GOVT of INDIA PRIVATIZATION STUDY

The complexity of the divestment plan rested in the management of divestment in the central and regional levels, considering the level of autonomy in all states of India. Economic liberalism and globalization were trends adopted by the government to foster faster economic growth and invite funding in areas of the state where it was most needed, with foreign direct investment being a considerable component. Deregulation in India was facilitated by laws such as the Industries Development & Regulation Act, 1951, the Monopolies & Restrictive Practices Act, 1969, the Foreign Exchange Regulation Act, 1973, and the Capital Issues Control and technical scrutiny by the Directorate General of Technical Development (DGTD). After independence, the Indian government adopted socialistic economic strategies. It was in the 1980s that Rajiv Gandhi initiated economic restructuring. In 1991, India faced an economic crisis due to its external debt, and the government was unable to make repayments on its borrowings from abroad. The origin of the financial crisis was attributed to the inefficient management of the Indian economy in the 1980s, where public spending far outweighed its revenues. With the help of the International Monetary Fund (IMF), the Indian government commenced a sequential economic reorganization. P.V. Narasimha Rao and Dr. Manmohan Singh brought about revolutionary economic developments. The results of these reforms can be statistically compared by analyzing the total overseas investment in portfolio investment, foreign direct investment, and investments from foreign equity markets. In 1995-1996, the total overseas investment was $5.3 billion, compared to $0.5 million in 1991-1992. The highlights of the reforms included eradicating the license raj for all sectors except 18 critical sectors, tempering the control on industries, foreign technology agreements, foreign direct investment and foreign institutional investment, amendment of the Monopolies & Restrictive Practices Act, 1969, deregulation, regulation of inflation, tax restructuring, and encouraging overseas business relations. A few examples of privatization in India include Lagan Jute Machinery Company, Modern Food Industries, BALCO, Hotel Corporation of India, Hindustan Zinc, Paradeep Phosphates, and BSNL. Public sector enterprises (PSEs) employ about 20 million persons and account for a quarter of India's measured domestic output. Administrative departments, including defense, account for about 2/5th of this output, while the rest comes from departmental enterprises and non-departmental enterprises. These include close to 250 public sector enterprises (PSEs) managed by the central government, mostly in industry and services, and about 1,100 state-level public enterprises (SLPEs) that are relatively small in size. The contribution of these publicly owned and managed entities to national development is widely acknowledged, but their poor financial return has been a concern, especially since the mid-1980s when the central government's revenue account turned negative. Over time, Indian policymakers have shed their inhibitions about privatization and formulated liberal reforms to divest the huge capital in PSUs and enhance efficiency and profit generation in state-owned enterprises. Several sectors, such as insurance, banking, telecom, and telecom, have shown tremendous success after privatization. However, complete privatization remains a distant dream, and in most liberalized sectors, government control is still evident, with delegation or joint ventures between public and private sectors being functional. The Government of India disinvestment policy can be seen as implemented in two phases. Phase I, from 1991-92 to 1997-October 1999, was the culmination of the disinvestment commission set up in 1996. Phase II, from 1999 onwards, was initiated with the main feature of the policy being to restructure and revive potentially viable PSEs, close down unviable PSUs, and put in place mechanisms to raise resources from the market against the security of PSEs' assets for providing an adequate safety-net to workers and employees. The main features of the disinvestment policy were laid out in the 2000-01 budget speech, emphasizing maximizing the value realized from sale, closing unviable PSUs, and using the entire amount from disinvestment and privatization for meeting expenditure in social sectors, restructuring of PSEs, and retiring public debt. The disinvestment process involves the selection of a PSU by the Ministry of Disinvestment, approval by the Cabinet Committee on Disinvestment, formation of an Inter-Ministerial Group (IMG) and selection of advisors, submission of an expression of interest, and due diligence and commercial negotiations.