PRICING POLICY IN PUBLIC ENTERPRISES

The investment policy of the Government aims at channelizing public investment in basic and infrastructural sector and for continuing with the provisions of essential commodities. The pricing policies in the Central Public Sector Enterprises (CPSEs) are therefore, interlinked with the investment policies. Another dimension of the pricing policy is to create a balance between the social objectives of these enterprises and their commercial viability and also the overall economic policies of the Government.

It has been accepted principle that prices of products produced and service rendered by public enterprises should be so determined that at a satisfactory level of capacity utilization these enterprises not only cover their costs of production, but also generate a reasonable amount of surplus.

This will assist in capital formation and enable redeployment of the capital for further strengthening of economic and social infrastructure. In this sense, product making in public enterprises is not quite inconsistent with the public purpose. It is the Government’s expectation that with the excusive investment in the public sector enterprises, these enterprises do not at any stage erodes the resource base, but strengthens it. It is therefore, recognized that subject to the total overall impact of certain product prices on the economy, the producers in the public sector should generally have proper control in determining the prices of their commodities. These policies are applicable to public sector as well as private sector and are discussed below:

        i.            AGRICULTURE

An agricultural product comprises both food grains and industrial raw materials. The stress is on adoption of a pricing policy which will provide a minimum fair return to the producers, reduce fluctuations in prices and achieve an equitable distribution of essential consumer goods. An efficient public distribution system is an essential ingredient to ensure that this pricing strategy Works equitably. Under this policy, Govt. of India fixes Minimum

Support prices (MSP) in respect of major food grains and industrial raw materials on the recommendation of the commission on Agricultural Costs Prices (CACP). At the same time, Government ensures supply of major grains to weaker sections of society at reasonable rates through public distribution system.

Food Corporation of India (FCI) implement procurement and public distribution policy for food grains while Jute Corporation of India and cotton corporation India implement MSP policy for jute and cotton respectively.

      ii.            COAL

The pricing of coal has been completely deregulated after colliery control order, 1945. Under the colliery control order, 2000, the central government has no power to fix the prices of coal and the coal companies themselves are competent to fix grade-wise prices for coal produced by them based on marketing economics.

    iii.            FERTILIZERS

At present, only urea, which is the main nitrogenous fertilizer constituting about 60% of the total fertilizer consumption in the country, is under statutory price and partial distribution control. Urea is sold/made available to the farmers at statutory notified sale price. All other varieties of fertilizers were removed from price and distribution control between August ‘92 and June ’94. However, Government of India still indicates the MPP in respect of major phosphates and complex fertilizers, namely Di-Ammonium phosphate(DAP), Muriate of Potash(MOP) and Complex Fertilizers. The MR for Single supper phosphates (SSP) are indicated by the respective State Government. The statutorily notified sale price and indicative MRP is generally kept less than the cost of production of the respective manufacturing unit. The difference between the cost of production and the selling price/MRP is paid as subsidy/concession to manufacturers. As the consumer prices of both indigenous and imported fertilizers are fixed uniformly, financial support is also given on imported urea and decontrolled phosphates and potassic fertilizers.

     iv.            STEEL

Prices of steel products have been fully decontrolled and the Central Public Sector Enterprises (CPSEs) are free to determine prices of their products/service based on free interplay to market forces. However, the Government, through its policy initiatives attempts to ensure adequate availability of steel in the domestic market and a stable price regime.

       v.            PETROLEUM PRODUCTS

Effective from 1/4/02, pricing of petroleum products except for PDS  kerosene and domestic LPG , has become market determined. As per the decision taken at the time of announcement of APM dismantling, post APM Government subsidies on PDS kerosene and Domestic LPG were to be on flat rages basis to be provided from the fiscal budget and after providing for this subsidy , the retail prices were to vary as per changes in the international prices.

     vi.            POWER

The power tariff for the sale of power by the generation company to the distribution company and to other persons is determined/regulated as per the terms and conditions notified by the Government of India vide its notification dated 30^th March 1992 and subsequent amendments made therein from time to time.

As per the Electricity Act, 2003, the Regulatory commission shall be guided by Electricity Tariff policy to be notified by the Central Government in near future.

   vii.            PHARMACEUTICALS

For fixations of prices of pharmaceutical products in Central Public Sector Enterprises (CPSEs), the Drugs Price Control Order (DPCO), 1995 is followed. As per DPCO, the pharmaceutical products are categorized as scheduled and Non-scheduled formulations. The prices of scheduled products are fixed by the National pharmaceutical pricing Authority (NPPA) under the provisions of DPCO. The Maximum Retail Prices (MRP) of scheduled formulations are fixed and revised as per announcement/notification by the Government of India. In case of Non-scheduled formulations the prices are fixed by the CPSEs on cost plus basis.

PURCHASE PREFERENCE POLICY

The policy of purchase preference for products and services of Central Public Sector Enterprises (CPSEs) by Government Departments/Organizations and other CPSEs was introduced in 1992 by replacing the earlier policy of both price and purchase preference operating since 1971. The underlying objective of this policy is to enable CPSEs to adjust to the new environment of competitiveness and market mechanism in the wake of liberalization/globalization and to assist these enterprises in improving their profitability by better utilization of their installed capacities.

The purchase preference policy (PPP) was initially made applicable for a period of three years. However, over the period of time it has been reviewed and extended from time to time with or without certain modifications. The policy was last reviewed by the Government in June,2005 and extended vide O.M. dated 18.07.2005 it with certain modifications for a period of three years beyond 31.3.2005 with clear stipulation that the policy will be terminated with effect from 31.3.2008.