privatization in india-issues and evidence

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PRIVATIZATION IN INDIA : ISSUES AND

EVIDENCE

T.T.Ram Mohan

Visiting Faculty, Finance and Accounting Area

Indian Institute of Management, Ahmedabad

ABSTRACT

The proposed research is intended to survey the process of privatization in India and

assess its impact on the Indian economy. The central issue we will address is the

impact of privatization that has taken place so far on profitability and performance ofPSUs.

Going beyond this, we will attempt to understand what explains the impact of

privatization on performance. Is it the use of market power by oligopolistic firms

whose pricing power had been constrained under government ownership ? Isperformance bought at the expense of labour through extensive lay-offs so that what

we see is essentially a transfer from workers to shareholders ? Or are we confusing the

impact of privatization with the more generalised impact of deregulation in theeconomy, which in itself could spur efficiency ?

The research output will comprise the following:

1. A survey of the literature on privatization, particularly with respect to lessdeveloped countries.

2. A review of the role of the public sector in the Indian economy, and the processof economic liberalization and privatization in India upto this point.

3. Impact of privatization on firm performance.

4. Explanation for the impact of privatization

5. Assessment of mechanisms of corporate governance in India.

COST AND TIME OVERRUNS IN PUBLIC

SECTOR PROJECTSSebastian Morris, Institute of Public Enterprise, Hyderabad, now at the Indian

Institute of Management, Ahmedabad

ABSTRACT


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Delays and cost overruns in Public Sector investments can raise the capital-output ratio inthe sector and elsewhere, bringing down the efficacy of investments. Yet there are no

estimates of the delays and cost overruns, and of their opportunity cost. This study arrives

at rough estimates of the delays and cost overruns, and the opportunity cost in terms of

the extra `capital X time' that is used up. Cost overruns (at 80%) and the extra `capital Xtime' incurred (about 190%) are very large; even after removing the increase due to

inflation! The reasons for the same are also identified and rated. Factors internal to thepublic sector system and Government largely account for the delays and cost overruns:

Poor project design and implementation, inadequate funding of projects, bureaucratic

indecision, and the lack of coordination between enterprises. Appraisal by theGovernment very often is devoid of meaning when the emphasis is only on the form of

the project proposal rather than on its content- a tendency quite usual in bureaucracies.

Since the public enterprises particularly those in the core sector have large dealings with

each other, a `vicious circle of delays' has been built up. The politically expedienttendency to take up large numbers of projects and short fund them all, except those with

the very highest priority, is perhaps the most important factor in delays. TheGovernment's ad hoc approach in according high priority to certain sectors- oil andnatural gas, and petroleum- while perhaps overcoming the problem in these sectors have

compounded the problem elsewhere, particularly in the infra-structural areas- railways,

coal and steel.

Copy of paper "Cost and Time Overruns in Public Sector Projects", in theEconomic and

Political Weekly, Nov.24, 1990, Vol. XXV, No.47,pp.M-154 to M-168.

Download the full paper in PDF format.

List of Abstracts

GEB (Gujarat State Electricity Board) Reforms:

A Note on Regulatory Strategy and an

Approach to Privatisation

Sebastian Morris

WP No. 99-11-04

November 1999

Indian Institute of Management,Ahmedabad

ABSTRACT

True reform and restructuring of any state electricity board in India would have to
http://www.iimahd.ernet.in/psuindia/pdf/delay.pdfhttp://www.iimahd.ernet.in/psuindia/pdf/delay.pdfhttp://www.iimahd.ernet.in/psuindia/abstract/abstracts.htmhttp://www.iimahd.ernet.in/psuindia/pdf/delay.pdfhttp://www.iimahd.ernet.in/psuindia/abstract/abstracts.htm


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start with the consumers' interest. The agency failure in nearly all SEBs, that has

resulted in enormous leakage of revenue from the system, would have to be

addressed first. This would call for privatisation of distribution, and change in the

institutional mechanism for the administration of the subsidy. The present

mechanism creates opportunities for graft and rents, so that resistance to changefrom within the SEB is likely to be large. Rather than the detailed regulatory

mechanisms, which are being pushed by the Central Government and the regulators,light and price-cap type regulation would suit India better. The potential for market

competition in generation is quite high. A model plan for change is put forward for

the Gujarat State Electricity Board, which is quite general and could easily apply toother SEBs like Maharastra, Karnataka, Delhi, Tamilnadu, Andhra Pradesh with

significant numbers of bulk consumers. A complete seperation of distribution from

generation is not necessary, nor desirable. The potential of some linked generationassets with the distribution companies lowers the demand and supply risks, which

are likely to loom large in the initial years of market and price formation. Exisiting

IPP contracts could be extinguished and a method to carry out the same issuggested. The danger of mounting regulatory risk, either shutting out private powerproduction, or resulting in massive tariff increases taking place are real. There is an

urgent need to consider measures similar to those suggested in this paper.

Download a PDF copy of this paper

List of Abstracts
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