Indian Economy Quiz: Public Sector Undertakings and Disinvestment

The correct answer is C, three. The Industrial Policy Resolution of 1956 placed every industry in one of three schedules. Schedule A listed seventeen industries whose future development was the exclusive responsibility of the state, Schedule B listed twelve industries that the state would progressively own while private units continued, and Schedule C covered all the rest, left to private enterprise under licensing.

Option B, four, is the number of groups in the earlier Industrial Policy Resolution of 1948, and that is the trap in this question. Options A and D, five and two, correspond to no classification in either resolution. The resolution of 1956 is called the Economic Constitution of India because this three-fold division settled the shape of Indian industry until the New Industrial Policy of 1991 cut the reserved list from seventeen industries to eight.

The correct answer is A, iron and steel. The Industrial Policy Resolution of 1948 made only three fields an exclusive monopoly of the central government: arms and ammunition, the production and control of atomic energy, and the ownership and management of railway transport. Iron and steel was placed in the next group, of six industries in which new units would in future be set up by the state while existing private units continued.

Option B, atomic energy, option C, railways, and option D, arms and ammunition, are exactly the three monopoly fields, so each of them is wrong as an answer to a question asking what was not a monopoly. The other industries in the second group with iron and steel were coal, aircraft manufacture, shipbuilding, mineral oils and telegraph and telephone equipment. Remembering the three monopolies is enough to answer most questions on the 1948 resolution.

The correct answer is B, the Industries (Development and Regulation) Act, 1951. Under this Act a company needed a licence to start a new undertaking, to expand capacity substantially, to make a new article or to change its location, and the schedule to the Act listed the industries covered. This power was the centre of what critics called the licence-permit raj, and most of it was abolished by the New Industrial Policy of 1991.

Option A, the Companies Act, 1956, governs the incorporation and management of companies, not entry into an industry. Option C, the MRTP Act, 1969, dealt with monopolistic and restrictive trade practices and with the size of large houses, and was replaced by the Competition Act, 2002. Option D, the Capital Issues (Control) Act, 1947, controlled the raising of capital from the public and was repealed in 1992 when SEBI took charge of the capital market.

The correct answer is B, the Industrial Policy Resolution, 1956. It is called the Economic Constitution of India because it settled for more than three decades which industries belonged to the state and which to private enterprise, through its Schedules A, B and C, and because it gave the Second Five Year Plan its heavy industry direction under the Mahalanobis strategy.

Option A, the resolution of 1948, was the first statement of the mixed economy and created the four-fold grouping, but it was replaced in 1956. Option C, the New Industrial Policy of 1991, is remembered for de-licensing and for cutting the reserved industries from seventeen to eight, and is sometimes called the charter of liberalisation rather than a constitution. Option D, the policy of 2021, defines four strategic sectors in which the government will keep a bare minimum presence.

The correct answer is B, 1991 and 1992. In that financial year, following the balance of payments crisis and the New Industrial Policy, the government began selling small blocks of shares of selected enterprises to financial institutions and mutual funds. These were minority sales that raised money without giving up control.

Option A, 1980 and 1981, belongs to an era of expansion of the public sector, not of sale. Option C, 1999 and 2000, is the year of the first strategic sale, of Modern Food Industries to Hindustan Lever, and also the year the Department of Disinvestment was created, which makes it the most tempting wrong answer. Option D, 2004 and 2005, is when the National Investment Fund was set up to receive the proceeds. Disinvestment began in 1991 and 1992; privatisation proper began at the end of that decade.

The correct answer is B, the Department of Investment and Public Asset Management, known as DIPAM. It was created as the Department of Disinvestment in 1999, was a separate Ministry of Disinvestment from 2001 to 2004, returned as a department and was given its present name in April 2016. It works under the Ministry of Finance, NITI Aayog recommends which enterprises should be taken up and the Cabinet Committee on Economic Affairs approves each case.

Option A, the Department of Public Enterprises, frames policy for the enterprises themselves, including the Maharatna, Navratna and Miniratna scheme. Option C, the Department of Economic Affairs, handles the Budget, markets and external finance. Option D, the Department for Promotion of Industry and Internal Trade, handles industrial policy and foreign direct investment policy, not the sale of government shareholding.

The correct answer is B. In official usage strategic disinvestment, or strategic sale, means that the government sells a substantial block of shares and hands over management control to the buyer, so the enterprise passes out of the public sector. This is privatisation in the real sense, and the sales of Modern Food Industries, BALCO, VSNL and Air India were of this kind.

Option A describes a minority stake sale, done through an offer for sale or an exchange traded fund, where the government raises money but remains in control. Option C describes closure and asset monetisation, which is a separate route under the policy of 2021. Option D describes an employee stock offering, which changes nothing about control. The distinction asked in papers is always between a minority sale and a sale with transfer of control.

The correct answer is B, Modern Food Industries (India) Limited. In 1999 and 2000 the government sold seventy-four per cent of this bread-making company to Hindustan Lever along with management control, and it is counted as India's first strategic sale, that is, the first real privatisation of a central enterprise.

Option A, BALCO, the Bharat Aluminium Company, was sold to Sterlite in 2001 and is often misremembered as the first because the sale was fought in court and in Parliament. Option C, Hindustan Zinc, went to the same group in 2002. Option D, Videsh Sanchar Nigam Limited, went to the Tata group in 2002, in the best known of the early sales. The order to remember is Modern Food, then BALCO, then Hindustan Zinc and VSNL, with the public issue of Maruti Udyog in 2003.

The correct answer is D, Mahanavratna, which does not exist. The three real grades are Maharatna, Navratna and Miniratna, and the last is itself divided into category one and category two, so there are four levels in practice. The Department of Public Enterprises administers the scheme, and the higher the grade, the larger the investment the board of the enterprise may approve without the government's permission.

Option A, Maharatna, is the highest grade and requires a listed Navratna of very large size with a significant global presence. Option B, Navratna, requires a Schedule A Miniratna of category one with a good record under its memorandum of understanding and a high score on six financial parameters. Option C, Miniratna, requires profit in each of the last three years and a positive net worth. All three are genuine categories.

The correct answer is B, G. V. Ramakrishna. The Disinvestment Commission was constituted in 1996 as an advisory body to examine enterprises referred to it and to recommend the extent, method and timing of disinvestment in each case, and it was chaired by G. V. Ramakrishna, formerly the chairman of SEBI.

Option A, C. Rangarajan, headed the committee of 1993 which recommended that up to forty-nine per cent of equity be sold in industries reserved for the public sector and more in other industries, and he later became Governor of the Reserve Bank. Option C, Bimal Jalan, was a Governor of the Reserve Bank and headed committees on other subjects. Option D, Arjun Sengupta, is associated with the memorandum of understanding system for public enterprises and later with reports on the unorganised sector.

The correct answer is C, 2005. The National Investment Fund was set up in that year so that money raised by selling government equity would not simply fill the revenue gap. The original design kept three-fourths of the income for social sector schemes in education, health and employment and one-fourth for the capital needs of profitable public enterprises, and the arrangement was restructured later so that proceeds go into the fund in the Public Account.

Option A, 1996, is the year of the Disinvestment Commission. Option B, 1999, is the year the Department of Disinvestment was created and the year of the first strategic sale. Option D, 2016, is the year that department was renamed the Department of Investment and Public Asset Management. Keeping these four years apart is exactly what the question tests.

The correct answer is B, banking, insurance and financial services. The policy of 2021 named four strategic sectors: atomic energy, space and defence; transport and telecommunications; power, petroleum, coal and other minerals; and banking, insurance and financial services. In these the government is to keep only a bare minimum presence, and in all other sectors enterprises are to be privatised, merged or closed.

Option A, hotels and tourism, is a standard example of a non-strategic activity from which the government has been withdrawing. Option C, trading in fertiliser and chemicals, is likewise non-strategic, though fertiliser production itself raises food security arguments. Option D, consumer goods manufacturing, has been treated as non-strategic since 1991. The point of the policy is that even in a strategic sector the presence is to be minimal, not that it is closed to private companies.