Privatization in India and the economic reforms made by India

1. RINI MARY WILLIAM

2. Privatization connotes a wide range of
ideas.
Privatization implies the induction of
private ownership in publicly owned
enterprises, but broader sense it connotes
besides private ownership, the induction of
private management and control in the
public sector enterprises.

3. Barbara Lee and John Nellis defines
privatization in this manner:
Privatization is the general process of
involving the private sector in the
ownership or operation of a state owned
enterprse.
Thus it means the private purchase of all
or part of a company.

4. Privatization was introduced
by Rajiv Gandhi in the eighties
The Government of India under
PV Narsimha Rao gave actual
speed by introducing The New
Industrial Policy

5.  In 1991, India’s ninth prime minister from
Indian National Congress, Narasimha Rao
changed the economic policy and began
privatising government companies, beginning
from Bharat Aluminium Company, Bharat
Sanchar Nigam Limited, few airports like
Delhi airport, Mumbai, Hyderabad and
Bangalore to Maruti Udyog.
 Governments look to privatise because of
many reasons.
 It is a philosophical belief that governments
should govern and not purchase, sale or
manufacture goods.

6. Bharat Sanchar Nigam Limited (BSNL)
was previously known as Department of
Telecommunications and had been a
monopoly. MTNL was operating in Mumbai
and Delhi only. During that time, BSNL was
inefficient, slow, bureaucratic and heavenly
unionised. Subscribers had to wait for five
years to get a telephone connection. But,
in 1991, everything changed as the
telecommunication system was privatised.

7. Economic Reforms under Rajiv Gandhi
(1985-90)
Changes were made with regard to
industrial licensing, export import policy,
technology up gradation, fiscal policy,
foreign equity capital, removal of controls
and restrictions etc.
Done to usher rapid growth in the
economy

8. ECONOMIC REFORMS UNDER P.V
NARASIMHA RAO GOVERNMENT ( THE
SECOND WAVE)
During the previous governments rule BOP
increased, average deficit was very high
(from 5930 crores to 10840 crores), major
BOP crisis.
Thus India was forced to take huge loans
from the World Bank and IMF of about $7
billion.
Thus the govt under Narasimha Rao took
a few measures under the then Finance
Minister Dr. Manmohan Singh.

9. 1) Fiscal Policy:
 Reduce overall public sector deficit from
estimated 12.5 percent of GDP to about 4
percent of GDP in the mid 1990s.
 For achieving this Govt intended to strictly
control public exp and aimed at higher tax
and non tax revenues.
2) External Policies:
 To reduce external account deficit to 2% of
GDP govt. stabilized import compression
measures.
3) Social Policies:
 Poverty alleviation was an integral part of the
adjustment process, assistance to marginal
farmers, rural drinking water supply,
programs for women etc.

10. 4) Industrial Policy Reforms:
Industrial licensing was abolished for all
projects
Monopolies and Restrictive Trade Practices
act eliminated the need to seek prior govt
approval for expansion of present
undertakings and establishment of new
undertakings b large companies.
5) Foreign Investment Policy:
Industrial Policy of 1991 increased the
opportunities for foreign investment.
Approval given for FDI up to 51% from 40%

11. 6) Trade Policy
Removed quantitative restriction to price
based system
7) Public Sector Policy
Managerial autonomy given to public sector
companies
Budgetary support to public enterprises would
be reduced
Competition from private enterprises were
encouraged
Sick enterprises would not be allowed to incur
heavy losses.

12. Both congress and BJP have supported
and show large consensus about
economic reforms
Janata dal, CPI, CPI(M) had some shaded
of differences. But have accepted the
reform
Some other parties like DMK, AIDMK,
samajwadi party RJD have also accepted
foreign capital in the state.
Thus economic reforms were accepted as
a whole.

13. Thus privatization covers three major sets of
measures or methods
1) Ownership Measures
2) Organizational Measures
3) Operational Measures:

14. 1. Ownership measures: set of measures
that transfer ownership of public
enterprises, fully or partially that leads to
privatization. This can take three forms-
a) Total Denationalization: Denotes a
complete transfer of ownership of Public
enterprise.

15. b) Joint Venture: it implies the partial
introduction of private ownership. Ranges
from 25 to 50 percent or more.
c) Liquidation: Implies the sale of assets to
someone who may use them for the same
purpose or some other purpose.
d) Management Buy Out: A special version of
management buyout where assets are sold to
the employees. Provision of loans is made to
enable employees to take over ownership.

16. 2) Organizational Measures: A number of
organizational measures are conceived to
limit state
a) A holding Company structure: here a big
organization (Eg Bharat Heavy Electricals
Ltd) may adopt a holding company status by
transfering a number of functions to smaller
units, thereby reducing centralized
managerial functions.
b) Leasing: A public enterprise while retaining
its ownership may lease out to a private
bidder for a specific period for use.

17. c) Restructuring: Bringing public enterprise
under market discipline
3) Operational Measures: intended to
improve the efficiency of the organization
even when full denationalization has not been
undertaken.