Business Environment Essay

10760 Words Mar 11th, 2013 44 Pages
Disinvestment and Privatisation in India Assessment and Options1 R Nagaraj2,3

Ownership reform in public sector enterprises (PSEs) initiated since 1991 has as yet been quantitatively modest. It is perhaps too early to judge the effects of these initiatives on their financial performance. While the slow pace of the reform can be perceived as an opportunity, there is perhaps merit in carefully reviewing the policy in light of economic theory, and comparative experience. As the bulk of the public investments are in industries with economies of scale and scope (with externalities that in principle invite considerable regulation), this study suggests an alternative institutional arrangement for improving PSEs’ financial performance: mutual
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Besides, there are about 1,100 state level public enterprises (SLPEs) that are relatively small in size. While the contribution of all these varied publicly owned and managed entities to national development is widely acknowledged, their poor financial return has been a matter of enduring concern – especially since the mid-1980s when, for the first time, the central government’s revenue account turned negative – an imbalance that has persisted ever since. In 1991, a small fraction of the equity in selected central PSEs was sold to raise resources to bridge the fiscal deficit.4 Though quantitatively modest (as will be seen later), the ‘disinvestment’ signaled a major departure in India’s economic policy5. While there have been instances of sale of publicly owned enterprises as running concerns on pragmatic considerations, it is only in the last decade that such sales (and sale of limited equity) acquired the status of public policy. Table
This study is prepared for the ADB Policy Networking Project, coordinated by Chiranjib Sen, Indian Institute of Management Bangalore. I am grateful to T C A Anant, K L Krishna and many participants of the two workshops held in New Delhi and Bangalore, for their comments and suggestions on the earlier drafts of the paper. Usual disclaimers apply. 2 Indira Gandhi Institute of Development Research, Gen. Vaidya Marg, Goregaon East Mumbai 400 065, Email: 3 This report was prepared

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