Tuesday, March 22, 2011



Adoption of planning in India led to a variety of initiatives by the state to promote and regulate industrialisation. For this, the overall framework was provided by the Five Year Plans. The essence of planning, while comprising of enlarged investments, is in achieving new pattern of investments. The pattern of resource allocation under a planned process, in contrast to market oriented economies, is governed by long term and a variety of socio-economic concerns and not by the market demand. The process of planning implies determination of a set of relative priorities and ensuring effective and timely implementation of plan targets. To translate the plan objectives the policies and programmes can broadly be categorised under three heads, namely, (i) Regulatory; (ii) Promotional; and (iii) Direct participation. The regulatory systems are by their very nature restrictive, but the nature and degree of restrictions vary from one regulatory policy to another. Regulatory mechanisms provide a positive support to the desired activities by warding off the undesired. Reservation policies, similarly, seek to place a premium on some; in effect placing the non-qualifying at a relative disadvantage. The regulatory mechanisms, however, cannot generate investments on the desirable lines. It may be possible to restrict one type of economic activity but this does not follow that the activities of the desired types would start taking place on their own. There would, therefore, be a justification, along with regulations, for evolving of promotional and support mechanisms in the processes of planned socio-economic development. The wide network of financial, technical and developmental institutions whose primary task is to finance easy and cheap credit can rightly be categorised as promotional. The same holds true of fiscal and monetary concessions and agencies which provide risk capital to new ventures or render technical guidance and assistance to new entrepreneurs. The third category of state action for promotion of overall industrialisation in a plan framework would be in the activities undertaken by way of direct participation in economic activity by the state. This may be in the form of creating new economic infrastructure (transport, power, banking) or in the
form of state enterprises. This is irrespective of the fact whether the enterprises are established as commercial establishments or not. Of the three types of state interventions in the economy a good deal of work has been done to examine the functioning and efficacy of different regulatory mechanisms. The state regulatory mechanisms in India have come under frequent reviews for various reasons. The ones who are deprived can only be expected to react and plead for abolition
of these systems. By their very character criticism of regulatory mechanisms should be a predictable phenomenon. The shortcomings of the system would be highlighted by those
who fail to enjoy the preferences they expected from the regulatory policies and mechanisms. The Hazari Report, Industrial Licensing Policy Inquiry Committee (ILPIC) Report, Memoranda submitted to Government by the Federation of Indian Chambers of Commerce and Industry (FICCI) and a number of other individual studies on the functioning of industrial licensing system in India are an indicator of the scrutiny that the industrial regulatory mechanisms have received over the past three decades. Similarly, the third type of state activity, that is, direct state intervention in economic activities, attracts considerable public attention and scrutiny that goes with public accountability. There are a multiple of institutions which continue to monitor and
evaluate the functioning of activities undertaken directly by the state. The Bureau of Public Enterprises (BPE), Parliamentary Committee on Public Undertakings (COPU), and the Comptroller and Auditor General of India (C&AG), are engaged in annual reviews on
the working of Public Enterprises. There is, however, one category of policies and programmes which gets very little attention; the category is that of 'promotional' activities. While we have drawn a distinction between regulatory, promotional and direct intervention it is true that the distinctions are not always easily discernable in many concrete situations. For instance, the difference between direct participation and promotional policies can be a thin one. To illustrate, one would find it difficult to say if the fact of having a substantial share in the risk capital in a private sector company should be equated with direct participation with regulatory motive or undertaken as a promotional measure. It is well known that public sector financial institutions hold a substantial share in the risk capital of the Indian corporate sector in general and the large private corporations, in particular.4 The present situation has emerged out of three types of independent developments. One, due to nationalisation of insurance and large private commercial banks the public sector institutions have emerged as important share holders. Two, the public sector financial institutions had to take up the 'left overs' due to the underwriting activity of the public issues floated by the private sector companies. Also, the financial institutions had to acquire shares in the open market not only for earning higher returns but also to bail out some of the private enterprises and to ensure the stability of the stock market. Three, in a few cases loans provided to private sector companies were converted into equity as per the initial understanding. And four, public sector institutions acquired significant shares to provide security to new investments. The last category is a follow-up of the policies to promote joint enterprises where in public sector and a private entrepreneur set up a new enterprise and the risk capital is so shared as to have almost equal stake of both.

Joint Sector: The Concept

The concept of joint sector wherein Government and private entrepreneurs join hands to establish new enterprises is indeed an old one. It was quite normal for many of the erstwhile princely States (the state of Baroda, Travancore & Cochin and Hyderabad to name only a few) to share risk capital in large industrial projects. At the international level, however, positive contribution by the Japanese Government in promoting new commercial enterprises is only too well known. Even prior to India's political independence it was a widely shared view that the
state in the independent India would have to play an active role in providing financial and
other support to new and small entrepreneurs. The need for the establishment of Industrial
Finance Corporation to promote and assist new enterprises was underlined by the National Planning Committee as also by the Economic Programmes Committee, both under the Chairmanship of Jawahar Lal Nehru -- the first Prime Minister of India. The World Bank Team which visited India in 1954 recommended that India needed financial institutions which can promote as also provide initial risk capital to those who have no support of the already well established business families.6 While the Industrial Finance Corporation of India (IFCI) was established by the Government in 1948, the recommendations of the World Bank team led to establishment of the Industrial Credit and Investment Corporation of India (ICICI) in 1955.Later in 1964 Industrial Development Bank of India (IDBI) was established. In addition to these, India has three major public sector investment bodies, namely, (a) the Life Insurance Corporation of India (LIC); (b) the General Insurance Corporation of India (GIC); and (c) the Unit Trust of India (UTI). Besides these, there is Industrial Reconstruction Corporation of India (IRCI) which provides term finance to rehabilitate sick industrial units.
In the early 'fifties it was also realised that in view of the large size of the country the task of promoting new and small entrepreneurs could not be left to a few national level institutions. Thus, State Financial Corporations Act was enacted in 1952 to "assist smaller industries in different provinces".8 As a consequence of this legislation there are by now (i.e. the year 1986) 18 State Financial Corporations (SFCs) and 25 State Industrial Development Corporations (SIDCs).9 The functions of these institutions are wide ranging in nature, covering different aspects of promotional and developmental activities in addition to advancing of term loans and financing of industrial projects. The State Financial Corporations (SFCs), were basically visualised to extend assistance to small and medium level industries. The SIDCs were expected to provide assistance by conducting techno-economic surveys, identification of projects, selection and training of entrepreneurs, development of backward areas, constructing industrial sheds, providing infrastructural facilities and directly participating in the share capital of new enterprises.
The State Industrial Development Corporations (SIDCs) and State Industrial Investment Corporations (SIICs) have come to occupy an important place in most of the States of India. There are, however, variations in the nature and size of their operations. The SIDCs, generally speaking, obtain Letters of Intent/Industrial Licenses for setting up industries in the fields where there is scope for development and in particular where private risk capital is not easily forthcoming for establishment of new industries. After obtaining the necessary permission/ license from the Government of India, the SIDCs identify private parties which could implement the industrial projects in the form of 'joint sector' enterprises (JSEs)
The Joint Sector Enterprises in India:

The main thrust to the joint sector came during the post-1970 period. Prior to India's independence a number of Joint Enterprises were established by a few erstwhile Princely States. Air India International provides another notable example. The company was established by the Tatas in 1948. The Government of India provided 49 per cent share in its equity. The Government subsequently acquired an additional 2 per cent equity from the Tata Sons Ltd to convert it into a government company. In spite of the government holding 51 per cent of the equity the Air India continued to be under the management of the Tatas until it was fully taken over by the Government of India in 1953.There were twelve other undertakings in 1966-67, in which the Central Government had a substantial stake in equity capital without having direct managerial control. In a few cases equity participation by foreign enterprises in the public sector
enterprises was also allowed. Madras Fertilizers Ltd. for example, was established as a joint enterprise in participation with Amoco Inc. (USA) and National Iranian Oil Co.(Iran). The same foreign companies were partners in Madras Refineries Ltd too. Cochin Refineries Ltd. was established with the participation of the Phillips Petroleum Co. (USA) and Duncan Brothers Ltd.; Lubrizol India Ltd.; with the Lubrizol Corporatio (USA); and Triveni Structurals Ltd., with Voest Alpine (Austria). Maruti Udyog Ltd., is one of the latest cases where a foreign private corporation has been invited to join hands with the Government. A feature of all the above cases appears to be that public sector holdings are of majority nature and these are managed by Government nominated boards. The Industrial Policy Resolution (IPR) of 1956 had classified industries into three main categories, depending on the role that the state was to play in each industry;
1. The industries, the future development of which will be the exclusive responsibility of the state.
2. The industries which will be progressively state-owned and in which the state will generally take the initiative in establishing new undertakings and wherein private enterprise will be expected to supplement the efforts of the state in developing these industries.
3. The non-scheduled Industries are left to the initiative and enterprise of the private sector.

The IPR, 1956 envisaged that the state would help the private sector in fulfilling the role assigned to it within the planning framework and the industrial policy in force from time to time. In doing so, the state will continue to foster institutions to provide financial aid to these industries, and special assistance will be given to enterprises organised on co-operative lines for industrial and agricultural purposes. In suitable cases, the State may also grant assistance to the private sector. Such assistance, especially when the amount involved is substantial, will preferably be in the form of participation in equity capital, though it may also be in part in the form of debenture capital. In September 1960, the Government of Maharashtra appointed a Consultative Committee on the Third Five Year Plan, which set up a Study Group on "Joint Sector Enterprises for Industrial Development" under the Chairmanship of Shri R.G. Saraiya.
The Committee, in its report submitted in May 1961 expressed the opinion that: There can be no doubt that there exists considerable scope and justification in equal measure to establish industrial undertakings in the "Joint Sector". The Industrial Policy Resolution, 1956, has reserved certain types of industries exclusively for establishment by the Government and certain others have been listed where both Government and private enterprise can operate. Another important purpose of the Joint Sector scheme ought in our view to be the need to attract entrepreneurs to the relatively backward areas of the State in the matter of industrial development. Many of these have valuable resources but risk capital is not easily attracted to
them because of the many other uncertain factors of industry in the minds of the entrepreneurs. State partnership would help considerably in removing such doubts in cases where the scheme is otherwise economic and proven. Thus, the concept of joint sector as visualised by the Saraiya Committee was in the form of an industrial organisation that would promote industrial development in the State (Maharashtra in this case).
The development of the joint sector in its present form, can also be associated with the recommendations of the Industrial Licensing Policy Inquiry Committee (ILPIC), 1969.
It was based on the consideration that since a large proportion of the cost of the new projects was financed by the public financial institutions directly or indirectly, the financial institutions should be allowed to share the profits and capital appreciation in the private sector companies. According to the Committee: When public sector financial assistance on any significant scale is provided for the private sector ..., project should (also) necessarily be treated as belonging to 'joint sector' with proper representation for the state in its management. The Committee favoured conversion of loans given to large projects into equity. The joint sector form was also expected to "ensure that the management of industry is conducted according to the overall policies laid down by government and that public interest and not merely private profit would guide the operations of large industrial undertakings in the private sector". The Committee saw a way of curbing the concentration of economic power with the help of this approach. In their view joint sector, as formulated along the lines suggested, would be "an important instrument for the
attainment of this objective and it is likely to be more effective than licensing." The ILPIC's recommendations covered many other aspects of industrial policy.
Following these recommendations, the Government issued a policy statement in February 1970. It was announced that the "joint sector" concept as suggested in the ILPIC Report was "accepted in principle".It was also stated that this concept would be applied in "appropriate cases" of major projects taken up by the private enterprise groups in the core and heavy investment sectors.18 The reactions to this decision were of varied nature. In particular, the Indian Big Business became quite apprehensive of this move. They feared that joint sector could amount to "back door nationalisation". FICCI and other business associations expressed their concern over the acceptance of the ILPIC recommendations.
The views of the private industry seem to have been reflected in the Memorandum submitted by J.R.D. Tata to the Government of India on May 17, 1972. Tata suggested that a Joint Sector enterprise should be intended to be a form of partnership between the private sector and Government in which government's participation will not be less than 26 per cent and the day-to-day management will normally be in the hands of the private sector partner and control and supervision will be exercised by board of directors on which Government is adequately represented. Regarding the Central and State participation, the Memorandum suggested that the Central Government should involve itself in a joint sector company only when the project required very large funds and leave the smaller ones to the State Government. In case where a majority equity was not considered necessary, the Tata Memorandum suggested: the ownership of capital should be distributed as 26 per cent by the government, 25 per cent by the private company and the balance by the general public.
According to J.R.D. Tata, the management of a joint sector enterprise should remain in the hands of private sector partner and the joint sector company should not be burdened with cumbersome and time consuming procedures enforced in the public sector enterprises. Further he opined that there was a need to examine if "some of the well run public enterprises can be brought under the Joint Sector". This was expected to release public funds for other priority projects. Thus in his scheme of things, the joint sector was to play only a promotional role in contrast to the objectives and the philosophy of the ILPIC's recommendations.
In February 1973 the Government of India clarified its stand on the concept of 'joint sector'. It was explained that : In appropriate cases, the Central and State governments have taken equity
participation either directly or through their corporations with private parties .... This type of Joint sector units is a device which may be resorted to in specific cases having regard to the production targets of the Plan. Each proposal for establishing a joint Sector unit of this nature will have to be judged and decided on its merits in the light of government's social and economic objectives. The joint sector will also be a promotional instrument, as for instance, in cases where state governments go into partnership with new and medium entrepreneurs in order to guide them in developing a private Industry.
The Government was expected to ensure an effective role for itself in order to guide the
"policies, management and operations". To operationalise this policy decision the Government issued guidelines on February 8, 1973. The instructions issued were as follows:
1. The State Industrial Development Corporations (SIDCs) hold a minimum of 26 per cent in the equity capital of the companies promoted by them;
2. No private partner holds equity capital more than the SIDCs except with the prior approval of the Central Government; and
3. No Large Industrial House (LIH) or Foreign majority company can have any holding at all in the projects promoted by SIDCs except with the prior permission of the Central Government.
This was concurred by the IDBI and in all joint sector projects government or its nominees were to hold more than 25 per cent in the equity capital. In practice, a variety of joint sector enterprises have come into being. They may be described as:
a) An enterprise established by two or more partners; one of them being a state government or state public enterprise.
b) An enterprise established by the central government or a central public undertaking with equity participation of the private sector.
c) An enterprise which is already in existence as a public enterprise or subsidiary of a public enterprise transformed into a joint sector enterprise through the disinvestment of a part of the shareholding of the government to private companies or general public singly or collectively.

Joint Sector : Over-View

To begin with, for undertaking any study of the working of the scheme one needs to identify joint sector enterprises established by different State Governments. Since the implementation of the joint sector has been entrusted to the States there is no one central agency to monitor the progress of the scheme.21 As the State level promotional organisations are also participating in non-joint sector ventures and taking up varying levels of equity, identification of joint sector companies becomes a difficult task. The task becomes more difficult since a number of other corporations (besides SIDCs and SIICs) like electronics development corporations at the State level have also started promoting industrial projects in the joint sector. Keeping track of conversion of existing companies (belonging both to the private as well as state level public sector) is also a formidable task. This might probably explain the lack of many serious empirical studies on the functioning of the joint sector. We shall, in the following, make an attempt to construct a profile of the joint sector companies, draw broad conclusions and raise issues for further debate. In our discussion we shall keep in mind the general objectives of the joint sector scheme which are reflected in various official announcements. These can broadly be stated as follows:
1. Social control over Industries: Participation in the ownership and management of enterprises jointly with private entrepreneurs gives the state an effective instrument of controlling monopolies, concentration of economic power and business malpractices; and

2. Development of Backward areas: Due to the active role assigned to the state, joint sector enterprises can be made to be located in relatively industrially backward areas which would help in achieving balanced regional development. This was necessary because many of the backward
areas possess rich natural resources but risk capital was not easily forthcoming.

3. Resource Mobilization: State participation to the extent of 25 per cent or more in equity capital in an enterprise would lead to the mobilization of 70-75 per cent of the resources by the private promoters and general public.
As discussed above, an enterprise is called a joint sector enterprise if the SIDCs or Government hold 26 percent equity or more, private promoter 25 per cent and the balance by the general public. When the degree of equity participation by the SIDCs varies between 10 to 15 per cent of the equity capital and balance is held by private promoters and the general public, the project is termed as assisted sector venture. In the present study, we are concerned with joint sector enterprises only.
The sources of information for the compilation of joint sector enterprises are mainly the Annual Reports of SIDCs, Directories brought out by SIDCs, the Bombay Stock Exchange Official Directory, Company Prospectuses, and Press Clippings of the Corporate Studies Group. Individual SIDCs and other state level public sector enterprises were also approached directly to provide list of joint sector companies promoted by them.
It was decided to take all the cases where the projects were designated as joint sector companies by their respective promoters. For the purpose of the present study, we have excluded the ones where there is no identifiable private promoter. In all we have identified 485 cases of joint sector enterprises.

Table – 1

Showing Growth of Joint Sector Companies in India Since 1970
S.No. Year of Incorporation Number of Companies
(1) (2)
1 before 1970 12
2 1970 6
3 1971 7
4 1972 12
5 1973 25
6 1974 35
7 1975 29
8 1976 26
9 1977 17
10 1978 26
11 1979 31
12 1980 35
13 1982 33
15 1983 31
16 1984 33
17 1985 31
18 1986 48
Total 485

Source: Institute for Studies in Industrial Development.

Table - 1 shows the distribution of the 485 companies according to their respective year of incorporation. Understandably more than five per cent of the JSEs were established during the pre - 1972 period. Between 1972-74, 82

Table – 2

Government Companies Converted into JSEs during 1973 – 86

S.No. Name of the company State House Association
(1) (2) (3)
1 Gujarat Prime Movers Ltd Gujarat
2 Bodh Gaya Ceramics Ltd Bihar
3 Punjab Agro-Furane Ltd Punjab
4 XLO Beral (Punjab) Ltd Punjab FCC
5 Bihar Sponge Iron Ltd Bihar
6 Madhya Pradesh Fibres Ltd Madhya Pradesh APEEJAY
7 Vindhya Telelinks Ltd Madhya Pradesh BIRLA
8 IPITATA Sponge Iron Ltd Orissa TATA
9 IPITEX International Ltd Orissa
10 Webel Televion Ltd West Bengal NICCO
11 Damodar Cement & Slag Ltd West Bengal
12 Gujarat Insecticides Ltd Gujarat
13 Gujarat Binil Chemicals Ltd Gujarat
14 Gujarat Mulco Electronics Ltd Gujarat
15 S.N. Corporation Ltd Orissa
16 Haryana Concast Ltd Haryana
17 Webel Vedio Devices Ltd West Bengal GOENKA
18 Webel Tele. Inds. Ltd West Bengal PHILIPS
19 Andhra Pradesh Heavy& Engg. Andhra Pradesh
20 Dielectro Magnetics Ltd Kerala
21 Girnar Scooters Ltd Gujarat
22 Aravali Sarachalit Vahan Ltd. Rajasthan
23 Bihar Finished Leathers Ltd Bihar
24 Punjab Engg. Cutting Tools Ltd Punjab
25 Upai Ltd Uttar Pradesh
26 Punjab Display Devices Ltd Chandigarh THAPAR
27 Tawi Scooters Ltd J & K
28 Gujarat Aromatics Ltd Gujarat LALBHAI
29 Gujarat State Machine Tools Gujarat
30 Andhra Pradesh Rayons Ltd Andhra Pradesh THAPAR
31 Deccan Fibre Glass Ltd Andhra Pradesh GOENKA
32 Andhra Pradesh Refractories Ltd Andhra Pradesh
33 Madhya Pradesh Vidyut Yantra Madhya Pradesh
34 Goa Carbon Ltd Gujarat GOENKA
35 Punjab Breweries Ltd Punjab UNITED BREW
36 Karnataka Blades Ltd Karnataka GOENKA
37 Almora Manganesite Ltd Uttar Pradesh TATA
38 M.P. Agro Morarji Fertilizers Madhya Pradesh D MORARJI
39 Maharashtra Scooters Ltd Maharashtra BAJAJ
40 U.P. Twiga Fibreglass Ltd Uttar Pradesh
41 A.P. Automobiles & Tyres Ltd Andhra Pradesh
42 Punjab Spinning & Weaving Mills Punjab
43 Malwa Cotton Spinning Mills Ltd Punjab OSWAL


  1. Hi,The company should have an Article of Association stating its rules, data, and procedures of its entry and registration.A company with company formation in Qatar that shall not have a corporate personality before its registration.Thanks....