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States urged to help privatise state-run firms

An Indian federal minister on Tuesday asked provincial governments to help New Delhi speed up privatisation of state enterprises to unlock a huge amount of stagnant funds.

"The state governments control a large amount of public sector enterprises. At a time when they were set up they were great temples of India. Today, we have to define a new role for them," Information and Divestment Minister Arun Jaitley told a business conference in Bangalore.

"There was a historic need for them when they were created as there was no private sector then. We are not trying to dismantle them, but some changes are required," he told foreign and Indian businessmen.

Of the 235 public sector enterprises in India, more than 100 are loss making. In one third, capacity utilisation is less than 50 per cent.

An accumulated Rs 2,300 billion ($ 53 billion) of investment in state-owned firms yielded a profit of just $ 4.5 billion in the fiscal year to March 1999.

State-run firms dominate the economy, spanning sectors such as banking, telecommunications, aviation, defence, shipping, insurance and power.

"There is large amount of money involved in these firms. It is not bringing in the best of results. When state monopolies do not discharge their function as efficiently there is a need to divest and change management," he said.

"The federal government and the states must seriously consider the issue of public sector reforms to withdraw large amount of reserves lying locked in them and invest it in the social sector."

Jaitley said the government was looking at strategic partners to take a stake in the management of some state firms.

The government's divestment target for fiscal 1999-2000 of Rs 100 billion ($ 2.2 billion) had not been met, with New Delhi earning only Rs 26 billion from state sell-offs.