rbi grade b phase ii descriptive super notes: economic and social issues

RBI – Descriptive – Super-Notes © M S Ahluwalia Sirf Business

Economic and Social Issues

RBI – Grade B Exam

Phase II - Descriptive

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RBI – DESCRIPTIVE – SUPER NOTES

Economic and Social Issues





Contents

- Growth and Development

- Measurement of Growth: National Income and Per

Capita Income

- Poverty Alleviation and Employment Generation in India

- Sustainable Development and Environmental Issues.

- Economic Reforms in India

- Industrial and Labour Policy

- Monetary and Fiscal Policy

- Privatisation

- Role of Economic Planning

- Globalisation

- Opening up of the Indian Economy

- Balance of Payments

- Export-Import Policy

- International Economic Institutions

- IMF and World Bank

- WTO

- Regional Economic Co-operation

- Social Structure in India

- Multiculturalism

- Demographic Trends

- Urbanisation and Migration

- Gender Issues

- Social Justice: Positive Discrimination in favour of the

Under Privileged

- Social Movements

- Indian Political System

- Human Development

- Social Sectors in India

- Health and Education.





PRIVATISATION

x.





Privatisation

Transfer of ownership/management

from the public to private sector

Transfer of ownership/management

from the public to private sector

Withdrawal of state from an industry

Withdrawal of state from an industry

Opening up of an industry reserved for

public sector to private sector

Opening up of an industry reserved for

public sector to private sector





Problems with State Owned Entities

Economic Inefficiency Economic Inefficiency

• High production costs

• Lack of innovation

• Supply delay

Ineffectiveness in provision of goods and services Ineffectiveness in provision of goods and services

• Diversion of benefits

• Political interference

Rapid expansion of bureaucracy Rapid expansion of bureaucracy





Ways of Privatisation

ESOPs to staff ESOPs to staff Divestiture –

Privatisation through sale of equity

Divestiture – Privatisation through

sale of equity

De-nationalisation/ Re-privatisation

De-nationalisation/ Re-privatisation

Contracting – Outsourcing of services

Contracting – Outsourcing of services

Franchising – authorising delivery of

certain services in designated geographical

areas

Franchising – authorising delivery of

certain services in designated geographical

areas

Withdraw from provision of goods and

services

Withdraw from provision of goods and

services

Privatisation of management – through

leases/contracts

Privatisation of management – through

leases/contracts

Liquidation

• Formal: Closure of an enterprise

• Informal: Suspending the operations

Liquidation

• Formal: Closure of an enterprise

• Informal: Suspending the operations





Obstacles

Govt. wants to sell least profitable

enterprises

Govt. wants to sell least profitable

enterprises

Political opposition from employees

Political opposition from employees

Undeveloped capital markets Undeveloped

capital markets





Conditions for Success

Commitment of political leadership

Commitment of political leadership

Institutional arrangements should not stifle competition

among suppliers

Institutional arrangements should not stifle competition

among suppliers

Freedom of entry to provide goods and

services

Freedom of entry to provide goods and

services

Specific or measurable outcome

of services to be privatised

Specific or measurable outcome

of services to be privatised

Link between cost paid by consumers

and services received by them

Link between cost paid by consumers

and services received by them

Privately provided services should be less susceptible to

fraud

Privately provided services should be less susceptible to

fraud

Equity of benefits to the various

stakeholders

Equity of benefits to the various

stakeholders





Benefits of Privatisation

Reduces fiscal burden of the state

Reduces fiscal burden of the state

Enables government to mop up funds

Enables government to mop up funds

Trims the size of administrative

machinery

Trims the size of administrative

machinery

Enables government to concentrate on

essential state functions

Enables government to concentrate on

essential state functions

Attracts resources from private sector for development –

accelerates the pace of economic development

Attracts resources from private sector for development –

accelerates the pace of economic development

Better management of the enterprises

Better management of the enterprises

Encourages entrepreneurship

Encourages entrepreneurship

Makes enterprises subject to more public

vigilance

Makes enterprises subject to more public

vigilance





Arguments against Privatisation

Public sector developed with some noble

objectives

Public sector developed with some noble

objectives

Will encourage concentration of economic power

Will encourage concentration of economic power

Substitution of monopoly power of public enterprises by monopoly power of private enterprises

Substitution of monopoly power of public enterprises by monopoly power of private enterprises

Acquisition of national firms by foreign firms Acquisition of national firms by foreign firms

Privatisation of profitable enterprises

means foregoing income by government

Privatisation of profitable enterprises

means foregoing income by government

National interests may be harmed by

privatisation of strategic and vital sectors

National interests may be harmed by

privatisation of strategic and vital sectors

Quality of management is important, not the

sector

Quality of management is important, not the

sector

Capital markets not developed well enough

Capital markets not developed well enough

Often half-hearted measures, therefore, expected results may

not be achieved

Often half-hearted measures, therefore, expected results may

not be achieved

Vested Interests Vested Interests





Sins and Pitfalls of Privatisation

Lack of proper strategy

Lack of proper strategy

Ambiguity of objectives

Ambiguity of objectives

Connivance (Garage sales

of PSUs)

Connivance (Garage sales

of PSUs) Wrong Timing Wrong Timing

Lack of political

consensus

Lack of political

consensus

Wrong labour strategies

Wrong labour strategies

Lack of political will

Lack of political will

Poor financial strategies

Poor financial strategies

Wrong Environment

Wrong Environment

Prevalence of monopoly elements

Prevalence of monopoly elements

Problem of cultural change

Problem of cultural change





Privatisation/Disinvestment in India

Disinvestment Policy

Intial Phase Intial Phase

Chandrashekhar Govt. (‘91-’92)

• 20% of govt. equity

• Objective – to further market discipline to performance of public enterprises

• Modified Objective – to raise resources, encourage wider public participation and promote greater accountability

Committee on Disinvestment in PSEs setup (‘93) with C Rangarajan as chairman

Disinvestment Commission (‘96)

• United Front Government

• Recommendations on 58 PSEs

Second Phase Second Phase

‘98- ‘99 Budget – Govt. holding 26% stake in generality of cases

’99 – ’00 Budget – Obj: To strengthen strategic PSUs, privatise non-strategic PSUs through gradual disinvestment or strategic sale

‘00 – ’01: Govt. stake below 26% in non-strategic areas, if required

‘02: Obj: To put national resources and assets to optimal use and in particular to unleash the productive potential inherent in PSEs





Privatisation/Disinvestment in India

Rangarajan Committee Report

Need for substantial disinvestment

Need for substantial disinvestment

Holding 51% or more recommended for only 6

strategic cases

Holding 51% or more recommended for only 6

strategic cases

Best Method for disinvestment:

•Offering shares to general public through general prospecting

•Temporarily auction method with wide participation

Best Method for disinvestment:

•Offering shares to general public through general prospecting

•Temporarily auction method with wide participation

Clear action plan should be evolved

Clear action plan should be evolved

Stages and sales shall be staggered to get best

possible price

Stages and sales shall be staggered to get best

possible price

Following steps to be taken:

•Corporatisation of PSEs

•Restructuring of finance

•Independent regulatory commission for the sector

Following steps to be taken:

•Corporatisation of PSEs

•Restructuring of finance

•Independent regulatory commission for the sector

Preferential offer of shares to workers and employees Preferential offer of shares to workers and employees

10% of proceeds from privatisation set apart for

lending to PSEs

10% of proceeds from privatisation set apart for

lending to PSEs





Disinvestment Commission

• Public Sector Disinvestment Commission – 23/08/1996

• Various functions as stated by the GOI

• Advisory body to advise govt. on disinvestment of PSEs

• Carry out activities related to DI as prescribed to it

• Final decision vests with GOI





UPA Govt.’s stand

• Case by case approach

• Against privatisation of profit making enterprises

• Decided to wind-up Ministry of DI





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