95
1976-77 83.96 ( + ) 2.23
1977-78 88.25 ( + ) 4.29
1978-79 84.06 ( - ) 4.19
1979-80 87.29 ( + ) 3-23
1980-81 93.06 ( + ) 5.77
1981-82 103.33 ( + ) 10.27
1982-83 108.51 ( + ) 5.18
1983-84 114.63 ( + ) 6.12
1984-85 115.18 ( + ) 0.55
1985-86 126.84 ( + ) 11.22
1986-87 133.43 ( + ) 6.59
1987-88 146.10 ( + ) 12.67
1988-89 167.36 ( + ) 11.26
1989-90 166.25 ( + ) 8.89
Source: Compiled and computed from various Reports , Government of India, Ministry of Energy, , Department of Coal, New Delhi and various Annual reports and Accounts, Coal India Limited, Calcutta.
37
TABLE IV-11 DESPATCHES OF COAL (MODE OF TRANSPORT)
(Figures in million tonnes)
Year Rail Road MGR Rope Way
Belt Total
1 2 3 4 5 6 7
1984-85 79.04 22.55 7.30 2.29 4.29 115.18
1985-86 85.65 24.80 8.66 2.69 5.04 126.84
1986-87 89.91 24.38 9.50 4.01 5.63 133.43
1987-88 94.78 26.20 15.06 4.30 5.76 146.10
1988-89 89.22 28.82 20.55 4.01 5.76 157.36
1989-90 102.74 26.01 26.77 4.25 6.48 166.25
Source: Compiled and computed from various Annual reports and
Accounts, Coal India Ltd., Calcutta.
238
by Road for 24.80 million tonnes, MGR 8.66 million
tonnes, Belt 5.04 million tonnes, Rope way 2.69 million
tonnes. The highest despatch of coal was done by SECL
33.20 million tonnes and CCL 25.35 million tones, ECL,
22.78 million tonnes, BCCL 19.82 million tonnes, WCL
17.98 million tonnes, NCL 11.42 million tonnes and NEC
0.76 million tonnes. The closing stock of coal as on
31.3.86 was 8.30 million tonnes in CCL, 6.61 million
tonnes in SECL, 4.93 million tonnes in BCCL, 4.67 million
tlnnes in ECL, 1.32 million tonnes in WCL and 0.25
million tonnes in NEC (see table No.IV-12).
The despatched coal in the year 1986-87 was 133.43
million tonnes which was an increase of 6.59 percent from
the previous years. The highest despatch of coal was
done by SECL, 26.51 percent of the total despatched, the
contribution of other subsidiaries in the total
despatche of coal was, ECL, 17.34 percent, CCL 17.19
percent, BCCL 15.28 percent, WCL 15.75 percent, and NCL
29.67 percent. The closisng stock of these subsidiaries
as on 31.3.87 was CCL 9.21 million tonnes^ BCCL 5.81
million tonnes, SECL 5.41 millions tonnes, ECL 4.85
million tonnes, WCL 1.29 million tonnes, NCL 1.09 million
tonnes and NEC 0.33 million tonnes. Therefore the total
closing stock of CIL was 27.99 million tonnes. Railway
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9
maintaianed first position by the despatched of 89.91
million tonnes of CIL coals which has an increase of 4.26
million tonnes of coal from the previous year. The
despatch of coal by other mode of transport also
increased except road which declined to only 0.42 million
tonnes from the previous year.
CIL also despatched 146.10 million tonnes of coal
in the year 1987-88 as against 133.43 million tonnes in
1986-87, despite this increase in despatches the pit head
stock of coal at the close of the year touched a record
level of 33.97 million tonnes which was 19.36 percent
higher than the year end stock of 28.4 million tonnes in
1986-87 (See Table No.IV-13). The higher buildup of
pit-head stocks was attributed to mismatches between
production and rail movement, especially in coal fields
which do not have adequate rail movement facilities. The
figure stated that the highest despatch of coal was done
by Railways that was 94.78 million tonnes, an increase of
5.41 percent from the previous year. The higher despatch
was the result of the increase of own arranged wagons by
CIL which increased by 58.52 percent from the previous
years. The higher despatches of Coal was possible due to
increase in wagon loading, daily average which went up
from 11,288 (FWW) in 1986-87 to 11743 (FWW) in 1987 88.
w QJ C P o u
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Actual sale of coal and coal products by various
modes during the year 1988-89 was 157.36 million tonnes
against 146.10 million tonnes in the preceeding year.
The highest increase in despatches has taken place
through MGR when the despatches went up from 15.06
million tonnes to 20.55 million tonnes. If registered a
growth rate of 36 percent during the year 1988-89. Daily
average loading of wagons in 1988-89 attained a level of
12224 wagons per day which was 486 wagons per day higher
as compared to last year. The achievement of loading
target was 96.3 percent in 1988-89 compared to 95.5
percent in 1987-88. The pit-head stocks 33.97 million
tonnes in the year ended 1988-89. There was 0.7 percent,
a change of percentage over the year 1987-88. The
highest despatching of coal was reported from SECL that
was 42.44 million tonnes or 26.29 percent of the total
despatch.
In the year 1989-90, SECL retained its first place
in the despatching of coal by 36.18 million tonnes which
has a decline of 6.26 million tonnes from the previous
years. The total despatch of coal was 166.25 million
tonnes against 157.36 million tonnes for the previous
year. The highest despatch of coal was done by Railway
102.74 million tonnes an increase of 4.52 million tonnes
for the previous years. Daily average loading of four
263 4
wheeler wagons (FWW) reached an all time high during the
period with 12794 (FWW) were loaded showing an increase
by 570 wagons over 1988-89- The despatches of coal has
increased by all ways of transport except by road which
declined by 2.81 million tonnes from the previous years.
During the First Four months (April-July) 1991-92,
despatches of coal at 70.3 million tonnes showed a rise
of 9.2 percent when compared with 64.4 million tonnes in
the corresponding period of last year.^
PRODUCTIVITY
CIL lays due emphasis on improvement of
productivity commensurate with growth in production as
there are twin areas of achievements in the growth
process. Traditionally, man-productivity in terms of
output per man shift (CMS) is measured as human element
continues to be dominated in the input mix. During the
year 1974-75 the productivity (measured in terms of out
put of raw coal per man shift (OMS))in CIL was 0.58 QMS,
in underground mines it was 0.54 tonnes and open cast
mines it was 0.76 tonnes QMS (See table No.IV-14). The
average production per man per year was 149 tonnes.
1, State Bank of India Economic News Letter, Bombay, Vol. XXV, No.39, September 30th 1991.
TABLE IV- 14 PRODUCTIVITY IN CIL (OMS)
Year Underground opencast CIL mines mines overall
1974-75 0.54 0.76 0.58
1980-81 0.54 1.52 0.72
1981-82 0.55 1.90 0.77
1982-83 0.52 1.99 0.79
1983-84 0.53 1.97 0.81
1984-85 0.52 2.07 0.87
1985-86 0.53 2.24 0.91
1986-87 0.55 2.46 0.99
1987-88 0.54 2.68 1.08
1988-89 0.57 2.88 1.15
1989-90 0.52 2.87 1.21
Source: Compiled and computed from the various Annual reports, Govt, of India, Ministry of energy, Department of Coal, Delhi, and various Annual Reports and Account, Coal India Ltd., Calcutta.
24 5
In the year 1980-81 , the productivity of CIL
reached to 0.72 million tonnes which has an increase of
24.17 percent from the year 1974-75. The productivity
in the underground mines was the san" as was in 1974-75
but in the open cast mines it reached to 1.52 tonnes OMS
which was an increase of 100 percent from 1974 75 . The
average production per man per year was 153 tonnes in
the year 1980-81. The OMS of the opencast mines of CIL
reached to 1.90 tonnes in the year 1981-82 when it was
1.52 tonnes in the previous year and the productivity in
underground mines also increased marginally.
The over all OMS was 0.77 tonnes in the year
1981-82 which has an increase of 0.05 tonnes OMS from
the previous years. The productivity of underground
mines came down to 0.03 tonne in the year 1982-83 as
against 0.55 tonnes in the previous year whereas the OMS
of opencast mines increased to 0.09 tonnes as against
1.90 tonnes in the previous year but in the year 1983-84
it came down to 0.02 tonnes and the productivity in
underground mines increased marginally whereas overall
productivity reached to 0.81 tonnes OMS.
During the year 1984-85, the overall OMS in the
CIL was 0.87 tonnes, in which the OMS in CCL was 1.37
tonnes followed by WCL 1.22 tonnes, NEC 0.72 tonnes,
BCCL 0.58 tonnes and ECL 0.52 tonnes. The productivity
(OMS) in the underground mines was 0.52 tonnes which was
a marginal decrease from the previous years, whereas the
productivity (OMS) in the opencast mines was 2.07
tonnes against 1.97 tonnes in the last year. The
productivity (OMS) in the opencast mines further
increased in the year 1985-86 and reached to 2.24
tonnes, an increase of 0.170 tonne from the previous
years, whereas the increase in the dproductivity (OMS)
of underground mines was marginal 0.01. tonne from the
previous years. The overall OMS in CIL was 0.91 tonne.
All the subsidiaries of CIL increased their productivity
in the year 1985-86. The highest OMS was in the CCL
1.37 tonne followed by WCL 1.25 tonne, NEC 0.77 tonne,
BCCL 0.60 tonne and ECL 0.54 tonne. The average
production per man per year was 200 tonnes as against
197 tonnes was in the previous years.
The overall productivity (OMS) in the year
1986-87 went up to 0.99 tonnes from 0.91 tonnes in the
last year. All the subsidiaries improved their OMS
except the CCL and WCL which declined their OMS by 0.33
tonnes and 0.10 tonnes respectively. The NCL and SECL
which started their operation once year ago showing the
highest OMS by 7.03 tonnes and 1.51 tonnes respectively.
The growth in 1986-87 was the highest achieved by CIL
247
so far to be in terms of absolute figure (0.08 tonnes)
and in terms of percentage (8.8 percent).
The overall QMS during the year 1987-88 reached
upto 1.08 tonne as against 0.99 tonne in the previous
year (See Table No.IV-15). All the subsidiaries
improved their OMS. The highest increase in QMS was
reported from NCL which was 15.8 percent increase from
the previous year and followed by NEC 14.0 percent, ECL
13.1 percent, SECL 10.0 percent, WCL 7.8 percent, CCL
4.8 percent and BCCL 1.5 percent. The average
production per man per year was 236 tonnes in the year
1987-88 as against 215 tonnes was in the previous year.
CIL increased average production per man per year
by 19 tonnes from the previous year 1987-88 which was
236 tonnes. The CIL overall OMS was 1.15 tonnes in the
year 1988-89 which was an increase of 6.08 percent from
the previous year. All the subsidiaries improved their
OMS. It was reported from NCL 8.18 tonnes followed by
SECL 1.77 tonnes, WCL 1.26 tonnes, CCL 1.14 tonnes, NEC
0.86 tonnes, BCCL 0.75 tonnes and ECL 0.73 tonnes (See
Table No.IV-16). The OMS by opencast mines was 2.88
tonnes in the year 1988-89, an increase by 0.20 tonnes
from the previous year, 0.03 increase also noted in the
underground mines.
QJ W CO 0)
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48
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?A9
TABLE IV-16 PRODUCTIVITY IN CIL (1988-89 and 1989-90)
C M S % increase/decrease Company 1989-90 1988-89 in 1989-90 over the
previous year.
ECL 0.61 0.73 (-)16.4 BCCL 0.76 0.75 1.3
CCL 1.20 1.14 5.3
NCL 8.73 8.18 6.7
WCL 1.32 1.26 4.0
SECL 1.99 1.77 12.4
NEC 0.79 0.86 (-)8.1
Overall CIL 1.21 1.15 5.21
Source: CIL Annual report and Accounts, 1989-90, Vol.1, Calcutta, p.17.
. bO
The overall OMS of CIL, during the year 1989-90
was 1.21 tonnes as against 1.15 tonnes in the previous
year registering a growth rate of 5.21 percent. The OMS
in underground mines was 0.52 tonnes which declined to
0.05 tonnes from the previous years and the OMS in the
opencast mines was also declined by 0.01 tonnes from the
previous years. All subsidiaries improved their OMS
except ECL and NEC which declined to 16.4 percent and
8.1 percent respectively from the previous years. The
increased in OMS was 12.4 percent in SECL, 6.7 percent
in NCL, 5.3 percent in CCL^4.0 percent in WCL and 1.3 /
percent in BCCL. The average production per man per
year was 267 tonnes in the year 1989-90 which was an
increase of 12 tonnes from the previous years.
Labour productivity in terms of output per man
shift (OMS) has been improving steadily during the
seventh plan and also in 1990. The OMS in CIL was only
0.92 in the first year of the Seventh plan, it reached
an all time high of 1.21 tonnes in 1989-90. During
1990-91, CIL achieved an OMS of 1.31 tonnes. An
analysis of OMS of the underground and opencast mines of
CIL would show that while productivity of opencast mines
has been sharply and continuously increasing from 0.76
tonnes in 1974-75 to 3.08 tonnes in 1989-90, the
productivity of underground mines has almost remained
static around 0.52 to 0.54 tonnes during all these
years. During 1990-91 CIL achieved an CMS of 3.34
tonnes in its opencast mines.^
PRICING POLICIES
The coal industry, is going down from bad to
worse mainly owing tp 'a price structure which depiets an
adequate returtrT^^^he price control on coal introduced
in July 1944 was removed in July 1967. After 1967, cost
and prices of coal were fixed when these were examined
by the Coal Price Revision Committee (CPRC) appointed by
the Government of India for the purpose. After
decontrol, prices were settled by mutual negotiations
between producers and consumers, particularly the bulk
consumers like the railways, the steel plants and the
power houses.
After nationalisation of this industry the prices
of coal are fixed by the recommendation of various
committees constituted by the government. The reason
for such price fixation is not that coal industry is in
1. The Financial Express, Delhi, September 23rd, 1991,p.3, 2. Sivayya, K.V. and Das, V.B.M., "Indian Industrial
Ecomomy, New Delhi, S. Chand & Co. Ltd., 1985, p.437.
o 3 O o a: a.
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< o
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.b'6
public sector but the government considers it desirable
to regulate the price of this essential input . The
prices are fixed keeping in view the overall national
policies without attaching much importance to the profit
of the coal itself.
It is to be noted that although Coal India
Limited is the monopoly producer of coal. It does not
have the authority either to negotiate wages in the coal
industry or to fix or change coal prices. Although 60
percent of the cost of production of coal is due to
labour, the fixation of wages in coal industry and its
price revision have never been simultaneous with an
usual time lag of 1-3 years.
Ever since the nationalisation of coal industry,
coal has been under administrative price system. Coal
prices remained fairly low and steady during the period
from 1967 to 1973. The price of coal during the year
1973-74 was Rs.37.50 per tonne (See Table No.IV-17). In
the year 1975-76, the pricecof coal secured to Rs.64.92
per tonne whereas the cost of coal per tonne Rs. 75.66,
Rs.10.74 more than from the prices of coal. The prices
of coal remain constent for three year then in the year
1979-80 the price Jumped to Rs.101.18 per tonne. There
was an increase of just Rs.36.26 per tonne and the cost
TABLE IV-17 2 64
COAL PRICE AND COST OF PRODUCTION IN COAL INDIA LTD.
(Rs ./per tonne)
Year Cost Price
1973-74 46.-36 37.50
1974-75 55.27 47.50
1975-76 69.12 64.92
1976-77 75.66 64.92
1977-78 82.46 64.92
1978-79 86.00 64.92
1979-80 105.34 101.18
1980-81 123.45 101.18
1981-82 134.40 128.02
1982-83 152.02 145.90
1983-84 183.69 145.90
1984-85 190.63 183.00
1985-86 208.07 183.00
1986-87 221.54 210.00
1987-88 236.07 219.00
1988-89 244.35 219.00
1989-90 263.52 249.00
Source: Compiled From: 1. Various Annual Reports, Department of Coal, Govt, of
India, Ministry of Energy, New Delhi. 2. Economic Times, New Delhi, January 28th, 1989, p.5.
. b5
of coal reached to Rs.105.34 per tonne which is still
more than Rs.4.16 per tonne from the price of coal. The
price of coal increased to 26.52 percent in the year
1981-82 as a",ainst the previous year price which was
Rs.101.18 per tonne.
During the year, 1982-83 the prices of coal
reached to Rs.145.90 per tonne whereas the cost of coal
was Rs.152.02 per tonne which was an increased of
Rs.31.67 per tonne. In the year 1984-85, the cost of
coal increased by 3.77 percent from the previous year
whereas the price was increased by 25.42 percent from
the previous year- In 1985-86 the cost of coal
increased by Rs.17.44 per tonne and the prices of coal
remained the same as that was in the previous year. The
price of coal increased by Rs.271 per tonne in the year
1986-87 as against Rs.183.00 per tonne was in the
previous years. The prices of coal of Rs.219.00 was in
the year 1987-88 and will remain the same in the year
1988-89 whereas the cost of coal was Rs.244.35 per
tonnes as against Rs.236.07 per tonne in the previous
year. In the year 1989-90, the prices of coal increased
by 13.69 percent from the previous year whereas the
prices was fixed at Rs.249.00 per tonne. The cost of
coal was increased by 7.84 percent in the year 1989-90
::56
as against the cost was Rs.244.35 per tonne in the
previous year. The prices of coking coal and non-coking
coal was hiked from Rs.219.0 to Rs.249 per tonne,
registering an increase of 13.8 percent annually on an
average since 1973 when the coal mines were
nationalised, in other words, the coal prices have
registered an increase of 207 percent during the past 15
years.
PROFITABILITY
The profitability position of the CIL is very
poor. CIL and its subsidiaries have been suffering
losses till 1980-81. In 1981-82 CIL as a whole earned a
profit of Rs.5.63 crores. The loss suffered by CIL as a
whole during 1982-83 was Rs.5.34 crores (see Table
No.IV-18). The total earnings for the year 1982-83 were
Rs.1881.27 crores an increase of Rs.288.05 crores from
the previous year • The payments and expenditure etc.
were Rs.1886.61 crores during the year 1982-83 as
against Rs.1587.59 crores in the previous year. CIL
received the highest earnings by way of net sales of
Rs.1731.97 crores in the year 1982-83 as against
Rs.1444.27 crores in the previous years. During the
year 1982-83^ the highest amount was paid by CIL to the
employees remuneration and benefits of Rs.903.03 crores
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which was 47.86 percent of the total expenditure whereas
in the previous year it was 50.95 percent.
In the year 1983-84, the total CIL losses were
Rs.242.68 crores which was an increase of Rs.237.32
crores from the previous years. The continued losses
carried to the Balance sheet were Rs.1108.07 crores
during the year i983-84, which showed an increase of Rs 266.19 crores from the previous year CIL received Rs.1992.03 crores for the net sale which was 89 percent
of the total CIL income for the year 1983-84 as against
92 percent in the previous year where as the CIL spent
much more amount on employees salaries and benefits of
Rs.1185.71 crores which was an increase of Rs.282.68
crores from the previous year. The total earning of the
CIL during the year 1982-83 was Rs. 2238.22 crores
whereas the total expenditure for the same was
Rs.2480.90 crores. Therefore, the total loss was
Rs.242.68 crores.
During the year 1984-85, CIL increased the losses
of Rs.78.03 crores, showing an improvement in the
performance of CIL because of the total losses for the
previous year was Rs.242.69 crores. The total earnings
for the year was Rs.2722.80 crores whereas the total
payment and expenditure were Rs.2800.83 crores. All the
subsidiaries except ECL and BCCL were showing profit for
60
their respective companies. The highest profit earned
by CCL of Rs.9.64 crores followed by NEC including stock
yards Rs.8.22 crores, WCL Rs.6.94 crores and CMPDIL
Rs.0.95 crores (See table No. IV-19). The loss incurred
by BCCL was Rs.90.12 crores and ECL Rs.13.66 crores.
The total losses increased by the CIL subsidiaries was
Rs.103.78 crores whereas the total profit earned by the
CIL subsidiaries were Rs.25.75 crores, therefore the
total loss for the CIL was Rs.78.03 crores.
CIL and its subsidiaries incurred a loss of
Rs.404.18 crores during the year 1985-86 compared to
the loss of Rs.78.03 crores from the previous year. The
increase in losses during the year 1985-86 compared to
the previous year was mainly due to the increase in
wages on account of annual increament, the impact of
increasing the ceiling for exgratia payment in lieu of sector
Public .(Bonus from Rs.750/- to Rs.l600/- and eligibility
limit from Rs.l600/- p.m. to Rs.2500/- p.m. and also
increase in consumer price index average from 572 points
for 1984-85 to 603 points for 1985-86 increase in
railway freight and passenger fares, price escalation
of stores and spares, increase in power tariff, heavy
rehandling of coal stocks in some areas and additional
provision against Coal stock for deterioration due to
i
TABLE IV-19 PROFIT AND LOSS CF OL M ) ITS SUBSIDIARIES
(1984-85 - 1985-86) (Rs. in crores)
1984-85 1985-86* Cumulative profit loss upto 31.3.1986
ECL -13.66 -69.97 -719.58
BCCL -90.12 -159.36 -788.15
CCL 9.64 -83.24 53.89
WCL 6.94 -99.05 -105.54
CMPDIL 0.95 1.62 2.90
NEC (including stock yards) 8.22 5.82 -103.87
TOTAL -78.03 -404.18 @ -1659.35
* Before creation of Investment Allowance Reserve etc.
@ if we consider the balance of contribution in CPRA of Rs.48.45 crores (as per para-19), the adjusted loss for 1985-86 will be Rs.355.73 crores.
Source: Annual Reports and Accounts of CIL, Calcutta, 1985.86, p.52.
;6 2
fire and longer period of stocking etc. The total CIL
earnings for the year 1985-86 were Rs.2852.24 crores
whereas the total peyment and expenditure were of
Rs.3256.42 crores. All the subsidiaries of CIL except
CMPDIL and NEC incurred losses. The highest losses
incurred by BCCL of Rs.159.36 crores followed by WCL
Rs.99.05 crores, CCL Rs.83.24 crores, ECL Rs.69.97
crores. The profit making subsidiaries are CMPDIL of
(RS.1.62 crores) and NEC Rs.(5.82 crore^.
During the year 1987-88, the CIL and its
subsidiaries incurred a loss of Rs. 331.75 crores
compared to the loss of Rs.404.18 crores in the previous
years. The highest loss was incurred by ECL Rs.142.19
crores which was an increase of Rs.72.22 crores from the
previous years. The cumulative loss of the same was
Rs.861.77 crores upto 31.3.1987. The CIL's highest
losses came from BCCL of Rs.875.86 crores upto 31.3.1987
whereas the losses of the same during the year 1986-87
was Rs.87.17 crores against Rs.159.36 crores in the
previous years. Only CMPDIL earned a profit of Rs.1.21
crores as against 1.62 crores in the previous years.
The commulative profit of Che same upto 31.3.1987 was
Rs.3.48 crores. The total earnings of the CIL was
Rs.3213.44 crores whereas the total payments and
283 4
expenditure for the same was Rs.3545.19 crores.
Therefore, the total loss for the year was Rs.331.75
crores and the cumulative losses carried to the Balance
sheet for the year was Rs. 2033.72 crores. As per the
CIL's clearification, the losses for the year was due to
the increased input cost mainly the provision for
interim relief to executives and non-executives
Rs.198.47 crores approx.
CIL reached its losses in the year 1987-88 by
over 100 crores from Rs.331.75 crores in 1986 87 to Rs.
.65 crores. With this CIL's accumulated losses stand
at Rs.2,259.75 crores. The relation was attribnuted to
many factors which include improved equipment
utilisation. Productivity and application of scientific
norms, laid in many cases for consumption of stores. In
1987-88 two subsidiaries, have L^ined the corner, namely
WCL and SECL, while CMPDIL maintained its positive
growth with a marginal increased to Rs. 1.44 crores
against Rs. 1.21 crores in 1986-87. WCL and SECL earned
profits of the order of Rs.8.22 crores and Rs.21.48
crores respectively against previous year's losses of
Rs.0.68 crores and Rs.30.06 ckrores respectively. Other
subsidiaries, however continued to inctirr losses while
ECL's losses were substantially reduced to Rs.48.74
26 4
crores from Rs.142.19 crores in 1986-87, in the case of
BCCL the situation worsented from loss of Rs.87.71
crores to Rs.112.01 crores. Similarly CCL registered a
loss of Rs.90.42 crores against Rs.68.67 crores in
1986-87. NCL did not lag behind its loss which
increased to Rs.3.23 crores against the previous years
loss of Rs.1.48 crores. CIL was, however, successful in '
reducing the loss of NECL including stock yards
operation and the loss was reduced to Rs.1.37 crores
from Rs.2.16 crores in 1986-87. All these led to an
overall decrease in the loss at Rs.224.64 crores against
1986-87's loss of Rs.331.75 crores before provision for
income tax. The total earning for the year was
Rs.3804.01 crores and the total expenditure for the same
was Rs 4028 65 crores. The highest income received by
way of net sales of Rs. 3424.01 crores and the highest
payment was done for employees remuneration and benefits
of Rs 1689.76 crores.
CIL's losses were limited to about Rs.23.26
crores during the year 1988-89 against the budget
estimate of Rs.270 crores and the actual loss of
Rs.224.64 crores in 1987-88. As per the CIL's spokemen
the loss for the year 1988-89 of Rs.23.26 crores was
after providing for the impact of NCWA-IV for the period
of 1.1.1987 to 31.1.1989 amounting to Rs.310 crores
(approx.) The improvement in profitability during the
year was mainly due to increase in production by 12.5
million tonnes compared to previous years, better
productivity, better unit revenue and the increase in
price of coal. Half of the subsidiaries were making
profit and another half were making losses (See Table No
IV-20). The profit making subsidiaries were ECL, CCL,
NCL and CMPDIL of Rs.33.75 crores, Rs.6.41 crores,
Rs.3.57 crores and Rs.2.42 crores (before provision of
income tax and investament allowance reserves)
respectively. The loss making enterprises were BCCL,
WCL, SECL and NEC including stock years of Rs.5.19
crores, Rs.15.93 crores, Rs.47.56 crores (before
provision for income tax and ivestment allowance
reserves) and Rs. 0.73 crores respectively. All the
subsidiaries incurred the comulative losses upto
31.3.1989 except CMPDIL. The cumulative losses of ECL
was Rs.876.76 crores, BCCL Rs.993.06 crores, CCL
Rs.134.87 crores, NCL Rs. 25.14 crores, WCL Rs.112.93
crores, SECL Rs.81.22 crores and NEC including stock
yards Rs.108.13 crores. The cumulative profit made by
CMPDIL was Rs.6.34 crores. The CIL's total earnings for
the year was Rs.4771.49 crores whereas the total payment
and expenditure was Rs.4794.75 crores.
766
TABLE IV-20 PROFIT AND LOSS OF CIL AND ITS SUBSIDIARIES
(1988-89 to 1989-90)
(Rs. in crores)
Company 1989-90 1988-89
ECL
BCCL
CCL
NCL
WCL
SECL
CMPDIL
NEC including stock yards
(+) 76.43
(+) 51.33
(+) 10.76*
(+) 2.10"
(-) 30.94
(-) 32.32
(+) 2.42*
(+) 0.35
+) 33.75
-) 5.91
+) 6.41
+) 3.57
-) 15.93
-) 47.56
+) 2.42
-) 0.73
Total Coal India Ltd. (+) 80.13* -) 23.26
* Before tax provision for Rs.3.87 crores (CCL, NCL and CMPDIL) and Investment allowance Reserve of Rs.0.08 crores (CMPDIL).
Source: CIL, Annual Reports and Accounts, 1989-90, Vol. I, Calcutta, p.12.
;.6 7
During 1989-90 CIL made a profit of Rs.80.13
crores. This was after the seven years of losses. In
the year 1990-91, CIL made a profit of Rs.5.63 crores.
All subsidiaries of CIL made profit during the year
1989-90 except WCL and SECL, the losses of these
subsidiaries were Rs.30.94 crores and Rs.32.32 crores
respectively which was an increase of Rs.15.10 crores
and Rs.15.24 crores respectively. The highest profit
was earned by ECL of Rs.76.43 crores which has an
increase of Rs.42.68 crores from the previous years, the
other profit making subsidiaries were BCCL of Rs.51.30
crores and NEC including stock yards was Rs.0.35 crores.
The profit before tax provision and investment
allowance reserve was for CCL Rs. 10.76 crores» NCL
Rs.2.10 crores and CMPDIL Rs.2-42 crores. The total
earnings for the year was Rs. 5249.54 crores and the
losses for the same was Rs,5169.41 crores, therefore,
the profit for the year was Rs.80.13 crores. The
highest earnings received by CIL was from net sales of
Rs.4819.03 crores as against 4188.42 crores in the
previous year and the highest payment and expenditure
was done by the CIL during the year on employees
remuneration and bendfits of Rs.2212.10 crores as
against Rs.1998.27 crores in the last year. The
268
cumulative losses carried to the Balance sheet were
Rs.2249.59 crores.
Financial Structure of Coal India Limited
CIL is a holding company having seven
subsidiaries in its operation. It is a public sector
enterprise managed by the Central government. For its
running the central §^overnment provides finance by way
of budgeting support. The budgetary support from the
government for capital expenditure has declined sharply
from 96 percent in 1987-88 to 73 percent in 1989-90 and
its lowest at 31 percent during 1990-91. In order to
meet the resource gap, for the first time since their
existance, CIL has taken resources from the market
borrowings. Bonds both 9 percent (tax free) and 13
percent (tax able) worth Rs.200 crores has been
subsided by nationalised banks on a private placement
basis. CIL has also floated a public deposit scheme
which is open for subscription. The yeax^wise Financial
structure and the financial position of CIL is giving in
the following pages.
During the year 1975-76, the equity of the CIL
was Rs. 377.41 crores. CIL holds the loans from the
government of India including over due interest was
tj u,
270
Rs.343.01 crores and the capital employed was Rs.534.39
crores. The Debt: equity ratio of the company was 0.91
and the gross margin to Capital employed was 1.5 percent
(see Table No.IV-21). In the year 1980, the equity of
the CIL jumped to Rs.803.16 crores which has an increase
of Rs.425.75 crores from 1976. The loan from government
of India including over due interest reached to
Rs.964.88 crores as against 343.01 crores in 1976. The
debt-equity ratio was 1.20 whereas it was 0.91 in 1976.
The capital employed increased to Rs.393.72 crores as
against Rs.534.39 crores in 1976- The gross margin to
capital employed was 2.2 percent as against 1.5 percent
in 1976.
In the year 1982 the equity of the CIL was
Rs.1286.89 crores whereas it was Rs.377.41 crores in the
year 1976. The net worth for the year 1982 accounted
for Rs 548.35 crores. The loans from government of
India including over due interest was Rs.1453.45 crores
as against Rs.964.88 crores in 1980. The total loans of
CIL for the year 1982 was Rs.1453.45 crores • As far as
the financial ratios of CIL are concerned the debt
equity ratio of CIL for the year 1982 was 1.13 as
against 1.20 in 1980 - The net worth equity was 0.43,
current Asset to current liabilities was 1-66. The
C/3 O r-l f-< on 08 < H ^ hJ < I—I o 2 < 2
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ratio for Gross margin to capital employed was 12.45
percent whereas it was 2.2 percent in 1980 and the ratio
for the net profit to capital employed was 0.35 percent.
(See table No.IV-22).
During the year 1983.84, the share capital of the CIL
and its subsidiaries was Rs.1913.47 crores and the
reserves and surplus were Rs.131.56 crores. The total
share holders fund was Rs.936.96 crores. The secured
and unsecured loan were Rs.174.63 crores and Rs.2230
crores respectively. The current liabilities were
Rs.1093.86 crores. The total liabilities of the CIL and
its subsidiaries was Rs.4654.54 crores during 1983-84
(See table No.IV-23). The Debt: Equity ratio was 0.09:1
in 1983-84. The Net worth: Equity ratio was 0.54 in the
year 1984. The ratio of current Asset: current
liabilities was 1.62 as against 1.80 in the year 1983.
The percentage of gross margin to capital employed
declined by 9.05 percent from the previous years and the
percentage of net profit to capital employed as (-)9.29
percent. In year 1984-85 it reached to Rs.2460.70
crores which has an increase of Rs.547.23 crores from
the previous year of an increase of 28.59 percent from
the previous year. The erserve and surpluses was of
Rs.162.49 crores an increase of Rs.30.93 crores from the
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274
TABLE IV - 23
CONSOLIDATED ASSETS & LIABILITIES OF COAL INDIA LTD AND ITS SUBSIDIARIES
a983-84 to 1985-86)
(Rupees in Crores)
WHAT OWED 1983-•84 1984-•85 1985-86
Share Capital 1913, .47 2460, .70 2942 .69 Reserves & Surplus 131. ,56 162, ,49 206 .82
2045. .03 2623, .19 3149 .51 Profit & Loss Account (-)1108, .08 (-)1215, .86 (-)1659 .35 Total Shareholders Fund 936. .95 1407, .33 1490 .16 Secured Loan 174, .63 131, .98 83 .04 Unsecured Loan 2230. .92 2503, .81 2908 .60 Due to Govt.of India 218 .18 95 .99 69 .62 Current Liabilities 1093 .86 1066 .35 1210 .81
4654, .54 5205, .46 5762 .23
WHAT OWNED
Fixed Assets (Net of Depreciation) 1763.98 Capital work-in-progress 649.56 Investment 0.35 Inventories 760.73 Sundry Debtors 379.18 Cash & Bank balances 235.23 Other Current Assets 30.05 Loans & Advances 832.87
2082.76 786.57
0.35 900.60 377.46 121.81 31.64
901.88
2629.16 834.09
0.16 892.43 399.55 118.68 33.23
849.86
MISCELLANEOUS EXPENDITURE 2.59 (To the extent not written off or adjusted)
4654.54
2.39
5205.46
5.07
5762.23
Source : Compiled & Computed from Annual reports and Accounts 1985-86, Coal India Ltd., Calcutta.
;6 2
previous year. The total share holders fund jumped to
Rs.1407.33 crore as against 936.95 crores in the
previous year. The secured loan, unsecured loan and
current liabilities were Rs.131.98 crores, Rs.2503.81
crores and Rs.1066.35 crores respectively. The fixed
assets and loans and advance accounted for Rs.2082.76
crores and Rs.901.88 crores respectively. The debt
equity ratio of the company was 0.85:1 in 1984-85. The
ratio of net worth: Equity was 0.59 as against 0.54 in
the previous year. The ratio of current assets:current
liabilities was 1.70 were as the equity capital and net
worth was Rs.2556.69 crores and Rs.1503.32 crores
respectively for the CIL during the year 1984-85.
As per the CIL Balance sheet as at 31st March
(see Table No.IV-2 4), the share capital of CIL was
Rs.294269.55 lakhs. The structure of share capital was
Rs.3,00,000.00. Equity share of Rs.lOOO/- each in which
the issued, subscribed and paid up capital was 2,69.61,690
Equity shares of Rs.lOOO/- each fully paid in cash
Rs.269616.90 lakh and .24,65,265 equity shares of
Rs.lOOO/- each were alloted as fully paid up for
consideration received in other than cash Rs.24652 65
lakhs. Therefore the share capital was Rs. 294769.55
lakh. The reserves and surplus for the year 1985-86 was
76 TABLE IV - 24
CONSOLIDATED BALANCE SHEET CIL AS AT 31st MARCH, 1986.
31.3.1986 (Rs.in Lakhs)
31.3.1985 (Rs.in Lakhs)
Funds Employed Shareholders' Funds
Share Capital Reserves & Surplus
29A269.55 411.67
Due to Government of India Loan Funds
Secured Unsecured
3053.55 288515.73
246069.55 294681.22 12.09 246081.64
6961.56 9598.54
5789.00 291569.28 248289.37 254078.37
Total Funds Employed 593212.06
Application of Funds Fixed Assets Gross Block 4139.20 Less: Depreciation 1183.83
Net Block 2955.37 Capital-work-in-progress 3578.07 Expenditure during construction awaiting allocation 1285.02 7818.46
509758.55
3390.97 865.62
2525.35 2498.85
899.48 5923.68
Investment Purchase consideration pending adjustment
Current Assets,Loans & Advances
Inventories Sundry Debtors Cash & Bank Balances Other Current Assets Loans & Advances
Less'.Current Liabilities and Provisions Net Current Assets 5.94
Miscellaneous Expenditure (To the extent not written off or adjusted) Profit & Loss Account
Total Assets
1714.74 456.10 300.29
2497.85 404312.21 409281.19
10520.79
164800.56
11175.52
399030.40
1271.36 337.63 402.29
2420.32 362110.81 366542.41
8268.69
10387.12 593212.06
123804.20
11175.52
358273.72 499177.12
10581.43 509758.55
SOURCE: Compiled from Annual Reports and Accounts 1984-85 & 1985-86, Coal India Ltd., Calcutta.
277
Rs.411.67 lakh in which Rs . 18.65 lakh was as the funds
received during the years. The amount due to government
of India was Rs.6961.58 lakhs in which Rs.4800 lakhs was
as the amount received by CIL from government of India
towards equity. The secured and unsecured loan as on
31.3.1986 were Rs.3053.55 lakh and Rs.288515.73 lakh
respectively. Therefore, the total funds employed for
the year were Rs.593212.06 lakhs which represents the
liability side of the Balance sheet. On the assets side
of the Balance sheet. The Gross Block was Rs.4139.20
lakhs, the current Assets, Loans and advances were
Rs.409281.19 lakhs and current liabilities and
provisions were Rs.10250.79 lakhs Therefore, net
current assets were Rs.499030.40 lakhs. The capital
structure of the company showed that the debt equity
ratio of the company was 0-84:1 in 1985-86 whereas it was
0.85:1 in 1984-85. The reserves and surpluses Rs.411.67
lakhs amounted to (a) 0.069 percent of the total
liabilities in 1985-86 as against 0.002 percent in
1984-85 (b) 0.137 percent of equity capital
Rs.3,01,231.11 in 1985-86 as against 0.005 percent in
1984-85. The percentage of current assets to total net
asset was 72.88 percent in 1984-85 whereas it came down
to 69.63 percent in 1985-86. The percentage of current
assets to current liabilities including provisions was
26 4
914.83 whereas it was 962.12 in the previous years.
During the year 1986-87 the CIL Balance sheet as
at 31st March 1987 showed that the share capital of CIL
was Rs.3,50,769.55 lakh (see table No.IV-25). The
authorised capital of CIL rose from 3,00,000.00 lakhs to
5,00,000.00 lakhs in the year 1986-87, the issued,
subscribed and paid up capital was as 3,26,11,690 equity
shares of Rs.lOOO/- each fully paid in each of
Rs.2,36,116.90 lakhs and 24,65,265 equity shares of
Rs.lOOO/- each allotted as fully Rs.24,652.65 lakhs.
Therefore the total share capital for the year 1986-87
was Rs.350769.55 lakhs . CIL received the amount and/or
consideration against equity pending allotment of
Rs.518.26 lakhs in which funds from government of India
towards equity was Rs.1300.00 lakhs. The reserves and
surpluses for the year amounted to Rs.344.77 lakhs. The
secured loans for the CIL was Rs.13613.31 lakhs in which
Rs.126,75.49 lakh for State Bank of India and Rs.937.82
lakhs for United Bank of India. The unsecured loans for
the year was amounted Rs.299364.75 lakhs. This was the
mixture of the long term loan from government of India
Rs.271562.34 lakhs and the interest accured and due of
Rs.27802.41 lakhs. The debt equity ratio of the company
was 0.76:1 in the year 1986-87.
. 19
TABLE IV - 25 CONSOLIDATED BALANCE SHEET OF CIL
AS AT 31st MARCH 1988
Sources of Fund Shareholders Fund
Share Capital Amount and/or consideration received against equity pending allotment Reserve & Surplus
408710.29
3323.63 344.77
Loan Fund Secured 16936.30 Unsecured 367017.99
Total Funds Employed
Application of Funds
Fixed Assets A. Fixed Assets
Gross Block 5523.25 Less:Dep. 1876.67
B. Capital work-in-progress C. Expenditure during
construction period Investment Current Assets,Loan &
Advances Inventories 2509.96 Sundry Debtors 290.31 Cash & Bank Balances 541.30 Loans & Advances 530513.16
533854.73 Less:Current Liabilities & Provision 16928.55
Net Current Assets A. Miscellaneous Expenditure
(to the extent not written off or adjusted) 221.49
B. Profit & Loss Account 10740.10
31.3.1988
412378.69
383954.29 796332.98
3646 58
6857.52
2387.51 255553.60
516926.18
10961.59 796332.98
(Rupees in Lakhs)
31.3.1987
350769.55
5180.26 344.77
13613.31 299364.75
356294.58
312978.06 669272.64
4830.76 1542.93 3287.83
5519.65
1764.27 255238.37
2257.00 533.09 475.60
409980.74 413246.43
20601.66 392644.77
214.50 10603.25 10817.75
669272.64
Source : Compiled from the Annual reports and Accounts 1986-87 & 1987-88, Coal India Ltd., Calcutta.
The percentage of current
assets to current liabilities including provision
declined from 914.83 in 1985-86 to 853.54 in 1986-87 and
the percentage of quick assets (cash and bank balances,
debtors and advances) to current liabilities (excluding
provisions) varied from 3.31 in 1985-86 to 3.22 in
1986-87.
The authorised capital of CIL for the year 1987-88 was
Rs.5,00,000 lakhs. The issued, subscribed and paid up
capital was in the form of 383.01,690 equity shares of
Rs.lOOO/- each fully paid in cash was Rs.383016.90 lakhs
and 25,69339 equity shares of Rs.lOOO/- each allotted as
fully paid up for consideration received other than cash
was Rs.25693.39 lakhs. Therefore, the total share was
Rs.408710.29 lakhs. The amount and/or consideration
received against equity pending allotment was Rs.3323.63
lakhs in which the funds from the government of India
towards equity was Rs.3323.63 lakhs in which the funds
from the government of India towards equity was
Rs.3323.63 lakhs. The reserve and surplus for the year
amounted to Rs.344.77 lakhs. It was the same as it was
in the previous year. The secured loans was Rs.16936.30
lakhs in which the share of State Bank of India was
2cSl
Rs. 16037.29 lakhs and that of United Bank of India was
Rs.899.01 lakhs. The long term loan from government of
India was Rs.309013.25 lakhs and the interest accured
and due was Rs.58004.74 lakhs. Therefore, the total
unsecured loans was Rs.367017. 99 lakhs. The total fund
employed or, the total of the liabilities was
Rs.796332.98 lakhs. The debt equity ratio of the CIL
was 0.79:1 as against 0.76:1 in the previous years. The
reserve and surplus (Rs.344.77 lakhs) amounted to (a)
0.042 percent of total liabilities in 1987-88 as against
0.05 percent in 1986-87. 0.084 percent of equity
capital (Rs.412033.92 lakhs) in 1987-88 as against 0.097
percent in 1986-87. The percentage of current assets to
current liabilities Including provisions declined from
853.54 in 1986-87 to 712.44 in 1987-88. The percentage
of quick assets (Cach and bank balance, debtors and
advances) to current liabilities (excluding provisions)
varied from 3.22 in 1986-87 to 4.17 in 1987-88.
The authorised capital of the CIL rose from
Rs.5,00,000 lakhs to Rs. 6,00,000 lakhs in the year
1988-89. The 4,50,56,188 equity shares of Rs.lOOO/-
each fully paid in cash was Rs.450561.88 lakhs and
25,69339 equity shares of Rs.lOOO/- each alloted as
fully paid up for consideration received other than cash
was Rs.25693.39 lakhs. Therefore the share capital of
the CIL as at 31st March 1989 was Rs.476255.27 lakhs
(see table No.IV-26). The amount and/or consideration
received against equity pending allotment was Rs.160.62
lakhs. Reserve and surplus was the same as the previous
year i.e. Rs.344.77 lakh. The share of State Bank of
India of Rs. 11596.29 lakh and Punjab National Bank of
Rs.76.99 lakh was in the total secured loans and unsecured loans was
Rs. 392469.37 lakhs in which the long term loan from
government of India was Rs.331960.45 lakhs. Therefore,
the total liabilities was Rs.90695.11 lakhs as against Rs.
813261.53 lakhs in the previous year. The debt equity
ratio of the company was 0.07:1 whereas it was 0.79:1 in
the previous year. The reserve and surplus Rs.344.77
lakhs amounted to 0.038 percent of the total liabilities
in 1988-89 as against 0.042 percent in 1987-88. The
equity capital was 0.072 percent of the total
liabilities. The percentage of current assets to total
net assets was 52.55 in 1988-89 as against 65.64 was in
1987-88. The percentage current assets to current
liabilities including provision declined from 712.44 in
1987-88 to 622.52 in 1988-89. The percentage of quick
assets (cash and bank balances, debtors and advances) to
current liabilities (excluding provisions) varied from
4.17 in 1987-88 to 4.96 in 1988-89. The capital
employed was Rs.40415.05 lakhs and net worth was
-B3
TABLE IV - 26 CONSOLIDATED BALANCE SHEET OF CIL
AS AT 31st MARCH 1990
31.3.1990
SOURCES OF FUND Shareholders Fund
Share-Capital 522182.14
Amount and/or consideration received against equity pending allotment 204.26
Reserve & Surplus 344.77
Loan Fund Secured 41716.86 Unsecured 466647.47 508364.33 Total Funds Employed 1031095.50
APPLICATION OF FUNDS Fixed Assets A. Fixed Assets
Gross Block 8205.08 6406.52 Less:Dep. 2762.51 5442.57 2274.00
B. Capital work-in-progress 9397.05 C. Expenditure during
construction period 3186.85 Investment 484416.70
(Rupees in Lakhs)
31.3.1989
476255.27
21673.28 392469.37
Current Assets,Loans & Advances Inventories 3995.66 Sundry Debtors 415.15 Cash & Bank Balance 1631.78
Loans & Advances 528312.67 53.26 476573.25
Less: Current Liabilities & Provision 18983.40
Net Current Assets 515371.86
A. Miscellaneous Expenditure (to the extent not written off or adjusted) 2501.78
B. Profit & Loss Account 10778.69 13280.47 1031095.50
Source : Compiled from Annual reports and 1989-90 Coal India L t d C a l c u t t a .
3881.68 403.89 758.50
471529.18
16046.80
160.62
344.77
414142.65 890903.31
4132.52
9373.83
3268.53 402458.08
460526.45
330.62 10813.28 11143.90
890903.31
Accounts 1988-89,
Rs.465616.76 lakhs.
During the year 1989-90, the authorised capital
of the company was Rs.6,00,000 lakhs. The company's
issued, subscribed and paid up capital was in the form
of 4,96,48,875 equity shares of Rs.lOOO/- each fully
paid in cash was Rs.4,96,488.75 lakhs and 25,69,399
equity shares of Rs.lOOO/- each allotted as fully paid
up for consideration received other than cash was of
Rs,25,693,39 lakhs. Therefore, the paid up capital
(including amount due to government of India) to be
adjusted against issue of stores was Rs.5,22,386.40
lakhs. The reserve and surplus was the same as the last
three years. Rs.344.77 lakhs. On the borrowing side of
the company. The secured loans were of Rs.41716.86
lakhs. The share of state Bank of India, Pubjab
National Bank, Union Bank of India and Canara Bank was
Rs.20140.22 lakhs, Rs.2966.42 lakhs, Rs.1403.55 lakhs
and Rs.0.24 lakhs respectively. Term
loan from ONGC (secured against guarantee given by
government of India) was of Rs.10,000.00 lakhs. Terms
loan from Pubjan National bank (secured against fixed
deposit) was Rs.7000.00 lakhs and the interest accrued
and due was Rs.206.43 lakhs. The unsecured loans
amounted to Rs.466647.47 lakhs in which the long term
2cl5
loan from government of India was Rs 374459'58 lakhs
Short term loan from Neyveli Lignite Corporation Ltd
was of Rs 2500*00 lakhs. 13 percent Non-convertible
secured Bonds Rs.5000.00 lakhs . 9 percent
Non-convertible (tax free) secured Bonds of Rs 15000.00
lakhs (Both to be secured equitable mortagage
hypothecation of fixed Assets of Northen coalfields
Ltd ). Public deposits Rs.1098.12 lakhs and interest
accrued and due on government loan was Rs 68589.77
lakhs. The total of the liabilities or the total funds
employed was Rs.10,31,095.50 lakhs as against
8^90^903.31 lakhs in the previous years . The capital
employed was Rs 452018.23 lakhs and the net worth was
Rs.509450'70 lakhs. The debt equity ratio of the
company was 0.76:1 in 1989-90 as against 0-07:1 in the
previous year . The reserve and surplus Rs 344.77 lakhs
amounted to 0*033 percent of total liabilities in
1989-90 as against 0,038 percent in 1988-89. The
percentage of current assets to total net assets was
Rs.50.89 in 1989-90 as against 52-55 in 1988-89 • The
percentage of current assets to current liabilities
including provisions declined from 622.52 in 1988-89 to
608.75 in 1989-90 • The percentage of quick assets (cash
and bank balances ^ debtors and advances^ to current
liabilities (excluding provisions) varied from 4«96 in
to6
1988-89 to 14.00 in 1989-90 .
The financial structure of the CIL shows that the
company is financially stable and is trying its best for
more stability. For the first time, CIL has issued
Rs.200 crores worth Bonds to nationalised Banks/their
subsidiaries on the private placement basis, Rs.50
crores, 13 percent non-convertible secured Bonds
redeemable at par in December 1996 and Rs.l50 crores 9
percent (tax - free) non-convertible secured bonds
redeemable at par in March 2000. During the year
1989-90, CIL has invited deposits from Public deposits
and an amount of Rs.10.98 crores has been received. The
foreign assistance through IBRD has also been made
available to the CIL of the expansion of its working.
CONCLUSION
In conclusion of this chapter it may be observed
that the financial performance of Coal India Limited is
quite in line with the performance of the whole public
sector of the country. The financial structure of the
company also indicates that the financial problems as
examined in this chapter present an alarming trend. The
profitability ratios in the company are indicative of
the financial sickness in the unit. Though there is
2ol
improvesment in the gross margin Co total capital
employed and gross margin to net sales during the period
1976-1989, the overall financial position of this
company is very. weak. There is a need to overcome
these problems of finance faced by the Coal India
Limited. The government should come forward with
certain positive steps in this direction. In the last
chapter, therefore, an assessment of the financial
structure of the public sector enterprises in the
country in general and Coal India Limited in particular
will be attempted. The chapter will contain the main
findings and conclusioins of this study.
C H A P T E R - V
CONCLUSIONS AND FINDINGS
In the preceding chapter, the organisation and
working of Coal India Limited has been analysed with the
help of some parameters. The financial structure of the
company has also been examined. It is found that the
financial structure of the company is quite alarming in
the sense that the company is incurring huge losses. It
is all due to some lacunae in its overall working. In
the present chapter, an attempt has been made to present
the conclusions and findings of the study. Some
suggestions have also been made for better functioning
of the public sector enterprises in general and Coal
India Limited in particular with reference to their
financial structure.
Public sector has emerged as a major tool for
industrial development of our country. The countries
which were the champions of the Laissez Faire policy
have realised the importance of state intervention in
the economic affairs of the nation. Public sector's
presence has been felt in other developing countries in
the Third world and the developing countries of the
World also. Public sector is operating and working in
the developing countries such as in Somalia, Zambia,
Bangla Desh, etc. Public sector is also found in
industrially developed countries like France, Germany,
Japan^the U.K.,Italy, Canada^the U.S.A. etc.
2b 9
After the attainment of independence, the
Government of India paid much attention towards the
expansion and development of industries of the country
and special emphasis was given to the development of
public sector.
The basic objective for which a public enterprise
is set up is social benefit rather than profit. In
India, the twin primary objectives of public enterprises
are the augmentation of production and mobilisation of
resources for further economic development. The public
sector has thus become an essential feature and dynamic
instrument for achieving socialism. The socialistic
pattern of society which has been accepted as a national
goal and which promises an equitable standard of living
for the vast majority of masses, has to serve fully and
justly the cause of economic progress. While there may
be still many flaws in the functioning of the public
sector, there is suficient evidence to prove that
without the public sector, it may not have been possible
to build the versatile infrastructure in different
spheres of national life which we witness today. If
poverty is to be banished and if each citizen is to have
and enjoy a basket of minimum essentials of life i.e.
food, shelter, clothing etc. there is an urgent need to
set up production of goods and services relevant to the
needs of the masses.
2 4
The development strategy of the public sector in
the country started after the launching of the five year
plans. In 1950, there were only 5 Central public
enterprises of industrial and commercial sector other
than departmental undertakings and financial
undertakings with a modest investment of Rs.29 crores.
The expansion and development of public sector
enterprise was started after the lunching of the Second
Five Year Plan. In the Second Five Year Plan, the plan
outlay for the public sector was 59.74 percent of the
total plan outlay and in the Seventh Five Year Plan it
reached to Rs.1,80,000 crores which was 51.70 percent of
the total plan outlay. The total contribution from
public enterprises in the Seventh Five year Plan at
1984-85 price was Rs.35,485 crores in which Railways
contributed Rs.4,225 crores and other Central
enterprises Rs.31,500 crores and the state enterprise
contributed only 15 crores. This shows that the
contribution of the public sector enterprise in the
Seventh Plan was much higher in comparison to other
sectors of economy.
On the production side, public sector enterprise
contribute a lot to the economy of the country. Today,
apart from the entire core sector, most of the basic and
strategic industries considered so vital for economic
security and national self-reliance are in the public
sector. Equipment needs of sectors like Railways,
Telecommunication, Nuclear power. Defence etc. have
also been entrusted to the public sector. Public sector
accounts for nearly 100 percent of lignite production,
100 percent of copper and lead, 100 percent telephones
and teleprinters, 98 percent of coal, 85 percent of
zinc, 46 percent of nitrogenous, 40 percent of saleable
steal, 30 percent of phosphatic fertilizers and 25
percent of aluminium. The production of raw coal during
the year 1958-59 was less than 10 million tonnes in the
public sector which secured to 3.98 million tonnes in
1968-69, Now the production of coal under public sector
reached to 178.59 million tonnes in the year 1989-90.
The production of nitrogenous fertilizer was 3.91 lakh
tonnes in the year 1968-69, it jumped to 18.45 lakh
tonnes in 1984-85 whereas it was only less than one lakh
tonnes in 1958-59. During the year 1984-85 the highest
production under public sector was reported from
aluminium of 87,358 tonnes. It is noticeable that till
1968-69, there were no production of aluminium under
public sector. The increasing trend also witnessed by
zinc metals by the production of 50,795 tonnes in
1984-85 whereas it was 13,670 tonnes in 1968-69. The
production of copper metal was reported at 41,021 tonnes
in 1984-85 but till 1968-69 there were no copper metal
production under public sector.
During the year 1985-86, the cumulative
production of 33 manufacturing public sector units was
valued at Rs.3846.25 crores as against Rs.3274.29 crores
in the previous year. This was 95 percent of the target
of Rs.4041.78 crores which recorded a growth rate of 18
percent during 1985-86. The production during 1986-87
amounted to Rs.4,782 crores as against the target of
Rs.4,797 crores. The value of production of public
sector enterprises aggregated Rs.65,034 crores in
1986-87 of this Rs.45,520.66 crores (70 percent) was
accounted for, by the manufacturing enterprises and
Rs.19,514.09 crores (30 percent ) by the service
enterprises. The value of production represented an over
increase of 16.3 percent compound per annum /1977-78.
During the year 1987-88, the production of lignite,
petroleum, coper, primary lead and teleprinters ws 100
percent in public sector. The contribution of public
sector in the national production of steel Ingot and
Aluminium was 60.18 percent and 41.93 percent
respectively in the year 1987-88. The production of 33
manufacturing enterprises has achieved Rs.6,568 crores
in 1988-89 which was 18 percent higher than the
production of Rs.5553 crores in the previous year. The
Annual Report of the department of heavy industries for
the year 1990-91 said that the 33 undertakings recorded
2? 3
Rs.8346 crores production during the year and the
production was expected to touch Rs.10,093 crores in
1991-92. Now the government is giving much emphasis to
increase the production of public sector units and
introduce new production items in the public sector
enterprises. It is being noticed that the unit cost of
production in India is much higher as compared to the
unit cost of production for developed contries of the
World. The managers of the public sector enterprises
have to exert themselves with a great deal of sense of
adventure, managerial integrity and competence to fulfil
these obligations of producing goods and services at
competitive price and try their best to bring down the
cost of production.
The financial structure of public sector
enterprises is predominantly determined by the form of
their funding by the government. There is a budgetary
link between the government and the public enterprises
such as a link should be widely appreciated in its
proper perspective for an appraisal of the lackluster
financial performance of these enterprises and for
suggesting the means of improving it. The government
provides funds to public enterprises in the form of
equity, loans and grants. Each form has got different
budgetary effects and implication for both. Equity
represents the risk capital on which a dividend is
declared at the management's discretion. On loan,
interest is to be paid at the stipulated rate.
Interest, therefore, becomes a cost of enterprise and
has been borne with the consequent impact on its product
price which are generally administered. Consequently
its cash flow and profit position are effected as its
production has got a long gestation period. This
normally happens in the public sector. Its fixed
interest obligation becomes onerous and impairs its
ability to win new business.
As far as the financial performance and structure
of public sector enterprises are concerned, we have seen
in previous chapters that the investment in the public
sector has grown preferably over the years from a figure
of Rs.29 crores in the year 1950-51 to Rs.61643 crores
in 1986-87. The investment in top ten public sector
enterprises during the year was Rs. 34294.74 crores in
which the investment of SAIL was Rs.6415.76 crores, CIL
Rs.6275.21 crores and NTPC Rs.6147.79 crores and stood
1st, Ilnd and IlIrd in terms of investment respectively.
In the year 1988-89, the investment of the public
sector enterprises jumped to Rs.85,564 crores. The
highest investment of Rs.9384.34 crores was reported
from NTPC followed by CIL of Rs.8183.76 crores and SAIL
of Rs.7120.09 crores. As per the latest information
available for the year 1990, there were 248 public
sector undertakings with a total investment of
Rs.1,30,000 crores. The Finance Minister in his budget
speach for the year 1991-92 announced that the
government may disinvest upto 20 percent of its equity
in 47 profit making public sector undertakings in favour
of mutual funds and financial or investment institutions
in the public sector. Later on, with the change of the
government in the Centre the idea for disinvestment of
20 percent of government equity holding in selected
public sector undertakings to bring in Rs.2560 crores of
non-credit capital into the budget may be defferred.
The government has taken into consideration the foreign
investment upto 51 percent equity which may be allowed
in public sector undertakings.
The government may also allow, private equity
participation in public sector undertakings. As per the
statement of the Union Minister of Industry that in the
present circumstances, it would not be able to pump in
more funds into 200 odd public sector units where in it
had already invested Rs.1,00,000 crores. Despite this
huge investment, it was ironical that many of these
units failed to generate either wealth or surpluses.
This has created the worst financial crises ever for the
country since independence. The government preferred a
pragmatic approach and was considering to allow equity
in public sector units by financial institutions and
Industrial Houses. This would help generate capital for
the development of the units.
The generation of internal resources by the
public sector has greater importance because the
financing of the expansion and development activities of
the Central public enterprises have to depend to generate
internal resources. The gross internal resources
generated during the plan period was Rs.287 crores in
the Third plan, Rs.l260 crores in the Fourth plan,
Rs.3439 crores in the Fifth plan. The quantum of gross
internal resources generated by the public sector
enterprise was Rs.5067.95 crores in 1985-86, which
increased to Rs.8898.83 crores in 1988-89. The
resources available to public sector enterprises were
Rs.93352.29 crores in March 1987 in which the share of
loan was Rs.33285.77 crores which went up to Rs.39318.54
crores in 1988 and Rs.50877.18 crores in 1989. The
public sector enterprises utilised the resources of
Rs.39901.45 crores for plant and machinery which was the
highest for the year 1987-88. The working capital was
20.17 percent in 1987 whereas if uas 20.28 percent in
1988. The capital—work-in-progress and unallocation
31
expenditure got Second place in terms of resources
utilised in 1989. The contribution of public sector
enterprises to Central Exchequer amounted to Rs.16331
crores in 1988-89 as against Rs.2887 crores in 1979-80.
In both the years the share of Excise duty was highest
which represented 40.68 percent and 60.82 percent
respectively. The amount paid as dividents in the year
1978-79 was Rs. 72 crores which reached to Rs. 84 crores
in 1980-81 which represented 10.52 percent increase from
the previous year. During the year 1988-89, public
sector enterprises contribution to the Central Exchequer
was Rs.16331 crores in which the highest share of 40.68
percent was from Excise duty followed by 34'30 percent
from custom duty, 8.56 percent from corporate tax
provision, 2.16 percent from dividend declared and 14.28
percent from other duties.
The role of pricing is also important in the
financial performance of public sector. The pricing
policy as a measure to monitor the performance of the
public sector enterprises assumes greater significance.
Various principles are followed in the pricing of the
products of public enterprises depending on the nature
of the goods and the objective the government may keep
in view. After independence the no-profit-no-loss
principle was followed by most of the public enterprises
in our country but the government soon realised its
deficiencies and revised the pricing principle of
no-profit-no-loss.
To know a bit more about the performance of any
enterprise it is necessary to evaluate the profitability
of these enterprises that these enterprises should be
capable of earning a reasonable amount of profit but the
profitability of the public sector enterprises is quite
poor. These enterprises are incurring huge losses. In
1959-60, the rate of profit on capital was worked out at
3.5 percent for the industrial enterprises roughly
similar to the figure 3.4 percent in 1958-59. In the
year 1960-61 it was 4.1 percent in case of the
commercial enterprises. It was 3.1 percent in 1959-60
and 1.5 percent in 1960-61. On the whole, a profit of
Rs.8.13 crores was earned in 1959-60 on a capital outlay
of Rs.358 crores by 37 public enterprises. During the
year 1970-71 the Central Government enterprises incurred
a loss of Rs.3 crores whereas the net profit as
percentage of sales was -0.1 percent for the first time.
The public sector enterprises recorded a net profit of
Rs.l8 crores in 1972-73 which increased to 240 crores in
1976-77 but in 1977-78 these enterprises incurred a net
loss of Rs.91 crores. The biggest loss making
enterprises in 1978-79 were CIL Rs.212 crores. Shiping
Corporation of India Rs.33 crores, and HEC Rs.27.4
crores. In the year 1979-80, there were 169 enterprises
in operation that incurred a loss of Rs.74.29 crores.
During the year 1980-81 ^ the public sector
enterprises incurred a loss of Rs.128.68 crores and in
1981-82 these enterprises earned a profit to the tune of
Rs.618 crores which was higher by 38.6 percent or 172
crores as compared to 1981-82. From 1960-61 to 1980-81
these undertakings substained a total loss of Rs.520
crores during the 12 years and earned profit of Rs.490
crores over the other eight years. During 1985-86,
public sector enterprises have achieved highest quantum
of overall net profits of Rs.1199.35 crores. This is
after adjusting the losses incurred by some enterprises,
especially the sick nationalised units which alone
account for a net loss of Rs.257.42 crores. During
1984-85 among the top ten profit making enterprises were
ONGC, NHPC, SAIL, the Shiping Corporation of India
Limited.
Further, though the public enterprises had earned
a net profit equal to Rs.1172.44 crores in 1985-86. The
gross profit of these enterprises jumped to Rs.7112.56
crores in the year 1987-88 as against Rs.6521.13 crores
in 1986-87. In the year 1988-89 the net profit after
interest payment and taxes worked out to Rs.2980.96
crores — a clear 50 percent jump from the previous year
and in fact this was the highest ever over all net
profits earned by Central public sector enterprises.
The top ten profit making public sector enterprises
during the year 1988-89 were ONGC, IOC and SAIL that
earned Rs.2094.58 crores, Rs.676.41 crores and Rs.358.40
crores respectively and got 1st, 2nd and 3rd place
respectively in terms of their profitability. On the
other hand, out of the 103 loss making enterprises, the
Fertilizer Corporation of India Ltd, stood first in
terms of top ten loss making enterprises by incurring
the loss of Rs.191.23 crores, followed by Hindustan
Fertilizer Corp. Ltd. of Rs.156.38 crores and Indian
Iron and steel company Ltd, of Rs.119.55 crores.
The net profit earned by 233 operating public
sector enterprises during 1989-90 amounting to
Rs. 3,781.73 crores worked out to 4.06 percent of the
investment. The highest profit was earned by ONGC of
Rs.1625 crores followed by Indian Oil Corp. of Rs.521
crores and NTPC Rs.405 cror^r. "n the year 1990-91, the
net profit of these enterprises reachcd to Rs.2730.27
crores. It was, however, Rs.1,017 crores less as
compared to the previous year. The main reason for this
301
was that wages were increased substantially during the
year and thus led to a decline of net profit by about
Rs.lOO crores.
So far as the financial structure of Coal India
Limited is concerned, it is a fact that the prices of
Coal are fixed on the recommendation of various
committees constituted by the government. CIL does not
have the authority either to negotiate wages in the coal
industry or to fix or change coal price. Although 60
percent of the cost of production of coal is due to
labour, the fixation of wages in Coal industry and its
price revision have never been simultaneous with an
usual time lag of 1-3 years during the year 1975-76.
The prices of coal securred were Rs.64.92 per tonne
whereas the cost of Coal per tonne was Rs.75.66,
Rs.10.74 more than the price of Coal. The prices of
Coal jumped to Rs.101.18 per tonne in the year 1980-81
whereas the cost of production was Rs.123.45 per tonnes.
The difference between the cost of production and the
prices was Rs.22.27 crores. In the year 1985-86, the
cost of coal increased by Rs.17.44 per tonne and the
price of coal remained the same as that was in 1984-85
Rs.183.00 per tonne. During the year 1988-89, the
prices of coal increased by 13.69 percent from 1987-88
JQ 2
whereas the prices were fixed of Rs.249.00 per tonne.
The cost of coal increased by 7.84 percent in the year
1989-90 as against the cost which was Rs.244.35 per
tonne in 1988-89.
The profitability is the main concern of the CIL
because it is incurring huge losses. These losses
continued till 1980-81 but in 1981-82 CIL as a whole
earned a profit of Rs.5.63 crores. This profit remained
for a single year and in 1982-83, CIL incurred a loss of
Rs.5.34 crores. The increasing and decreasing trends of
losses for CIL continued till 1988-89 but in the year
1989-90, CIL earned a profit of Rs.80.13 crores. This
was after the seven years of losses. All the
subsidiaries of CIL made profits during the year 1989-90
except WCL and SECL. The losses of these subsidiaries
were Rs.30.94 crores and Rs.32.32 crores respectively.
As per the latest information CIL made a profit of
Rs.563 crores during the year 1990 91.
The financial structure of the company is much
better in comparison to other loss making concerns. For
its running, the Central government provides finances by
way of budgeting support. The budgeting support from
the government for capital expenditure has declined
sharply from 96 percent in 1987-88 to 73 percent in
X' 3
1989-90 and it is lowest at 31 percent during 1990-91.
The equity of the CIL was Rs.377.41 crores in the year
1975-76. CIL holds the loans from the government of
India including over due interest which was Rs.343.01
crores. The debt equity ratio of the company was 0.91.
It jumped to 1.20 in 1980 whereas the equity of the
company was Rs.803.16 crores. The equity of the
company reached to Rs.1286.89 crores in 1982. The loans
from government of India including over due interest was
Rs.1453.45 crores as against Rs.964.88 crores in 1980.
The total loans of CIL for the year 1982 was Rs.1453.45
crores. The equity ratio of the CIL calculated was 1.13^
the net worth: equity was 0.43, ratio of current asset
to current liabilities was 1.66.
In the year 1985-86, the capital structure of the
company showed that the debt equity ratio of the company
was 0.84:1 whereas it was 0.85:1 in 1984-85. The
reserves and surplus (Rs.411.67 lakhs) amounted to (a)
0.068 percent of the total liabilities in 1985-86 as
against 0.002 percent in 1984-85 (b) 0.137 percent of
equity capital (Rs.3,01,231.11) in 1985-86 as against
0.005 percent in 1984-85. The share capital of CIL as
on 31.3.1986 was Rs.294269.55 lakhs. The reserves and
surpluses for the year 1985-86 were Rs.411.67 lakhs in
3^4
which Rs.18.65 lakh was the funds received during the
year. The total funds employed for the year was
Rs.593212.06 lakhs which jumped to Rs.10,31,095.50 lakhs
in the year 1989-90. The authorised capital of the
company was Rs.6,00,000 lakhs. On the borrowing side of the
the company,/secured loans were Rs.41716.86 lakhs. The
share of State Bank of India, Punjab National Bank,
Union Bank of India and Canara bank was Rs.20140.22
lakhs, Rs.2966.42 lakhs, Rs.1403.55 lakhs and Rs.0.24
lakhs respectively. The term loan from ONGC (secured
against guarantee given by the government of India) was
Rs.10,000.00 lakhs. Terms loan from Punjab National
Bank (secured against fixed deposit) was Rs.7000.00 lakh
ofi the interest accured and due was Rs.206.43 lakhs.
The unsecured loans amounted to Rs 466647.47 lakhs in
which the long term loan from government of India was
Rs, 374459- 58 lakhs. Short term loan from Neyveli
Lingite Corporation Ltd. was of the order of Rs 2500.00
lakhs. (13 percent Non-conva^tible secured Bonds \
Rs.5000.00 lakhs.). 9 percent Non-convertable (tax-free)
secured Bonds of Rs.13000-00 lakhs (both to be secured
by equitable mortagage/hypothecation of fixed Assets
Northern Coalfields Ltd-}- Public deposits of Rs 1098,12
lakhs and interest accrued and due on government loan
was Rs 68589.77 lakhs . The debt equity ration of the
company was 0 71:1 in 1989-90 as against 0.07:1 in
1988-89.
An analysis of the Public sector enterprises
with special reference to CIL revealed unsatisfactory
long term financial strength. The proportion of net
worth was very low as compared to proportion of
long-term borrowings. This was the result of the losses
suffered by these units. A comparison of proportion of
net worth and fixed assets shows that on the whole, the
majority of fixed assets had been financed by borrowed
funds. This confirms the conclusion that long-term
financial strength of CIL was found unsatisfactory
during the course of our study. A comparison of current
assets and current liabilities reveals an unsatisfactory
short term financial strength. The debt equity ratio
and most of the public sector enterprises was lower.
There is a considerable scope for improving the
situation. CIL should try to reduce its losses and try
to build up its own funds so as to improve the
proportion of net worth It should also try to reduce
the burden of long-term borrowings. As far as possbile,
it should finance its fixed assets from its resources.
This will also reduce the proportion of Inventories.
This reduction of the proportion of inventories on the
one hand and reduction in the amount of borrowings on
3^4
the other, will effect the profitability of the Coal
India Limited positively.
It is suggested that the CIL may safely try to
decrease the quantum of working capital to some extent.
The company obtained funds from long term borrowings
while its profit generating capacity on the whole did
not support the use of long-term borrowings as a source
of funds. The company should try to obtain funds
through issue of share capital rather than borrowings
and generate sufficient funds preferably through
internal sources or from issue of share capital. It is
found that the Government of India and management of CIL
is trying its best for the financial viability and sound
financial position of the company. Recently the company
has issued bonds and thrown fixed deposit schemes to the
general public. All these are efforts in the right
direction.
. t . J , .V. .t^ JU JU
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