A Critical Analysis of the Disinvestment Process in India

Abstract

The last few years have seen more and more countries opting for privatization. The international financial institutions have also been favouring it as part of their structural adjustment programme for specific countries. After the macroeconomic crisis of 1991, India too initiated certain refonns aimed at reducing the level of state intervention. This dissertation seeks to examine whether these changes denote a genuine move towards privatization or not, and whether such a policy would be sustainable, given the economic, political and social compulsions that the country faces. The dissertation seeks to explore the concept of privatization, its rationale and consequences and then look at privatisation in developed as well as developing countries. It will examine thereafter the developmental strategy adopted by India since her independence leading to the growth of the public sector, the macroeconomic crisis of 1991 and the policy changes that have taken place since then. The study will show that while after 1991 the Government has been forced to cut down on the level of state intervention, it has followed a cautious approach and not gone in for large-scale privatization. On the contrary, the emphasis has been more on deregulation than on actual disinvestment. It will show that the disinvestment carried out so far has not only been marginal, but the proceeds have gone towards reducing the fiscal deficit of the government instead of rejuvenating the public sector enterprises. While wholesale privatisation may not be a preferred option keeping in view the huge investments made so far as well as the social tensions such a step would engender, some sort of rolling back of the government's activities would appear inevitable. The study will conclude that as the government's resources dwindle, there is bound to be greater dependence on private financing for new projects and for infrastructure development. This would be partly met from domestic sources and partly from foreign investment. There would be a tendency to allow the private sector into areas that were earlier reserved for the public sector. There would also be a withdrawal from areas that are perceived as better managed by the private sector. xii