Economics · Ch 14 — Liberalisation, Privatisation and Globalisation: An Appraisal
Privatisation
Privatisation
Privatisation means giving up the government's ownership or management of a state-owned enterprise. A government company can be turned into a private one in two ways: either the government withdraws from owning and managing a public sector company, or the company is sold outright to private hands.
One of the main routes to privatisation has been disinvestment — selling off part of the equity (the shareholding) of public sector enterprises to the public. According to the government, the purpose of these sales was mainly to improve financial discipline and to help modernise the enterprises. It was also expected that private capital and private managerial skills could be used to lift the performance of these units, and that privatisation would give a strong push to the inflow of foreign direct investment (FDI).
Box 3.1: Navratnas and Public Enterprise Policies
To improve efficiency, infuse professionalism and let profitable Public Sector Enterprises (PSEs) compete more effectively in the newly liberalised global environment, the government identifies certain PSEs and grants them greater managerial, financial and operational autonomy under the graded status of maharatna, navratna and miniratna.
A few examples: among the maharatnas are Indian Oil Corporation Limited and the Steel Authority of India Limited; among the navratnas are Hindustan Aeronautics Limited and Mahanagar Telephone Nigam Limited; and among the miniratnas are Bharat Sanchar Nigam Limited, the Airport Authority of India and the Indian Railway Catering and Tourism Corporation Limited.
Many of these profitable enterprises were originally formed in the 1950s and 1960s, when self-reliance was a key element of policy, and were set up to provide infrastructure and direct employment while delivering quality products to the public at a low cost.
Granting these graded statuses did improve the companies' performance. Some scholars, however, argue that rather than helping public enterprises expand and become global players, the government has partly privatised them through disinvestment. More recently the government has decided to keep these enterprises within the public sector and let them grow in global markets and raise resources on their own from the financial markets.
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