PRIVATISATION, EMPLOYMENT AND EMPLOYEES THE INDIAN EXPERIENCE Shri P.K. Basu India

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PRIVATISATION, EMPLOYMENT AND EMPLOYEES THE
INDIAN EXPERIENCEShri P.K. BasuIndia

• OECD CONFERENCE on
• Privatisation, Employment and Employees
• 10-11 OCTOBER 2002
• Ataköy, Istanbul
• Turkey

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PUBLIC SECTOR UNDERTAKINGS IN INDIA

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Central Government owned Public Sector
Undertakings

Particulars No. Profit/Loss for the year 2000-01 (US )
Profit making PSUs 122 () 5936
Loss making PSUs 111 (-) 2675
No profit or No loss 1 0
Total number of PSUs 234 () 3261
Total Investment 57107

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State Level Public Sector Undertakings in India

Particulars as on 31st March, 1997 No.
Profit making PSUs 54
Loss making PSUs 551
Non functioning PSU 241
PSUs not submitted accounts 100
Total number 946
Total Investment (US million) 24533

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Employment and Average Annual Emoluments in PSUs

Year Number of Employees (In million) Average annual per capita emolument (Rs.)
1998-99 190.0 147482
1999-2000 180.6 168339
2000-2001 174.2 219546

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DISINVESTMENT POLICY, PROCEDURE AND PROGRESS

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The beginning of the Disinvestment Process

• The disinvestment policy of GoI can be seen to be
  implemented broadly in 2 phases
• The recommendations of the disinvestment
  commission set up in 1996, which formed the
  backbone of the Phase I of disinvestment, can be
  summed up as

Phase I 1991-92 to 1997-October 1999.
Culmination of Phase I was in the form of the
report of the disinvestment commission set up in
1996.
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The Disinvestment Policy revisited

• Phase II October 1999 onwards. The main feature
  of the policy can be culled out from the
  2000-2001 budget speech as follows
• To restructure and revive potentially viable PSEs
• To close down PSEs which cannot be revived
• To bring down Government equity in all
  non-strategic PSEs to 26 or lower, if necessary
• To fully protect the interest of workers
• To put in place mechanisms to raise resources
  from the market against the security of PSEs'
  assets for providing an adequate safety-net to
  workers and employees
• To establish a systematic policy approach to
  disinvestment and privatisation and to give a
  fresh impetus to this programme, by setting up a
  new Ministry of Disinvestment
• To emphasise increasingly on strategic sales of
  identified PSEs
• To use the entire receipt from disinvestment and
  privatisation for meeting expenditure in social
  sectors, restructuring of PSEs and retiring
  public debt

Main Features of the current Disinvestment Policy
were laid out in the 2000-01 budget
speech. Emphasis on maximising value realised
from sale. Bold initiative to close unviable
PSUs which cannot be revived, outlined.
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Disinvestment Process Role of MODI
Selection of PSU by MODI
Approval by CCD
Formation of IMG Selection of Global Advisors
Submission of Expression of Interest
2-3 months
Submission of Initial Technical Proposal
Due Diligence / Commercial negotiations
3-6 months
Finalise Shareholders Agreement (SHA) Share
Purchase Agreement (SPA)
Financial bids
1 week
Selection of strategic partner signing of SHA
SPA
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Main Constituents

• Cabinet Committee on Disinvestment (CCD)
• Core Group of Secretaries on Disinvestment
• The Core Group of Secretaries is headed by the
  Cabinet Secretary and comprises of Secretaries
  from Ministries of Finance, Industry, Department
  of Disinvestment, Planning Commission and
  Administrative Ministry and any other Department
  as may be required
• The Core Group directly supervises the
  implementation of the decisions of all strategic
  sales
• The Core Group monitors the progress of
  implementation of the Cabinet decisions
• The Core Group makes recommendations to the CCD
  on disinvestment policy matters
• Inter-Ministerial Group
• The Inter-Ministerial Group is chaired by the
  Secretary, Ministry of Disinvestment and
  comprises of officers of Ministry of Finance,
  Department of Public enterprises Administrative
  Ministry and the CMD of the Public Sector
  Enterprise concerned
• The Inter-Ministerial Group is responsible for
  day-to-day implementation of the disinvestment
  decision
• Department of Disinvestment
• The Department of Disinvestment (later, Ministry
  of Disinvestment)was set up vide Notification No.
  CD.551/99 dated the 10th of December 1999,
• Business allocated to Ministry of Disinvestment
• All matters related to disinvestment of Central
  Government equity from Central Public Sector
  Undertakings
• Decisions on the recommendations of the
  Disinvestment Commission on the modalities of
  disinvestment, including restructuring
• Implementation of disinvestment decision,
  including appointment of advisors pricing of
  shares and other terms and conditions of
  disinvestment
• All matters relating to the Disinvestment
  Commission

The Cabinet Committee on Disinvestment is the
apex decision making body in the disinvestment
process The Ministry of Disinvestment is the
key constituent and manages the routine
functioning of the disinvestment process. MODI
is helped by the relevant ministry and various
other Government departments and ministries
during the process.
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Disinvestment till date
Disinvestment13022002
The financial year 2002-03 has started off well
with the closure of the Maruti and IPCL
divestments

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Pace of Disinvestment
S.No Month PSU/Asset Sold Total
1. Jan., 2000 Modern Food Industries (India) Limited 1
2. Jul., 2000 Lagan Jute Machinery Limited 2
3. Mar., 2001 Bharat Aluminium Company Limited 3
4. Oct., 2001 HTL CMC 5
5. Nov., 2001 Hotel Ashok, Bangalore Hotel Bodhgaya Ashok Hotel Hasan Ashok 8
6. Jan., 2002 Hotel Ashok, Madurai 9
7. Feb., 2002 IBP Videsh Sanchar Nigam Limited Paradip Phosphates Limited Hotel TBABR Mamallapuram Hotel Agra Ashok Luxmi Bilas Hotel Udiapur 15
8. Mar., 2002 Qutab Hotel, New Delhi Lodi Hotel, New Delhi Centaur Hotel, Juhu Beach, Mumbai Centaur Rajgir 19
9. Apr., 2002 Hindustan Zinc Limited Centaur Hotel Airport, Mumbai 21
10. May, 2002 Maruti Udyog Limited 22
11. Jun., 2002 Indian Petrochemicals Corporation Limited 23
12. Jul., 2002 Hotel Airport Ashok Kolkata Kovalam Ashok Beach Resort Hotel Manali Ashok 26
13. Aug., 2002 Hotel Khajuraho Ashok Hotel Varanasi Ashok 28
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Disinvestment Scorecard
Disinvestment13022002
The Government has fared well in most instances
and has got a substantial premium over the
suggested reserve price. In the case of the
Paradeep Phosphate (PPL) divestment it displayed
its flexibility by selling at a price lower than
the suggested reserve price.
The government has performed exceptionally well
on the divestments undertaken till date

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THE IMPACT OF PRIVATISATION ON EMPLOYMENT AND
EMPLOYEES

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Work Force in India 1. Total workforce in
India Rural 269 million (Source NSSO
1997) Urban
86 million Total 355 million
2. Total workforce in organised
sector Government 20 million Private
7 million Total
27 million 3. Total workforce in
CPSEs About 2 million
4. Investment supporting retention
of this workforce (as on 31.3.01)
Rs. 274,114 cr.
Despite these investments, and no privatisation
until 1999, the PSUs workforce is
declining. ( Includes Central / State /
Semi Government, Central / State / Semi Public
Sector)
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Employment in Central Government owned Public
Sector Undertakings

• Year No. of employees
• (millions)
• 91-92 2.18
• 92-93 2.15
• 93-94 2.07
• 94-95 2.06
• 95-96 2.05
• 96-97 2.00
• 97-98 1.96
• 98-99 1.90
• 99-2000
  1.80
• 2000-01 1.74

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Growth in Employment

• Growth rate of employment during the past decade
• 1983-1994 increased at the rate of 2.04
  p.a.c.
• 1994-2000 increased at the rate of 0.98
  p.a.c.
• Public Sector Employment Growth
• 1983-1994 increased at the rate of 1.52
  p.a.c.
• 1994-2000 declined at the rate of 0.03
  p.a.c.
• Private Sector Employment Growth
• 1983-1994 increased at the rate of 0.45
  p.a.c.
• 1994-2000 increased at the rate of 1.87
  p.a.c.
• Labour Force
• Labour force increased at the rate of 2.05
  p.a.c.during 1983-94 and by 1.03 p.a.c. during
  1994-2000

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Gap in Employment Avenues

1983-1994 () 1994-2000
Growth in labour force 2.05 1.03
Growth in employment in organised sector 2.04 0.98

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• ROLE OF LABOUR UNIONS IN IMPLEMENTING
  PRIVATISATION
• The disinvestment policy and procedure has been
  discussed and debated at several levels with the
  national level Labour Unions. One such forum is
  the Indian Labour Conference held annually.
• Disinvestment has been one of the important
  topics discussed in such conferences with wide
  and active participation of national level labour
  unions.
• Apart from discussion at the national level, in
  each case of privatisation, discussions are
  initiated with labour unions of the company at
  the beginning of the process in which the
  disinvestment policy, the rationale behind it and
  the various safeguards built into the agreements
  are elaborately explained to the labour unions.
• The concerns of the labour regarding their
  service conditions, past liabilities, if any,
  pension benefits, severance scheme, employees
  stock options, are discussed in detail and
  suggestions received from the labour incorporated
  as best as possible.
• Such interaction with the labour unions are then
  followed up at regular intervals as the
  disinvestment process proceeds.
• The disinvestment process has been supported by
  prominent national level Labour Unions such as
  the Indian National Trade Union Congress (INTUC)
  even at the cutting edge level tremendous support
  has been received from labour unions and now
  there is increased consensus and support at the
  State levels as well.
• This approach has had a huge impact and resulted
  in smooth transfer of companies.

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PRIVATISATION RESTRUCTURING AND EMPLOYEE
RETRENCHMENT ISSUES AND POLICY RESPONSES

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Protection of Employee Interests

• Protection of employee interest is one of the
  predominant aspects of privatisation.
• Suitable provision related to employees interest
  provided for in the Shareholders Agreement
  (SHA).
• Best efforts clause is also incorporated in SHA
  mentioning the benefits given by the Government
  to physically challenged persons and members of
  social disadvantaged categories of the society
  stating that the Strategic Partner shall use its
  best efforts to cause the company to provide
  adequate job opportunities to such persons.
• The concerns among the employees, namely,
  retrenchment from duty, pay scales and other
  service conditions are also addressed.
• Companies that have been privatised have not
  retrenched even a single person.
• Voluntary Retirement Scheme (VRS) given by the
  disinvested PSUs are at scales which are normally
  higher or equal to the VRS given by the
  Government to Central Public Sector employees.
• Reduction in the workforce is a continuous
  process as during the last 10 years the workforce
  in PSUs has reduced from 2.3 million to 1.7
  million even without any privatisation or
  strategic sale.

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PSUs Social Benefits and Amenities

• PSUs - Complete freedom for wage settlement
  with unionised staff.
• PSUs As a model employer provided housing
  facility to the employees and other essential
  community facilities like health care, education,
  shopping and creation centres etc. in their
  township.
• Capital expenditure on township incurred by
  PSUs
• 31.3.1999 US 1446 million
• 31.3.2000 US 1637 million
• 31.3.2001 US 1367 million
• Recurring expenditure on township maintenance,
  administration and social overheads.
• 1998-99 US 689 million
• 1999-2000 US 731 million
• 2000-2001 US 790 million

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Severance PackageVoluntary Retirement Scheme
(VRS)

• Model Voluntary Retirement Scheme notified by the
  Government was in force since 1988 till April,
  2000 and was uniformly applicable to all public
  sector enterprises.
• New liberalised scheme of VRS notified on
  5.5.2000.
• 3,69,277 employees opted for Voluntary Retirement
  Scheme (VRS) till 31.3.2001 in PSUs.
• VRS in Profit Making PSUs
• May frame their own schemes of VRS and make it
  attractive enough for employees to opt for it.
  Compensation-60days salary for every completed
  year of service may be offered subject to the
  condition that such compensation will not exceed
  the salary for the balance period of service
  left.
• VRS in Marginally Profit or Loss Making PSUs
• Permitted to introduce an improved VRS scheme.
• Compensation - 35 days salary for each
  completed year of service and 25 days per year of
  service for the balance of service left till
  retirement subject to the condition that such
  compensation will not exceed the salary for the
  balance period of service left.
• VRS in Non-Viable Enterprises
• In the non-viable enterprises facing closure, VRS
  will be extended as Voluntary Separation Scheme
  (VSS) already approved by the Government.

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Social Safety Net Retraining, Redeployment

• Social Safety Net is an integral part of the
  Economic Reform Progress
• Government of India set up the National Renewal
  Fund (NRF) in February,1992.
• Of the 73,194 workers counseled, 55,374 workers
  were retrained upto 31.3.2001 and out of which
  19,458 have been redeployed.
• Department of Public Enterprises has taken up a
  fresh scheme for PSUs from the year 2001-02 with
  a budget provision of Rs. 80 million with a
  target to benefit about 800 people under the
  Counseling, Retraining and Redeployment Scheme.

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Experience in Employee matters post
disinvestment - Case Study

• (A) Bharat Aluminium Company Ltd. (BALCO)
• Introduced Voluntary Retirement Scheme (VRS)
  1675 employees applied for, but granted to only
  about 400 employees working in units that have
  closed down.
• In spite of losses of Rs 200 crore due to the
  strike, ex gratia payment of Rs 5000 per employee
  paid.
• Long-term wage agreement for a period of 5 years
  on 7.10.2001.
• Workmen get a guaranteed benefit _at_ 20 of basic
  pay.
• (B) Modern Food Industries (India) Ltd. (MFIL)
• Wages increased by an average of Rs. 1600/- per
  employee. VRS higher than Government VRS offered
  to the employees.
• (C) Paradeep Phosphates Ltd. (PPL)
• Average emolument of the employees increased by
  30 within one month of taking over of the
  management control by the Strategic Partner.
• Additional financial burden - Rs.37.9 million
  per annum.
• Contd

Successful integration of labour union with the
new management
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Experience in Employee matters post
disinvestment - Case Study

• (D) Hindustan Zinc Ltd. (HZL)
• Employees benefits which were withheld in the
  year 2001-2002, have been restored.
• It is pertinent to note that as long as a venture
  is an industrial establishment the protection
  provided to the employees under the various
  labour laws continues. These labour laws are
  applicable to the company irrespective of whether
  it is a public sector undertaking or is in the
  private sector.

Successful integration of labour union with the
new management
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• THE EFFECT OF STATE-OWNED ENTERPRISE PENSION
  CONSIDERATIONS ON PRIVATISATION
• In all cases of privatisation through strategic
  sale route, the protection of employee interest
  has been of paramount consideration.
• The existing service conditions of the employees
  are protected including any pension obligations
  which the company may be having .
• Mostly, past liabilities of the employees are
  settled prior to disinvestment.
• In several cases, the strategic partner has also
  undertaken to meet past liabilities related to
  employees.
• In many cases, where the employees favoured
  voluntary retirement before sale, liberal
  severance pay has been offered pre privatisation.
• At the beginning of the process itself,
  discussions are held with employees and all
  issues relating to service conditions, past
  employees liabilities etc. are settled. These
  are fine tuned through further discussions as the
  disinvestment process proceeds.
• Payment of past liabilities, VRS etc. do involve
  budgetary allocations by the Government which is
  worked out in consultation with the
  Administrative Ministry and Ministry of Finance.
• It has been the experience that the value of
  enterprise is considerably enhanced as a result
  of resolution of these issues before hand. That
  the Government has so far got high value for the
  companies sold, one of the reasons is perhaps
  this.

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• EMPLOYEE PARTICIPATION IN PRIVATISATION
  TRANSACTIONS
• POLICIES AND PERFORMANCE
• In every PSU selected for disinvestment the
  employees are involved right from the beginning
  and therefore the privatizations so far have
  been smooth.
• As an incentive, employees are offered the
  companys shares at a substantial discount to the
  strategic sale price/market price.
• The protection to the employees built into the
  agreements with the strategic partner are evolved
  after discussion with the employees at several
  stages.
• There is protection against retrenchment,
  protection of service conditions, severance pay
  in case of rationalization, protection of
  retirement benefits including medical facilities
  post retirement etc. Though employee buy outs
  have not been successful so far, these are under
  negotiation in several cases and the structure
  being worked out.
• The agreements also envisage that Government
  could offer stakes to employees from its balance
  shares in future as well.
• A great amount of transparency has been achieved
  in the whole process regarding the employees.