Liberalization and Privatization

Disinvestment of Public Enterprises

The process of industrial restructuring continued in response to the new industrial policy of 1991. The new policy suggested the partial disinvestment of public sector without fixing any ceiling. Citing fiscal crisis as the reason, comprehensive efforts have been initiated subsequently to disinvest the equity of public sector undertakings to a greater extent. This is nothing but the outright process of privatization. There are three models viz. public offer, strategic sale and cross holding. The Government announced in 1998 to sell more than 51 percent in strategic sales and the new cap was fixed at 74% to 100%.

The objective of disinvestment is to mobilise enough resources by way of withdrawing from some sector in order to invest in priority areas like particularly social sectors. The mobilized resources are used to repay the public debt of the government to pay for various VRS schemes, labour retrenchment and redeployment schemes under the exit policy.

The other objectives include the promotion of private sector, enhancement of efficiency and competition. In 1991-92, over Rs.30 billion was raised through the disinvestment of public sector. In 1992-93, Rs.18.6 billion against a target of Rs.35 billion was raised. Until 2002-03, a huge resource of around Rs.300 billion was raised through the disinvestment policy.

Though the policy of disinvestment is criticized vehemently by the left parties and trade unions, the government is moving towards further disinvestment of many Public Sector enterprises including the strategic and profit making enterprises.

Liberalization and Privatization

Liberalism means the order of the market or capitalist economy relying predominantly on competition and private sector. It envisages freer trade, full convertibility and non-discriminatory tariffs. Liberalisation policies aim at minimizing the roles and functions of the government in the economy to promote private sector. It aims at more external capital inflows to finance the current account deficit, to augment capital formation to generate exports earnings to raise efficiency of capital used in India to improve the quality of the products. In India, the forms of liberalisation policy initially have been on general liberalisation of controls or marketisation and deregulation followed by privatization.

Privatization policy has been adopted as a part of the liberalisation. Privatization is defined as transfer of ownership from public sector to private sector. It is the process of reducing the role of State or public sector in the economic activities of a country. Privatisation is expected to ensure efficiency in the allocation of resources and promote faster growth.

In India, the process of intense privatization has been initiated since 1991. The various methods through which it has been undertaken includes disinvestment measures (i.e. setting the public ownership to private sector), deregulation and delicensing measures for the entry of private sector industries into the reserved public sector domains, surrendering the control and management of public sector enterprises to the private sector and by halting any further public investment and diversification.

Thus, public sector restructuring refers mainly to disinvestment or denationalization of existing public sector enterprises, liberalisation and privatisation through deregulation and delicensing ultimately limiting the role of public sector to social and economic infrastructure.

The Eighth Five Year Plan (1992-97) clearly argued that considerable restructuring was necessary to reach the new goals of public sector within the framework of New Economic Policy. The new goal is 'public sector industry has an important role as an autonomous, competitive and efficient

sector to provide essential infrastructure goods and services, development of natural resources and areas of strategic concern'. The following are the integrated strategies devised by the Eighth Plan for public sector restructuring:

Restructuring involving modernization, rationalisation, product-mix changes, selective exit and privatisation.

Increase in autonomy and performance accountability through the system of Memorandum of Understanding (MOU) between the administrative ministries and central public enterprises launched in the Seventh Plan.

Changes in management practices at specific enterprises level to promote efficiency, dynamic leadership, resourcefulness and innovation.

A major effort by state governments to promote reforms in public sector.

Technology upgradation through an integrated R & D effort and import of technology.

Re-orientation of approach in ministries and other government agencies regarding liberalisation and dismantling of regulations.