Disinvestment and Privatization of Public Sector Enterprises (PSEs) in India

Indias industrial policy after Independence in 1947 was shaped broadly in terms of the Industrial Policy Resolution of April 1948 which was reviewed in light of the experience gained, and the new Industrial Policy Resolution was adopted in 1956. It called for adoption of a socialistic pattern of society and the need for industries of basic and strategic importance to be in the public sector. During the 1950s and 1960s, India witnessed a massive expansion of public sector through new units, and nationalisation of existing units. Public sector enterprises (PSEs) did play an important part in the development of heavy and basic industries in India. However, after the initial exuberance of the public sector entering new areas of industrial and technical competence, a number of problems began to manifest themselves in many enterprises. Problems were observed in terms of: (a) low productivity, (b) lack of technological upgradation, (c) under-utilisation of installed capacity, (d) bureaucratic instead of professionalised management, (e) excessive political interference, (f) over staffing, and (g) labour indiscipline. Poor performance of PSEs, at least in financial terms, was reflected in low profits and in some cases mounting losses year after year. Profit-making enterprises generally enjoyed monopoly status and therefore their profits were not reflective of their operational efficiency. In the context of significant changes in fiscal, monetary, trade and industrial policies, the need for a review of the continued presence of public sector in a wide range of activity was felt in the late 1980s. Hence, privatisation of public sector enterprises became a part of the economic reforms process initiated in 1991. On July 24, 1991, the government presented to the Parliament, a Statement on Industrial Policy, which spelt out a new strategy for public sector and marked a turning point in the industrial policy of India. Policy of the present government regarding public sector was well articulated by Finance Minister Nirmala Sitharaman in her Budget Speech to the Parliament on February 1, 2021. It has the following objectives: (a) minimizing presence of Central Public Sector Enterprises (CPSEs) including financial institutions and creating new investment space for private sector, (b) post-disinvestment, economic growth of CPSEs/financial institutions will be through infusion of private capital, technology and best management practices, to contribute to economic growth and new jobs, and (c) disinvestment proceeds to be used to finance various social sector and developmental programmes of the government. This book traces the philosophy and evolution of PSEs in the early years of post-Independent India. It records the causes of disillusionment with public sector and the consequent reversal of government policy, beginning 1991. Disinvestment and privatization policy of the present government is also set forth.