CHAPTER –
3
ECONOMIC
REFORMS IN INDIA SINCE 1991
PART - 5
PRIVATISATION
PRIVATIZATION – Privatisation
refers to any process that reduces the participation of the state / public
sector in economic activities of a country. It implies a greater role for private capital
and enterprise in the functioning of an economy. It may result from any one of
the following policy initiatives:
(1) The Transfer of ownership from government to private sector. It
implies denationalization.
(2) Disinvestment i.e. sale of a part of equity of public sector
enterprises to private entrepreneurs.
(3) Entry of private sector industries in to exclusively reserved
industries for the public sector.
(4) Limiting the scope of public sector and no further expansion of the
existing public sector.
PURPOSE OF PRIVATISATION
1. Improvement financial discipline
2. Facilitate modernization
3. Improve production and managerial efficiency
4. To use as a means of manage fiscal deficit
5. Providing FDI inflow.
MEASURES OF PRIVATISATION
(A) Ownership Measures –
(i) Total De-Nationalisation,
(ii) Joint venture.
(B) Organisational Measures
(i) HoIding company,
(ii) Leasing,
(iii) Disinvestment.
WAYS OF PRIVATISATION
1. Strategic Sale: When government sale its share to the individual and
management passes over to the buyer.
2. Disinvestment: When government is selling of part of shares of PSUs to the
individual and managerial control remain in the hands of government. This is
done to improve financial discipline and modernization. This is done as Public
Auction; Public Tender; Initial Public Offering (IPO); Funds From Operations
(FFO); Offer for Sale (OFS) etc.
DISINVESTMENT POLICY:
Public Sector Disinvestment Commission – G. V. Ramakrishna
The method of disinvestment was used during 1991-92 to 1998-99
From 1999-2000 to 2003-2004, the emphasis shifted to strategic sale.
From 2004-2005, the government again resorted mostly to the method of
selling of shares.
To know more data about Disinvestment:
Department of Investment and Public Assets Management – www.diapm.gov.in
POLICY OF MAHARATNS, NAVARATNAS AND MINIRATNAS
NAVARATNAS: In 1996, the government identified some high performing and
profit making PSUs which have nicknamed as Navaratns. Number of total
Navaratna Companies are 14 as on 01.01.2020.
MAHARATNAS: Government has given status of Maharatnas to those Navaratna
companies which show better performance. Number of total Maharatna
Companies are 10 as on 01.01.2020.
MINIRATNAS: The government has also granted financial and operation
autonomy to some other profit making PSUs. Number of total Miniratna
Companies are 62 (Category I) and 12 (Category II) as on 01.01.2020.
FACTORS ENCOURAGING PRIVATISATION IN INDIA
1. New Economic reforms
programmes,
2. Increasing debt burden on government,
3. Presence of foreign companies,
4. To make Indian companies more competitive,
5. Broad base for increasing production.
Steps of Indian Economy towards privatization
1. Contraction of Public sector,
2. Participation of private sector,
3. Abolition of Industrial licensing,
4. Improvement by MOU,
5. Re-organisation of public sector,
6. Disinvestment of equity of public sector,
7. Establishment of National Renewable fund,
8. Removal of investment control on big houses,
9. Policy related to sick units,
10. Sale of shares of public sector undertaking.
ARGUMENTS IN FAVOUR OF PRIVATISATION
1. Reduction in Budgetary Deficit,
2. Less political intervention,
3. Improvement in economic efficiency and technical efficiency,
4. Increased accountability,
5. Globalisation of economy,
6. Increase in new job opportunities,
7. Increase in industrial growth,
8. Increase in foreign investment,
9. In line with international trade,
10. Encouragement to new Inventions,
11. Promotes consumer’s sovereignty,
12. Quick Decision Making,
13. Profit Making decision,
14. Competitive Environment,
15. Successive Planning.
ARGUMENTS AGAINST PRIVATISATION
1. Concentration of economic power,
2. Substitution of monopoly power.
3. Lop-sided / Unbalanced development of industries,
4. Industrial sickness,
5. Entry of multinationals,
6. No safety for the weaker sections,
7. Social Welfare Neglected,
8. Corruption,
9. Rise in level of Unemployment,
10. No positive relationship between ownership and performance,
11. Under Evaluation of assets of PSUs.
REFERENCE VIDEO
New Economic Policy / Economic
Reforms 1991 – Part 5
(Privatization)
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