Does the Manmohan Singh stimulate the Indian Economy ?

India has largest Debt among BRIC Nations

The chart shows the debt to the GDP ratio of the BRIC nations for the current fiscal year.it is the amount of the national debt a country has a percentage of its debt payments ,Higher the ratio, higher is the possibility that the country might default on its debt payments. As seen above, India has the largest debt to GDP ratio among the BRIC nations. Indian economy which is already under pressure of weak GDP, poor IIP and elevated inflation rate, is also weighed down by its increasing government debt. High debt to GDP ratio tends to dampen the credit worthiness of the Indian economy. Viewing its increasing debt, Fitch had cut India's outlook to negative from stable in the last week. If the debt to GDP ratio continues to accelerate further, Indian economy will be exposed to the risk of further downgrades by other major rating agencies. 

Gold and Silver Prices Outlook for June 26-29

Last week gold and silver prices started off with little movement but by Thursday both precious metals tumbled down. The FOMC decision to continue operation twist throughout the rest of 2012 by $267 billion and not to introduce QE3 may have been among the factors to pull down bullion rates. The Fed also revised down the U.S economic outlook which also may have dragged down commodities prices.  Several other U.S related reports came out last week and showed the U.S economy isn’t expanding: Philly Fed index declined in June to its lowest level this year; existing home sales had an upward trend during last week. U.S jobless claims didn’t change much and declined by only 2k last week. This upcoming week there are several publications on the agenda that may affect gold and silver prices. The main events will revolve around U.S news and pending home sales, GDP for Q1 2012, Euro Area Monetary Development, jobless claims, core durable goods and Canada’s GDP by Industry.

Here is a short outlook for June 26^th to June 29^th; this includes a short description accompanied with a fundamental analysis of the main reports, publications, and events that may affect precious metals market.

Gold price plunged during last week by 3.76%; Silver, even more than gold, tumbled down on a weekly scale by 7.01%. Furthermore, during last week the SPDR Gold Shares (GLD) also fell by 3.3% and reached by June 22^nd 152.64.

The Euro declined against the U.S dollar by 0.54% (on a weekly scale); furthermore, other “risk” currencies such as the Australian dollar and Canadian dollar also depreciated against the U.S dollar by 0.11% and 0.28%, respectively. Their sharpest fall came on Thursday. The decline in the Euro/USD and AUD/USD may have been among the factors to pull down gold and silver during last week. If these currencies will continue to trade down, it could further pull bullion rates down.

In conclusion, I speculate precious metals will continue to dwindle during the upcoming week. The developments in Europe regarding the debt crisis in Spain and Greece may affect not only the Euro/USD but also bullion rates. If the Euro will continue to decline this could also pull down bullion. The upcoming reports regarding the U.S including the new and pending home sales, GDP for Q1, core durable goods and jobless claims, could affect not only the USD, but also gold and silver prices: if the U.S reports will continue be negative or won’t meet expectations it could pull up or at least curb the fall of precious metals.

Does the monetary policy works properly to reduce the inflation in UK ?

When the Bank of England changes the official interest rate it is attempting to influence the overall level of expenditure in the economy. When the amount of money spent grows more quickly than the volume of output produced, inflation is the result. In this way, changes in interest rates are used to control inflation.

The Bank of England sets an interest rate at which it lends to financial institutions. This interest rate then affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers. It also tends to affect the price of financial assets, such as bonds and shares, and the exchange rate, which affect consumer and business demand in a variety of ways. Lowering or raising interest rates affects spending in the economy.

A reduction in interest rates makes saving less attractive and borrowing more attractive, which stimulates spending. Lower interest rates can affect consumers’ and firms’ cash-flow – a fall in interest rates reduces the income from savings and the interest payments due on loans. Borrowers tend to spend more of any extra money they have than lenders, so the net effect of lower interest rates through this cash-flow channel is to encourage higher spending in aggregate. The opposite occurs when interest rates are increased.

Lower interest rates can boost the prices of assets such as shares and houses. Higher house prices enable existing home owners to extend their mortgages in order to finance higher consumption. Higher share prices raise households’ wealth and can increase their willingness to spend.

Changes in interest rates can also affect the exchange rate. An unexpected rise in the rate of interest in the UK relative to overseas would give investors a higher return on UK assets relative to their foreign-currency equivalents, tending to make sterling assets more attractive. That should raise the value of sterling, reduce the price of imports, and reduce demand for UK goods and services abroad. However, the impact of interest rates on the exchange rate is, unfortunately, seldom that predictable?

Changes in spending feed through into output and, in turn, into employment. That can affect wage costs by changing the relative balance of demand and supply for workers. But it also influences wage bargainers’ expectations of inflation – an important consideration for the eventual settlement. The impact on output and wages feeds through to producers’ costs and prices, and eventually consumer prices.

Some of these influences can work more quickly than others. And the overall effect of monetary policy will be more rapid if it is credible. But, in general, there are time lags before changes in interest rates affect spending and saving decisions, and longer still before they affect consumer prices.

We cannot be precise about the size or timing of all these channels. But the maximum effect on output is estimated to take up to about one year. And the maximum impact of a change in interest rates on consumer price inflation takes up to about two years. So interest rates have to be set based on judgments about what inflation might be – the outlook over the coming few years – not what it is today.

Government cleared Rs 8500-crore Project to promote connectivity in Naxalite-affected Districts

The Union government on 17 May 2012 cleared a Rs 8500-crore project under the Pradhan Mantri Gram Sadak Yojana (PMGSY) with an objective to connect 6000 habitations in the 78 naxalite-affected districts of nine states. Under the project money will be utilised for new connectivity and upgradation of habitations, which will be an addition to the core network, approved in 2002 by the Union Ministry of Rural Development.

Norms of PMGSY were relaxed for the first time to provide road connectivity to these habitations, in view of the naxalite problem.
Bihar, Jharkhand and Orissa will be the biggest beneficiary of this package. There are some 1000 unconnected habitations in nine Naxal-hit districts of Bihar and another 2500 in 17 districts of Jharkhand. The remaining habitations are spread over 18 districts in Orissa, 16 in Chhattisgarh, eight each in MP and AP, three each in West Bengal and Uttar Pradesh and two in Maharashtra.

PMGSY is the single-most important rural development intervention that is believed to significantly transform the ground-level situation in Maoist-hit areas.

Roads are the prime targets of the Naxals, the reason why PMGSY works are severely lagging in Maoist-hit areas. The problem is most acute in 20 districts, and has the worst record in implementation in Bijapur and Narayanpur in Chhattisgarh, Rohtas, Hazaribagh and Gaya in Bihar and Deogarh in Orissa are among them.

Major relaxations in norms have been made in the rural roads programme to improve connectivity in Maoist-hit districts. The population norm for a habitation to be connected has been reduced from 500 to 250 in these districts. The tender package for road construction was kept at Rs 50 lakh, as against Rs 1 crore earlier, to stimulate local contractors.

The move to boost road connectivity is aimed at preventing tribals and backwards from falling for the Naxal campaign revolving around government neglect and under-development. The roads will also increase government interaction with these villages thereby providing better security besides being a key indicator of development. Cement-concrete roads have been pushed in Naxal areas because of the plea of security agencies that they were better insurance against Naxal landmines. The Centre bears 90% of the cost of these roads.

The Union Cabinet approved 7.6 Billion Dollar TAPI Gas Pipeline Project

The Union Cabinet approved the 7.6 billion dollar TAPI gas pipeline project on 17 May 2012. The TAPI gas pipeline project which originates from the central Asian nation Turkmenistan and reaches to India via Afghanistan and Pakistan is also referred to as the “peace pipeline” as some of the countries that it passes through don’t enjoy good relationship with each other.

The TAPI gas project will have a total length of 1680 km. Of the total length 144km will be in Turkmenistan, 735km in Afghanistan, and 800km in Pakistan, bringing it to the India border. The pipeline, will be entirely functional in 2018 and supply gas over the next thirty years.
The pipeline would produce 90 million standard cubic metres of gas per day (mscmd).  Of the total gas pumped through it, India and Pakistan will get 38 mscmd each and Afghanistan the remaining 14 mscmd. At present India requires 176 mscmd of gas, of which a little more than one-sixth is imported. The country’s need of the gas might reach the level of about 400 mscmd by 2020.The Indian government was pursuing a similar project with the Iran which was put on hold by the Indian government given the pressure from the USA. The TAPI gas project also involves Asian Development Bank which has bestowed financial assistance to the project.The TAPI pipeline, was proposed in the early 1990s, but was delayed due to the political and economic hurdles involved into the project. Security of the pipeline has been the major issue of concern which passes through some of the most unstabled regions of Afghanistan and Pakistan, where the project may face the risk of sabotage. India joined the project in April 2008.

Who Says One Person Can’t Make a Difference in the Economic Development?

Who Says One Person
Can’t Make a Difference in the Economic Development?

One person can make a difference and that one person is YOU! The ECO-Effect shows you how Economics (money) and Ecology (all plants, animals and humans) together can have a big impact on both your wallet and the world! I’ll show you how small changes to your behaviour can have a big impact on the planet. You will also have a chance to “ECHO” your new ideas to us, so we can share them with other adults, schools, businesses, military, religious organizations, after-school programs, your community . . . and the world!

About Eco Effect Program

The ECO-Effect program celebrates what we all can do to make the world a more ECOnomically and ECOlogically healthier place for everyone and everything.

Tips, tools, and lessons will be presented for your school, home, office, and community so we can all share our ideas and “ECHO” these throughout the planet.

ECO-Effect Award winners will be selected based upon their demonstration of how they (children, adults, businesses, schools, etc.) have reduced their carbon footprint and “ECHO” their suggestions to others.

Eco – City Criteria

There are currently no set criteria for what is considered an “eco-city,” although several sets of criteria have been suggested, encompassing the economic, social, and environmental qualities an eco-city should satisfy. The ideal “eco-city” has been described as a city that fulfills the following requirements.

§  Operates on a self-contained economy, resources needed are found locally

§  Has completely carbon-neutral and renewable energy production

§  Has a well-planned city layout and public transportation system that makes the priority methods of transportation as follows possible: waking first, then cycling, and then public transportation

§  Resource conservation—maximizing efficiency of water and energy resources, constructing a waste management system that can recycle waste and reuse it, creating a zero-waste system

§  Restores environmentally damaged urban areas

§  Ensures decent and affordable housing for all socio-economic and ethnic groups and improve jobs opportunities for disadvantaged groups, such as women, minorities, and the disabled

§  Supports local agriculture and produce

§  Promotes voluntary simplicity in lifestyle choices, decreasing material consumption, and increasing awareness of environmental and sustainability issues

In addition to these initial requirements, the city design must be able to grow and evolve as the population grows and the needs of the population change this is especially important when taking into consideration infrastructure designs, such as for water systems, power lines, etc. These must be built in such a way that they are easy to modernize (as opposed to the dominant current strategy of placing them underground, and therefore making them highly inaccessible). Each individual eco-city development has also set its own requirements to ensure their city is environmentally sustainable; these criteria range from zero-waste and zero-carbon emissions.

Economic Impact

One of the major and most noticeable economic impacts of the movement towards becoming a eco-city is the notable increase in productivity across existing industries as well as the introduction of new industries, thus creating jobs.

First, the movement away from carbon-producing energy sources to more renewable energy sources, such as wind, water and solar power, provides local economies with new, thriving industries. The creation of these industries, in turn, births an increase in the demand for labour; thus, not only does total employment increase, but an increase in wages also mimics increasing employment.

Moreover, one of the main priorities of a sustainable city is to reduce its ecological footprint by reducing total carbon emissions, which, economically speaking means increasing productivity. Merely increasing the rate of productivity in an industry reduces costs, both monetary and environmental; that is, as an industry becomes more productive, it can more efficiently allocate and use both its physical and human capital, reducing the time it takes to make the same amount of goods which also allows for a higher wage (because employees are doing more) and a lesser environmental impact (because using less energy and resources to produce the same amount).

In all, although the initial movement towards becoming a sustainable city may be quite costly for a smaller, poorer city, the benefits of such movement are plentiful in the long-run economic model. Moreover, as more and more countries move towards becoming more sustainable, the technologies required to initiate this movement will become more readily accessible and cheaper; therefore, many rich, developed nations should put themselves forth as an example of what other cities should model themselves like, thus sparking the innovation towards a future of sustainable technology

Environmental Standards

The primary goal for all sustainable cities is to significantly decrease total carbon emissions as quickly as possible in order to work towards becoming a carbon-free city; that is, sustainable cities work to move towards an economy based solely on renewable energy. Actions towards carbon-reductions can be seen on both the corporate and individual levels: many industries are working towards cleaner production, but individuals are also moving away from environmentally-costly forms of transportation to more sustainable methods.

Often times, a city’s primary goal is to increase environmental education in hopes of achieving better citizen involvement and cooperation. By making the private sector more aware of how its behaviour affects the environment, a reduction in carbon emissions becomes more of a reality.

In terms of international standards, however, we can look to the International Finance Corporation (IFC). The IFC has a long history of implementing environmental and social standards in localized economies, and its primary mission is to promote sustainable development across the globe, primarily in developing countries. One of its plans to accomplish this goal is to encourage international cooperation in order to accelerate and promote sustainable growth across nations.

Poverty Reduction

The development of eco-cities has aided in reducing poverty in various locations via job creation in environmentally friendly business sectors. By promoting social equity based on meeting the needs of local populations, eco-cities create sustainable business models that encourage local investment and the subsequent expansion of the job market. According to the United Nations Environment Program, the “EcoCity has mobilized the disadvantaged and unemployed people of the city to form co-operatives to grow and buy food, to recycle, to repair bicycles, to build homes, to use and promote green energy solutions to become eco-tourism effective.

 By creating small local businesses, residents of eco-cities create self-sufficient small enterprises that, as an aggregate, greatly alleviate the scarcity of quality employment and create economic opportunities that continuously aid in poverty reduction. These ecologically sound small-scale practices are additionally less sensitive to economic shocks, allowing for enduring economic sustainability in eco-cities.

In addition to creating green jobs,( according to the United Nations Environment Program, "work in agricultural, manufacturing, research and development (R&D), administrative, and service activities that contribute(s) substantially to preserving or restoring environmental quality. Specifically, but not exclusively, this includes jobs that help to protect ecosystems and biodiversity; reduce energy, materials, and water consumption through high efficiency strategies; de-carbonize the economy; and minimize or altogether avoid generation of all forms of waste and pollution.") Eco-cities promote the deployment of green methods of saving money, such as investing in ecologically sustainable local infrastructure, carpooling, and reducing consumption of water and energy, to decrease the financial burden on the poor.

Public Health

Eco-cities aid in creating healthier urban populations through the implementation of sustainable practices that improve environmental standards and, as a result, decrease the strain on public health. By employing practices that aim to reduce air pollution, eco-city standards have an indirect effect on decreasing rates of respiratory disease within urban areas. According to the World Health Organization, urban outdoor air pollution is responsible for over 1.3 million deaths worldwide per year. Through the implementation of “clean” practices, eco-cities greatly assist in decreasing the disease burden placed on urban residents by decreasing the risk factors associated with cardiovascular and respiratory diseases as well as various forms of cancer.

Energy

Eco-cities look to employ renewable energy sources, such as wind turbines, solar panels, and biogas, to reduce emissions. Wind turbines present the opportunity of being able to provide both localized districts within eco-cities and the larger region as a whole with emission-free renewable energy that can additionally supplement existing power sources. Furthermore, by designing buildings with natural ventilation systems, eco-cities reduce the need for air conditioning, thus, drastically decreasing commercial and residential energy use. Many eco-cities additionally look to deploy solar thermal energy. By installing solar collectors, developers will be able to provide hot water for space heating and individual and community needs while reducing dependence on gas fueled boilers. While solar thermal energy appears to be a more efficient source of renewable energy, many urban planners also view photovoltaics as a viable source of energy. Photovoltaics directly convert solar energy into electricity; however, the extensive costs associated with developing this technology on the city-scale may limit its use when compared to its potential payback. Biogas technology is also deployed as a source of renewable energy as the organic material from wastewater is converted into fuel.

Water

Eco-cities aim to decrease water consumption by employing technologies that reduce the amount of water that is needed for irrigation and sewage flow while also preventing black water and grey water runoff from entering ground water sources. Developers suggest installing low flow fixtures, rainwater harvesting systems, and sustainable urban drainage systems to meet eco-city standards. Additionally, advanced irrigation systems (xeriscaping) aid in maintaining green infrastructure while decreasing green space consumption of water for irrigation.

References

1 . Kenworthy, Jeffrey. "The eco-city: ten key transport and planning dimensions for sustainable city development". Retrieved 17 November 2011.

2 .  Fook, Lye Liang (2010). Towards a Liveable and Sustainable Urban    Environment: Eco-cities in Asia. Singapore: World Scientific. 

3 . "Air quality and health". World Health Organization. Retrieved 18 November 2011.

4 . "Towards a Green Economy". United Nations Environment Program. Retrieved 17 November 2011.

5 . "Ecocity: The Energy Concept". Ecocity. Retrieved 18 November 2011.

6 . http://india.carbon-outlook.com/content/eco-cities-india

7.  Experiences on Development of Model Eco City At Namakkal , Tamil nadu ,India

8.  The Background and History of Kitakyushu Eco-town Projects.

9 . http://www.rff.org/rff/documents/rff-dp-02-71.pdf

10.  Lindberg and Mckercher,Source: C.H.Sekercioglu. 2003. Conservation through Commodification. Birding Vol. 35 N° 4 August 2003: 394-402

Thank you for your courtesy of listening to me

Oil and Energy

MAR

16

"President Obama has a real strategy to take control of their energy future and finally reduce the dependence on foreign oil—an all-of-the-above approach to developing all their energy resources."

Role of Public Sector in India's Industrialization

Overview of Indian Public Sector

Central and state Public Sector Undertakings (PSUs) play a prominent role in India’s industrialization and economic development. Since independence, various socio-economic problems needed to be dealt with in a planned and systematic manner. A predominantly agrarian economy, a weak industrial base, low savings, inadequate investments and lack of industrial facilities called for state intervention to use the public sector as an instrument to steer the country’s underlying potential towards self reliant economic growth. The macroeconomic objectives of Central PSUs have been derived from the Industrial Policy Resolutions and the Five Year Plans. State-level public sectors enterprises (state PSUs) were established because of the rising need for public utilities in the states. These PSUs operated in public utilities such as railways, post and telegraph ports, airports and power and contributed significantly towards infrastructure development in India. Since its inception during the First Five Year Plan, many public sector undertakings performed exceptionally well in wealth creation for the country.

Many Central PSUs, particularly the Maharatnas, are already global players matching the best global firms in their field of operations. One of the important reasons for the excellent performances of Central PSUs during the recent years was the empowerment of the boards of such profit making Central PSUs by the Government leading to greater autonomy. Consequently, such PSUs have been able to effectively use this autonomy to enhance their performance and operate on commercial lines.

Evolution of Public Sector Enterprises in India

Public sector enterprises in India have grown from only five enterprises post independence and with an investment of ` 0.3 bn in the year 1951 to 249 enterprises as on Mar 31, 2010. Aggregate investment in Central PSUs has been increasing over the years. Total investment, including equity plus long-term loans of Central PSUs went up from ` 5,135.32 bn in FY09 to ` 5799.20 bn in FY10, growing 12.93%.

As on Mar 31, 2010, there were 94 mega projects costing ` 10 bn and above and 44 major projects costing between ` 1 bn and ` 10 bn. Overall profit of all Central PSUs stood at ` 925.93 bn during FY10 and dividend declared by such Central PSUs stood at ` 332.23 bn. The CPSEs earned foreign exchange equal ` 777.45 bn during the year compared with ` 742.06 bn in FY09.

The evolution of PSUs can be divided into three distinguished phases: 1) The pre-independence era; 2) The post-independence era; and 3) The post-liberalization period. The fourth period could perhaps be the one following the recent global economic crisis. During the pre-independence era there were few public enterprises, namely the railways, the posts and telegraph, the port trust, All India Radio and the ordinance factories, among few other government managed enterprises. During the post independence era, the Industrial Policy Resolution 1956 was implemented. Moreover, several strategies specific to the public sector were defined in policy statements in 1973, 1977, 1980 and 1991. The post liberalization era which commenced from 1991 saw the Government introducing the concept of Maharatna, Navratna and Miniratna to accord greater financial and managerial autonomy with the aim of incurring higher capital expenditure apart from forming JVs within the country as well as outside.

The period following the recent global economic downturn was one of Government infusing capital into the economy. In order to boost sectors such as real estate, agriculture and small enterprises, GoI, through public sector banks, provided capital at lower interest rates. These initiatives of the Government helped contain serious after effects of the economic meltdown while keeping a tab on inflation.

Role of PSUs in the Indian Economy

PSUs contributed significantly to the country’s economy. As on Apr 30, 2011, of the total 247 Central PSUs and their subsidiaries only 50 were listed; of these, 47 that were listed at the Bombay Stock Exchange (BSE) constituted 22% of the total market capitalisation of 4,946 companies listed on the BSE. Additionally, 28 Public Sector Banks (PSBs) including their subsidiaries and six State Level Public Enterprises (SLPEs), accounted for 6% of the total market capitalisation at BSE. The market capitalization of all PSUs taken together was ` 19.84 trn, constituting 28.7% of the total market capitalisation at the BSE. Of these, the share of Central PSUs share in the BSE market capitalization was 22.37% and amounted to ` 15.45 trn as on Apr 30, 2011. The share of PSBs was 6.28%, amounting to ` 4.34 trn and share of SLPEs in the BSE market capitalisation was less than 1%.

The growth and performance of Central PSUs runs parallel with the growth of the Indian economy. In fact, thePSUs have the potential for an even dominant role to play on the back of several yet-to-be listed profitable Central PSUs that can go to the market. As per data from the BSE as on Dec 15, 2010 there were 98 unlisted Central PSUs that made profit for the past three years, clearly indicating the importance of Central PSUs in the growth of the Indian economy. The Central PSU with the highest market capitalization is Oil and Natural Gas Corporation Ltd (ONGC) at ` 2,642.8 bn on the BSE as on Apr 30, 2011.

Central PSUs in employment generation

The total number of employees in Central PSUs was 1.53 mn in FY09 and came down to 1.49 mn in FY10. While the number of people employed by Central PSUs came down by 2.7% in FY10, the average annual per capita emoluments given went up to ` 609,816 in FY10 up from ` 541,716 in FY09. Moreover, several Central PSUs face high attrition with employees looking out for higher salaries elsewhere.

Contribution of PSUs to the Central Exchequer

Apart from fulfilling their social commitments, public sector enterprises are contributing significantly to the central exchequer through direct taxes and dividend.

The Central Exchequer obtains revenue from PSUs through two modes namely investments in the companies and through taxes and duties paid. The government earns investment revenue from PSUs in the form of dividend and interests and levies taxes on income, custom duties, corporate tax, excise duties and many more. The public sector has been the backbone of the Indian economy. It has acted as a strategic partner in the nation’s economic growth and in our development process.

There was significant decline in the total contribution of Central PSUs to the Central Exchequer during FY10, which came down from ` 1,515.43 bn in FY09 to ` 1,398.30 bn in FY10. This was primarily due to reduction in contribution towards customs duty and excise duty that came down from ` 87.05 bn and ` 632.62 bn in FY09 to ` 69.03 bn and ` 526.42 bn in FY10. This was owing to decline in excise duty rates across several sectors. Moreover, during FY10, net profit of profit making Central PSUs stood at ` 1084.35 bn compared with ` 984.88 bn in the previous year.

There was decline in other duties and taxes during the year compared with the previous year. There was however an increase in contribution from corporate tax, dividend payment and dividend tax. The central PSUs have always been supportive to the government in terms of helping them manage its financials and cash flows. In this perspective, the Ministry of Finance issued directives to select Central PSUs asking them to declare special dividend during FY11. The government intends to use additional revenue generated from this dividend to meet additional expenses, including the rising subsidy burden.

Net Value addition by Central PSUs

In FY10, the share of profit before tax and enterprise profit (PBTEP) was the highest at 35.41% followed by salaries and wages at 25.92%, indirect taxes and duties at 23.70% and interests at 10.19%. A comparison between the shares of the respective items during FY09 and FY10 show very little change during these two years. Moreover, the share of gross value addition of Central PSUs in GDP at market prices stood at 6.30% in FY10 as against 6.20% in FY09.

Evolution of the Disinvestment Policy

The salient features of the new disinvestment policy include the following:

• Citizens have every right to own part of the shares of Public Sector Undertakings.
• PSUs are the wealth of the nation and this wealth should rest in the hands of the people.
• At least 51% of the shareholding and management control should rest with the Government.

Objectives of Disinvestment

Disinvestment was seen by the government as a means to raise funds for meeting certain general and specific needs. The government’s disinvestment policy was identified as an active tool to reduce the burden of financing the PSUs. Following were the main objectives of disinvestment:

• Improving public finances
• Reducing financial burden on the government
• Funding expansion plans
• Expanding share of ownership
• Initiating competition
• Remove politics from non-essential services

Importance of Disinvestment

Given an increasingly competitive environment on the back of private enterprises gaining ground on several parameters, disinvestment of PSUs assumes significance. Increased competition from private players makes it difficult for many PSUs to operate profitability. As a result of a rapid erosion of the value of the public assets, it becomes extremely important that the Government disinvests Central PSUs early in order to realize a high value. At present the government has a significant stake locked up in Central PSUs of ` 2 trn. Disinvestments of several leading Central PSUs have raised noteworthy funds through this route. In fact, ONGC’s public offer through the Further Public Offer (FPO) route during 2003-2004 has been the largest for any Central PSU, XVII raising ` 105.42 bn. With respect to raising funds through the Initial Public Offering (IPO) by any Central PSU, Coal India Ltd raised ` 151.99 mn through its IPO in 2010-2011 making it the biggest Central PSU IPO until date. The primary purpose of the government’s disinvestment initiative is to utilize the funds that become available post disinvestment, for several purposes. The important among them are:

• Financing the increasing fiscal deficit
• Financing large-scale infrastructure development
• Encouraging spending
• Retiring government debt, since almost 40-45% of the Central Government’s revenue goes towards repaying public debt/interest
• Spending on social programs such as health and education

Approaches to Disinvestment

The following action plan was approved by the government for disinvestment in profit making government companies.

• Already listed profitable CPSEs (not meeting mandatory shareholding of 10%) are to be made compliant by ‘Offer for Sale’ by Government or by the CPSEs through issue of fresh shares or a combination of both.
• Unlisted CPSEs with no accumulated losses and having earned net profit in the three preceding consecutive years are to be listed,
• Follow-on public offers would be considered on a case-by-case basis, based on the need for capital investment of CPSE, and Government would simultaneously or independently offer a portion of its equity shareholding.
• In all cases of disinvestment, the government would retain at least 51% equity and the management control.
• All cases of disinvestment are to be decided on a case-by-case basis.
• The Department of Disinvestment is to identify CPSEs in consultation with respective administrative ministries and submit proposal to Government in cases requiring Offer for Sale of Government equity.
A Historical Perspective to Disinvestment
The public sector was envisaged to be the engine of growth for development envisaged by the country. However, this growth was marred when the public sector’s shortcomings started manifesting in a way that led to lower capacity utilization, low efficiency, cost overruns, lack of innovativeness, and delay in taking strategic decisions. As a result disinvestment gained credence. The period since the first disinvestment that happened in 1991-1992 to the current period, disinvestment has undergone a sea change both in approach and the policy changes implemented to make the process more functional.
• 1991-1992 to 2000-2001: During this period 31 PSUs were divested for ` 30.38 bn. The Department of Disinvestment was set up as a separate department in Dec 1999 that was later renamed as Ministry of Disinvestment from Sept 2001. The Government raised ` 200.78 bn during this period against an aggregate target of ` 543 bn, less than half. During this period disinvestments that took place were mostly by way of sale of minority stake in the PSUs. Unit Trust of India picked up minority stakes in several companies that were divested.
• 2001-2002 to 2003-2004: This period saw the maximum number of disinvestments taking place either by way of strategic sales or through a public offer. The Government raised ` 211.63 compared with an aggregate target of ` 385 bn.
• 2004-2005 to 2008-2009: During this time, disinvestment almost stagnated owing to it remaining a contentious issue. Total amount raised from disinvestments during this period was only ` 85.15 bn.
• 2009-2010 to present: On the back of improved market conditions backed by a stable Government a renewed thrust on disinvestment is visible. Government commenced selling minority stakes in both listed and unlisted PSUs through public offers and until Dec 31, 2010 it was able to raise ` 463.15 bn.
Amounts Raised Through Public Offers
Central PSUs have shown their mettle on the stock exchanges. As discussed earlier in this report, these listed companies can boast of around 22% of the total market capitalisation of listed companies of BSE. The performance of CPSEs on the stock exchanges is even more credible as listed Central PSUs constitute only about one percent of the total number of companies listed on the BSE.
With the biggest ever IPO launched by Coal India Ltd (CIL), PSUs have once again become centre stage with CIL’s IPO being oversubscribed 15 times. The CIL IPO has reaffirmed investor confidence in public sector enterprises that had waned during the mid 2000’s. In fact, the government intends to reap benefits from the credibility and recognition that these enterprises hold in the Indian markets as well as overseas. Robust public sector enterprises have made investments overseas on their own, besides expanding operations and succeeded in meeting global challenges of competition, advancing technologies and free markets. Several Central PSUs have established subsidiaries and alliances abroad.
PSBs in tandem with public sector enterprises have performed reasonably well in an increasingly competitive and uncertain environment. Compared with banks globally, Indian PSBs have stood their ground and done well to weather the global economic crisis of 2008 that caught people unaware.


Disinvestment by Central PSUs in the past
In the past, Central PSUs made substantial disinvestments in several ways. These include strategic sale to private entities, raising funds through public offers (excluding raising fresh capital), sale of one Central PSU to another Central PSU, apart from auction to financial investors and sale to employees.
Strategic sale of Central PSUs witnessed renewed activity post 2008-2009. Historically, majority of disinvestments have been typically made to strategic partners including sale to private entity or to another Central PSU.

Challenges and Concerns
The integration of the Indian economy with global markets resulted in several challenges and concerns. These challenges act as impediments in the growth of public sector enterprises and come in the way of competing space with other private entities. Since their inception, public enterprises have been bereft of proper autonomy and authority to make investments and acquisitions whether in India or overseas. Few of the major challenges and concerns facing these public sector enterprises especially Central PSUs have been discussed below:
• Multiple Principles: Most Central PSUs these days are being plagued by multiple principles and multiple goals often resulting in conflicting situations for these enterprises. The outcome of these conflicting principles and goals lead to the public sector enterprises being unable to ascertain the outcome. Conflicting goals often result in affecting overall performance of the organization.
• Broad based decision making structures: More often than not, the decision making structures in Central PSUs are broad based, resulting in people working at cross purposes owing to lack of proper coordination and a common objective. The principle of profit maximization takes a backseat while vested interests seem to take over.
• Problem of untapped talent: PSUs were established with the purpose of absorbing surplus labour while reducing unemployment rates in the country. However, owing to stringent recruitment practices that are filled with old-school thoughts and political interventions, these enterprises lost their sheen compared with their private counterparts who despite lacking size and might of such enterprises, end up in moving ahead in recruiting the country’s best minds. Moreover, lack of transparency in the entire recruitment process stops students from top educational institutes from applying for these government posts.
• Private sectors steer ahead in terms of compensation structure: On the back of economic liberalization and movement of compensation structures from socialist regimes, the differentials between the public sector and their corporate counterparts is widening. If this disparity is not controlled, the private sector will continue to draw all the talent and public sector enterprise would be left high and dry. Despite the sixth pay commission being implemented, there is still not enough parity between the compensation structures prevalent in the public sector and their private sector counterparts.
• Inadequate implementation of quantitative performance metrics: Performance measurement of the past years, such as linking financial parameters with operational efficiency led to deterioration of liability. As a result, public sector enterprises find it difficult to compete with private sector companies, whose processes are better aligned. Owing to this, the opportunities available to this sector have become constricted.
• Lack of autonomy in decision making: Public sector enterprises have always suffered due to lack of autonomy. Initially, delegation of powers was restricted. Consequently, when the Indian economy opened up in the early nineties, such companies were caught off-guard and lost out on several opportunities of expansion both within the country as well as overseas. The need of the hour was to divest more by granting more financial and operational autonomy to the top management in decision making. Creating Maharatnas and Navratnas was one such step towards creating greater autonomy.
Conclusion
The public sector is an integral part of the Indian economy and a key growth driver. With the advent of globalization, the public sector gained credence in the face of faced new challenges in developed economies. This sector provided the required thrust to the economy and developed and nurtured human resources, the vital ingredient for the success of any enterprise.
The optimistic nature of the operations of Central PSUs can be fathomed from the fact that the gross block in top ten enterprises amounted to ` 7,799.60 bn as on Mar 31, 2010. This was equal to 69% of the total gross block in all Central PSUs. Oil & Natural Gas Corporation Ltd, Bharat Sanchar Nigam Ltd and NTPC Ltd are the top three Central PSUs among the top ten Central PSUs in terms of gross block during the year FY10. The share of these three Central PSUs alone was 39% of the total gross block of all the Central PSUs as on the above period.
Over the last few years, public sector enterprises have gained tremendous credibility and recognition not just domestically but also in the international markets and the government is now gearing up to cash in on this.

Economic Development

Impact of Private and Public Sector in the economic Development

Private sector companies are an essential pillar for achieving the goal of sustained economic growth and poverty reduction.

Some 90 percent of all economic activity is created by the private sector in the region, as are nine out of every 10 jobs (1). The private sector is an essential ally for providing basic services such as infrastructures, as well as investment and innovation. However, businesses face many barriers that impede investment, firm expansion, job creation, and, in the end, sustainable growth.

Just read this and you can understand the role of private sector in the economic development.

As the Monterrey Consensus emphasised, private investment is a

powerful catalyst for innovation, economic growth and poverty reduction.

Much more investment will be needed if many developing countries are

to reach the Millennium Development Goals, especially that of halving by

2015 the proportion of people living on less than a dollar a day. Official

development assistance (ODA) has a critical role to play in improving the

environment for private sector activity and in helping enterprises to

respond to new and changing demands, and thus in helping to pave the

way for robust growth.

With this background, the OECD launched the “Initiative on Investment

for Development” in 2003. This policy guidance for donors on using ODA

more effectively to promote private investment for development is one

component of the Initiative.The other components are the Policy Framework

for Investment (PFI) and sharing the OECD’s experience with using peer

reviews to build capacity for investment policy in developing countries.

Preparation of the policy guidance occurred in two phases, carried out

in close collaboration between the Development Assistance Committee

(DAC) and Investment Committee. The first, analytical phase noted that

donors spent around 20% of their aid on a variety of investment-enhancing

activities and highlighted the need for donors to be more strategic, better

co-ordinated and guided by more systematic learning of what works and

what does not work. They also need to address better the binding

constraints, at national and sectoral levels, that are holding back more

domestic and foreign investment.

This policy guidance, prepared in the second phase, and which also

builds on DAC work on promoting pro-poor growth, has as its main message

that donors should focus on helping to lower the costs of investment, reduce risks, improve competition and develop human and institutional capacities.

It stresses that economic infrastructure, financial market development and

building the capacities of enterprises are priority areas for mobilising

investment in the near term and that reforming the investment climate

requires political will, drive and leadership to take on entrenched interests

and inertia. Development agencies consequently need to stay the course,

but they also need to change the way they do business. For example, their

internal incentive and evaluation systems should not work against staff

pursuing longer-term, programmatic and possibly higher risk interventions.

This policy guidance was approved by the DAC on 15 March 2006 and

welcomed by OECD Ministers at the annual meeting of the OECD Council

at Ministerial Level on 23-24 May 2006. It complements more general

guidance on improving the design, delivery and effectiveness of development

co-operation, notably the “Paris Declaration on Aid Effectiveness”

In order to achieve its aims the OECD has set up a number of specialised

committees. One of these is the Development Assistance Committee,whose

members have agreed to secure an expansion of aggregate volume of

resources made available to developing countries and to improve their

effectiveness. To this end, members periodically review together both the

amount and the nature of their contributions to aid programmes, bilateral

and multilateral, and consult each other on all other relevant aspects of their

development assistance policies.

The members of the Development Assistance Committee are Australia,

Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece,

Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway,

Portugal, Spain, Sweden, Switzerland, the United Kingdom, the United States

and the Commission of the European Communities.

DAC- Development Assistance Committee

FDI -Foreign direct investment

GDP -Gross domestic product

ICT -Information and communication technology

IFC -International Finance Corporation (World Bank Group)

MDG- Millennium Development Goals

ODA-Official development assistance

PPP -Public-private partnership

SME -Small and medium-sized enterprise

UNCTAD United Nations Conference on Trade and Development

Vigorous and sustained economic growth, fuelled by investment and

entrepreneurship, is needed for the private sector to create more jobs and

increase incomes of the poor. In turn, this will generate the revenues that

governments need to expand access to health, education and infrastructure

services and so help improve productivity. But in many developing countries,

investment rates are too low, productivity gains are insufficient, incentives

for innovation are inadequate, returns on investment are not sufficiently

predictable, and not enough secure, safe and adequately paid jobs are

being created in the formal economy.

Developing countries and their donor partners consequently need to

do much more to address the market failures and structural impediments

that are holding back productive investment (both domestic and foreign),

and to do it better, for longer periods and in a more strategic way.Developing

countries can help foster an investment climate that enables the private

sector to flourish and fulfil its role as the main engine of growth.To do so,

they can pursue macro-economic stability, improve the functioning of

market-regulating institutions and strengthen procedures for contract

enforcement and dispute settlement. Developing country governments

can also improve the coherence of their policies in a range of areas – such

as trade, tax, competition and investment promotion – that affect the

volume of investment and its development impact.

A review of past practices by development agencies highlights that:

i) Donors are supporting a vast range of activities – at the

macro-economic, enabling environment and enterprise levels

– that affect investment.They spend around 20% of their aid on

these. But little evaluative material on the impact of interventions

on promoting investment is available.

ii) Insufficient attention has been given to enterprise and

supply-side capacity development, and to promoting the institutional and policy reforms that lie at the heart of efforts to promote private sector development.

iii) Donors have focussed too much on assisting specific types of

firms (e.g. certain sizes, activities or sectors). Experience has

shown this can lead to market distortions and poor sustainability.

To help developing countries mobilise more productive investment,

and improve the effectiveness of interventions that support this objective,

development agencies need to:

i) Be more strategic, and their interventions need to be harmonised

and guided by more systematic learning of lessons.

ii) Focus on helping to lower the costs of investment, reduce risks,

improve competition and develop human and institutional

capacities in developing countries.

iii) Give high priority to economic infrastructure investment and

financial market development, as key areas for promoting

investment in the near term.

iv) Pay greater attention to the determinants of domestic investment,

both formal and informal, and to strengthening the capacities

of local firms to respond to new investment opportunities and

to expand business relationships with foreign investors.

v) Enhance the contribution of investment to pro-poor growth (i.e.

increase the impact of growth on poverty reduction) by making

labour, land and other markets work better for the poor, tackling

Constraints to women’s entrepreneurship, reducing barriers to

Formalisation, promoting environmental sustainability,

Expanding access to knowledge and technology and unleashing

The economic potential in rural areas.

vi) Encourage entrepreneurship and innovation by supporting

education and vocational training, research and development

activities and technology transfers.

vii) Promote responsible business practices in such areas as labour

relations, the environment and anti-corruption.

viii) Build on analyses of country and sector-specific constraints, at

national and local levels, to private sector development and

encourage publication and public debate about the results. Help build up the capacities of developing countries to carry out such

assessments.

ix) Seek out reliable, representative and accountable domestic

partners who can drive reform programmes and help catalyse

change.

x) Use market-based approaches to supporting firms. Targeted

assistance should avoid distortions and firms receiving direct

support should be selected based on their expected capacity to

innovate, create jobs and provide services at local market

conditions.

xi) Promote structured and inclusive public-private dialogue, at

national and local levels, so as to bring micro and small

entrepreneurs and informal firms and workers into consultation

and decision-making processes.This will help to build demand

for reform and for investments that will improve the investment

climate.

xii) Evaluate the cumulative impact of their interventions on

promoting investment and share examples of successful and

unsuccessful practices.

Reforming the investment climate requires political will, drive and

leadership to take on entrenched interests and inertia. Development

agencies need to stay the course and support “change agents” within the

public and private sectors and civil society.

Development agencies also need to change the way they do business.

They need to have access, individually or collectively, to an appropriate

range of aid instruments.Their internal systems should not work against

staff pursuing longer-term and riskier interventions. Staff working on the

range of subjects relevant for promoting investment should be well

co-ordinated. More of the goods and services that development agencies

procure can be sourced on competitive terms in developing countries, to

support local private sector development. Finally, public sector partners

in developing countries can be encouraged to engage more with the private

sector, such as through public-private partnerships.

If the country goes through this way up to a % there will be a development ,if the private and public sectors come on this way ,the chances of developments are more high ,that developments  does not create any poverty .

But the main problems that are facing here, private sector mainly aims profit rather than concentrating proper economic development, they are not concentrate on any aspects of the economic rules and policies, that creates higher development by creating higher poverty, at the same time private sector gives more investment opportunity, that tends to investors to make investment rather than investing public sectors.