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Disinvestment and Privatization policy of India-



Background History-

 Since 1947 Socialism was the main guiding principle behind Indian economy. The country started moving slowly from socialist to privatization after death of Indira Gandhi in and after which her son Rajiv Gandhi focused more on privatization .

In early 1990s India moved to more market based economy , at that time soviet union was collapsing proving that socialism could not be the solution for India’s economy . Meanwhile Chinese economy also introduced market friendly reforms that is how Indian politicians also decided to turn towards market reforms.

PM Narasimha Rao and his finance minister Manmohan Singh both on July 24,1991 introduced India’s new economic policy which is known as LPG Model (Liberalization, Privatization and Globalization) in which government took series of reforms to restructure Indian economy and deal with financial crisis that India was dealing / Facing at that time.

Today there are many government PSUs that are running in loss like Gas authority of India limited, HP, ONGC, BSNL ,Indian Railways , few banks etc. These are running in huge depth and causing heavy loss to government .

Why are these PSUs running in loss?

When PSUs were formed at that time India was a socialist economy it means that government is asset of most of companies because at that time there was a  fear that Capitalism works for profit it was assumed that it will not work to see welfare of people and that’s how government became owner of these PSUs .

But we know that government is a service sector , they rely on taxes and use that money to run the service due to which government has very little way of generating profit and even in government sector cost of running any service has to be lesser than revenue. 

On other hand Capital has money which is most important factor for country’s economic growth . Capitalism work for gaining more profit and it get it from doing more work and less wastage and taht’s how efficiency comes into picture .

Now  looking at huge loses government is inviting private companies to operate government PSUs i.e; government wants PSUs to get privatize and here selling part of government is termed as disinvestment

The whole idea behind this is to unlock these PSUs to market value or market potential by selling it to private player , so we can say that India is slowly moving towards Capitalism .

Government has set disinvestment target means whenever government plans budget there are Revenues which comes from taxes and Expenditure which are receipts of investment in different things but we know that expenditure is more so there is shortage of money i.e; revenue can’t support expenditure and even not possible every time to print the currency so to fill that shortage government sell some of its properties. Government doesn’t sell everything every year there is disinvestment target and government tries to achieve it .

Government is only going to sell certain position of PSUs and not whole this is because government want to have some control over company where it is beneficial for government as well as not burden on government that is why in 2019 we read many disinvestment plans of government like Steel authority of India , Shipping co-operations of India etc.

Who started disinvestment in India and which institution is given that responsibility?

In August 1991 Disinvestment Commission was setup and it was chaired by G.V .Ramakrishna  and the purpose of this commission was to advice, supervise the PSUs but this commission came to an end in May 2004.

In December 1999 department of disinvestment was setup which was renamed in 2001 as Ministry of Finance and again in 2016 renamed as Dept. of Investment and Public Asset Management (DIPAM) and then now finally all money that is generated from sell of central public sector enterprises is channelized in National Investment Fund which was constituted in November 2005.

Objectives of government behind this-

1) Disinvestment will help in reducing fiscal deficit

2) It will help in raising money or funds for expanding , upgrading and modernizing PSUs and private sector will unlock PSUs to market values and that will lead to overall economic growth of the country.

3) Disinvestment will introduce competition in market . Firms will compete with each other through which consumers will get best quantity and quality goods and services and even it will lead to different innovations. 

I think that this is good step taken by government as it wants to focus more on administration as we know the tenure of government is 5 years after which it can be re-elected or not it means it is temporary  but the economy, Institutions and development plans remains permanent so there should be a kind of  consistency in order to be developed country.

Though we can’t forget that  coin has two sides so this will also  have both advantages as well as disadvantages .