Privatisation


Privatisation implies shedding of the ownership or management of a government-owned enterprise. Government companies can be converted into private companies in two ways –

  • (i) by withdrawal of the government from ownership and management of public sector companies and or
  • (ii) by outright sale of public sector companies.

Privatisation of the public sector undertakings by selling off part of the equity of PSUs to the public is known as disinvestment/divestment. The purpose of the sale, according to the government, was mainly to improve financial discipline and facilitate modernisation. It was also envisaged that private capital and managerial capabilities could be effectively utilised to improve the performance of the PSUs. The government envisaged that privatisation could provide strong impetus to the inflow of FDI.

The government has also made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial decisions. For instance, some PSUs have been granted special status as navaratnas and mini ratnas.

Navaratnas And Public Enterprise Policies

You must have read in your childhood about the famous Navaratnas or Nine Jewels in the Imperial Court of King Vikramaditya who were eminent persons of excellence in the fields of art, literature and knowledge.

In 1996, in order to improve efficiency, infuse professionalism and enable them to compete more effectively in the liberalised global environment, the government chose nine PSUs and declared them as navaratnas. They were given greater managerial and operational autonomy, in taking various decisions to run the company efficiently and thus increase their profits. Greater operational, financial and managerial autonomy had also been granted to 97 other profit-making enterprises referred to as mini ratnas.

The first set of navaratna companies included –

  • Indian Oil Corporation Ltd (IOC),
  • Bharat Petroleum Corporation Ltd (BPCL),
  • Hindustan Petroleum Corporation Ltd (HPCL),
  • Oil and Natural Gas Corporation Ltd (ONGC),
  • Steel Authority of India Ltd (SAIL),
  • Indian Petrochemicals Corporation Ltd (IPCL),
  • Bharat Heavy Electricals Ltd (BHEL),
  • National Thermal Power Corporation (NTPC) and
  • Videsh Sanchar Nigam Ltd (VSNL).

Later, two more PSUs were also given the same status –

  • Gas Authority of India Limited (GAIL) and
  • Mahanagar Telephone Nigam Ltd (MTNL).

Many of these profitable PSUs were originally formed during the 1950s and 1960s when self-reliance was an important element of public policy. They were set up with the intention of providing infrastructure and direct employment to the public so that quality end-product reaches the masses at a nominal cost and the companies themselves were made accountable to all stakeholders.

The granting of navaratna status resulted in better performance of these companies. Scholars state that instead of facilitating navaratnas in their expansion and enabling them to become global players, the government partly privatised them through disinvestment/divestment. Of late, the government has decided to retain the navaratnas in the public sector and enable them to expand themselves in the global markets and raise resources by themselves from financial markets.

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Bibliography : NCERT – Indian Economic Development

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