Economics · Ch 9 — Economic Policy of India Since 1991
Privatisation
Privatisation
Privatisation
Privatisation refers to the process of reducing the role and ownership of the public sector in the economy, by transferring the ownership, management, or control of public-sector undertakings (PSUs), wholly or partly, to the private sector. The underlying rationale was that many PSUs, over the decades, had become chronically loss-making, over-staffed, technologically outdated, and subject to political interference in day-to-day management — problems that a private-sector-style, market-disciplined ownership structure was expected to address.
Main forms/routes of Privatisation:
- Disinvestment. The government sells a part of its equity/shareholding in a PSU to private investors or the general public (through the stock market), while typically still retaining a majority stake and overall ownership control. This is the most common and widely used route, and a Disinvestment Commission was set up in 1996 specifically to identify PSUs suitable for disinvestment and recommend the extent of stake sale.
- Strategic sale. The government sells a substantial or majority stake in a PSU, transferring not just ownership but effective management control to a private buyer — a deeper form of privatisation than routine disinvestment.
- Contracting out / management contracts. The government retains ownership of an asset or enterprise but hands over its day-to-day management or specific functions to a private party under contract, without transferring ownership itself.
Improving public-sector efficiency without full privatisation. Not every reform to the public sector involved selling it off. The government also granted greater operational and financial autonomy to well-performing PSUs, formally recognising the best of them as Maharatna, Navratna, and Miniratna companies — a status that allows these PSUs greater freedom in investment decisions, joint ventures, and international operations without needing case-by-case government approval, precisely so they could compete more effectively even while remaining publicly owned.
Why privatisation, not always full sell-off
Privatisation in India has mostly meant partial disinvestment rather than a wholesale exit of government from industry. Strategic and sensitive sectors — atomic energy, railways, and certain defence-related production — have deliberately been kept outside the scope of privatisation, reflecting a considered policy position rather than an oversight: some activities are treated as core state functions regardless of the wider shift toward a market-oriented economy.
Reasons cited for pursuing Privatisation: …
The process of reducing the government's ownership and role in the economy by transferring ownership, management, or control of public-sector enterpr …
The sale by government of a part of its equity/shareholding in a public-sector undertaking to private investors or the public, typically while ret …
A status granted to well-performing public-sector undertakings giving them greater financial and operational autonomy (in investment, joint ventures, and overseas operations) without full …