Joint Sector : Meaning, Advantages and Government Policies

What is Joint Sector ?

Joint Sector refers to a form of partnership between the public sector (government) and the private sector (private enterprises) in the context of the economy. It is an extension of the concept of a mixed economy, where both public and private enterprises coexist and contribute to economic development. The idea of the joint sector was initially introduced by the Industrial Policy Resolution of 1956, which advocated government participation in the equity capital of private-sector enterprises. The primary objective was to promote a socially determined pattern of industrial growth and prevent the concentration of economic power in a few hands.

According to J.R.D. Tata, a prominent industrialist and business leader, a joint sector enterprise is intended to be a partnership between the private sector and the government. In such enterprises, the government’s participation in capital should not be less than 26 percent. The day-to-day management is generally entrusted to the private sector partners, while control and supervision are exercised by a board of directors with adequate government representation.

The Dutt Committee, also known as the Industrial Licensing Policy Inquiry Committee, in its report in 1969 recommended the creation of joint sector undertakings to curb private monopolies and to harness the benefits of large-scale industries while preventing the concentration of economic power in the private sector. The joint sector includes both new undertakings where the government holds at least 26 percent of the equity and existing private enterprises brought under joint sector management through the conversion of loans into equity by public financial institutions. This arrangement allows the government to participate in and influence the direction and control of these enterprises while still allowing the private sector to play a significant role in their day-to-day operations.

Advantages of Joint Sector

The following are the advantages of the Joint Sector:

1. Resource Pooling: The joint sector allows for the combination of financial resources from the private sector and managerial, organisational, and technological expertise from the public sector. This synergy enables better utilization of available resources and enhances the overall performance of the enterprises.
2. Operational Autonomy: Joint sector enterprises enjoy more operational autonomy and flexibility compared to fully state-owned enterprises. They can make business decisions and implement strategies within the framework of socio-economic policies set by the government.
3. Curbing Monopoly and Concentration of Economic Power: The joint sector serves as a useful tool to curb monopoly and concentration of economic power in the country. By involving both public and private sectors in the management, it promotes competition and prevents excessive dominance by a single entity.
4. Suitability for Mixed Economy: The joint sector concept is well-suited for countries with mixed economies, like India, where both growth and social justice are essential goals. It allows for a balanced approach that considers both economic development and equitable distribution of benefits.
5. Viable Alternative: The joint sector is seen as a viable alternative to both state capitalism (complete nationalization) and private capitalism (unrestricted free enterprise). It combines the advantages of private sector efficiency with public sector control and representation, striking a balance between different interests.
6. System of Management: For the joint sector to succeed, a suitable system of management must be evolved. The management should have the necessary freedom to run the enterprises on business principles, while still maintaining public control through government representatives on the board of directors.

Overall, the joint sector presents an attractive model that can harness the strengths of both the public and private sectors to achieve economic growth and social objectives. However, its success relies on mutual understanding, cooperation, and effective management between the private and public sector partners. With proper implementation, the joint sector can be a valuable component of a mixed economy, fostering development while maintaining checks on the concentration of economic power.

Government Policies on Joint Sector

The government policies on joint sector enterprises in our country are designed to foster collaboration between the public and private sectors, harnessing their respective strengths for mutual benefit. The Central Government has laid down the following guidelines for the ownership and management of joint sector enterprises:

1. Eligible Industries: Joint sector projects are welcome in industries from which the private sector has been excluded. This means that the joint sector is encouraged in sectors where private enterprises are not allowed to operate independently.
   
2. Foreign Participation: If a big business house or a foreign majority company wants to participate in a joint sector project, prior permission of the Central Government is essential. This suggests that foreign collaboration in joint sector enterprises is subject to government approval.
   
3. Equity Ownership: The distribution of equity ownership in joint sector enterprises without foreign collaboration is as follows: Government – 26 percent, Private Enterprise – 25 percent, Investing Public and Financial Institutions – 49 percent. In cases involving foreign collaboration, the ownership pattern is Government – 25 percent, Indian Investor – 20 percent, Foreign Investor – 20 percent, and Investing Public including Financial Institutions – 35 percent.
   
4. Limit on Shareholding: No single party can hold more than 25 percent of shares without prior approval of the Central Government. This restriction is imposed to prevent undue concentration of ownership and to ensure a balanced distribution of power among different partners.
   
5. Decision-making: Strategic or basic policy decisions in joint sector enterprises are made by the board of directors, on which all partners are represented. Tactical or operational decisions are made by the Chief Executive and his team of executives. The government ensures its effective voice in the management and operation of joint sector concerns.
   
6. Role of Chief Executives: Chief Executives in charge of production, marketing, finance, and personnel should have the status of whole-time directors. The Chairman of the Board is expected to integrate the divergent goals of the major partners to formulate policies that align with the overall objectives of the enterprise.
   
7. Composition of the Board: The board of directors may consist of a majority of government nominees, a majority of non-government directors, or directors in proportion to the equity ownership of various partners in the joint sector enterprise. This indicates that the composition of the board can vary based on the ownership structure and representation of partners.