The Disinvestment of Public Sector Enterprises: The Indian Experience

Abstract

This paper examines the disinvestment of shares of public sector enterprises (PSEs) in India since 1991. The poor performance of PSEs made reform increasingly urgent in the context of the broader strategy of the liberalization of the economy to deal with the perceived weaknesses of India's development strategy. The paper argues that the main aim of disinvestment has been to reduce the public sector borrowing requirement, at the cost of the restructuring and rationalization of PSEs in particular and the public sector in general. The process of disinvestment has been a complex one and has not been free of criticism. Alleged under-pricing of shares sold, lack of transparency, limited public support for disinvestment and the absence of a common set of objectives between the Government of India and the Disinvestment Commission have been major problems. In many respects, India provides a checklist of how not to disinvest.