Diminishing Ratnas in India




After attaining independence in the year 1947, it was all left to the national leaders like Jawaharlal Nehru, Sardar Vallabhai Patel and a few others, to frame an economic roadmap for the development of India. Nehru, who is undisputedly the architect of the economy after independence, always advocated industrialisation of the economy.

Even though agriculture was given importance in the initial few five-year plans, the Industrial Policy Resolution (IPR) of 1956 changed it and induction of public sector units was advocated. Hence, Nehru decided to incorporate a number of PSUs (Public Sector Units) in order to provide employment and economic growth with the major sectors of the economy mainly held by the government until 1991.

Why are we taking the particular time frame of 1991? The answer to that would be that the process of privatisation in India was a result of a worldwide movement towards privatisation as a result of Reagan-Thatcher policy of minimal State control on the economy. The fall of USSR was inferred as a big defeat of socialism and also of the policy of increased State control on the economic drivers in the form of PSUs. This article tries to look at the political and the economic dimension of the policy of privatisation and how each passing government since 1991 has dealt with it.

The year 1991-92: Budget speech by Chandra Shekhar government (1990-91)

The initial stage of privatisation was started in the year 1991-92 by the Chandra Shekhar government. Chandra Shekhar Singh joined politics through Praja Socialist Party and has always been an avid advocate of socialism. In a desperate attempt to fill up the government coffers during his term, the economic condition then made privatisation inevitable. Therefore, a socialist PM like Chandra Shekhar had to announce the first string of privatisation of several public manufacturing units.

The year 1991-96: PV Narasimha Rao government (1991-96)

After the fall of the Chandra Shekhar government, the general election which followed it saw INC (Indian National Congress) winning most seats. It formed a minority government, with PV Narasimha Rao being elected as the PM. Rao’s policy from the start itself saw a major shift from the mixed economy of Nehru to a market driven one.

Then in the historic financial budget by then Finance Minister Dr Manmohan Singh announced the privatisation of PSEs, but with a few changes from the earlier Industrial Statement. There was a cap of twenty per cent imposed to the extent of disinvestment and the umbrella of investors was also restricted to only mutual funds and other institutional investors.

The year 1996-1998: United Front Government

The United Front Alliance headed by Janata Dal party was a self-proclaimed socialist party. So, under the United Front government, led by HD Deve Gowda and then later by IK Gujral, and with the support of other left-leaning parties like CPI (M), privatisation took a big hit. The left parties have a few apprehensions about the process of privatisation as they feel that the transfer of ownership and management rights to private players would lead to a monopolisation of market, and instead of competition in the market it would lead to concentration of market power. As a result of the concentration of market power, there would be an inefficient allocation of resources and this would result in a concentration of wealth and increase in inequality.

Total amount of privatisation during the period: Rs 1289.67 Crores

The year 1998-2004: BJP led NDA Government

The NDA (National Democratic Alliance) government was a pro-free market government. PM Atal Bihari Vajpayee appointed Yashwant Sinha as the Finance Minister. Mr Yashwant Sinha, a former IAS officer and a former Janata Party member, took several decisions to open up the markets. He is credited with opening up the telecommunication sector, and deregulation of petrochemicals.

It was considered a radical move by the political analysts then. It was proposed that the government share in almost all the Public Sector Enterprises be transferred. Major privatisation processes were undertaken during this time. VSNL was totally privatised and it led to the opening up of the telecommunication sector. The strategic sale of BALCO, a PSU which was a profit-making manufacturing unit, created several controversies. The sale of BALCO to Vedanta resources was questioned and protested by the employees and the anti-privatisation groups. In a challenge to the sale of a profitable PSU, BALCO to Sterlite, the Supreme Court in December 2002 handed down a landmark verdict against opponents of privatisation. The court legitimised the privatisation procedures and refused to second-guess the government with respect to its privatisation policy.

The major string of privatisation happened after the budget presented by Jaswant Singh for the year 2003-2004. A staggering amount of Rs 15,547.41 Crores was raised as a result of privatisation, an amount way higher than previous years.

Total amount of privatisation in this period: Rs 33,655.59 Crores

The year 2004-2009: UPA-I

In the general elections of 2004, INC was the single largest party with 145 seats. INC in alliance with other parties mostly left-leaning parties managed to form an alliance under the umbrella name of UPA (United Progressive Alliance). The second biggest party in the alliance was the Communist Party of India (Marxist). This was more of a Centre-Left alliance. Due to this alliance, many watershed schemes like MNREGA and acts like RTI were passed. The left-leaning policies had an impact on privatisation.

Total amount of privatisation in this period: Rs 8515.94 Crores

The year 2009-2014: UPA II

The exit of CPI (M) in 2008 saw a UPA-II in 2009 with INC winning 206 votes, and the major coalition party being DMK (Dravida Munnetra Kazhagam). This era saw a lot of privatisation happening and this also had the uncovering of many scams. 2G spectrum scam revealed the deep-rooted nepotism and corruption which ran in the government. The coal allocation scam later revealed the absence of fair allocation of the nation’s resources. CAG found a lot of misappropriations and irregularity in the auctioning of nation’s resources, including the public sector units.

Total amount of privatisation in this period: Rs 99,367.46 Crores

The year 2014-present: NDA government

BJP won the 2014 general elections with a thumping majority. BJP single-handedly won 282 seats and the coalition of NDA won 335 seats in total. Narendra Modi was elected as the leader of BJP. Modi, as evident from the policies he implemented as the Gujarat CM is pro-business and pro-market. As soon as they were elected, the NDA government discontinued the Planning Commission which was the backbone of the mixed planning economy and was replaced with NITI (National Institution for Transformation of India) Aayog. NITI Aayog is headed by the Prime Minister as its Chairman, with Arvind Panagaria (from Chicago University, a big proponent of Neo-Liberalism) as its Vice-Chairman. Arvind Subramanian is appointed as the Chief Economic advisor of India, who also is pro-market.

Total amount of privatisation in this period (2 years): Rs 59,680.33 Crores


The incorporation of Public Sector Enterprises was done with several objectives like providing employment, equitable development across all the regions and for the sustainable growth of the industrial sector in India. After the introduction of the economic reforms of 1991, the privatisation process got underway. Pre-economic reform, the government’s believed that the Public Sector Enterprises comprise and form the pillars of the economy and the government’s believed that it was of vital importance that PSEs be managed and controlled by the government. We could see that the INC only cautiously privatised after the economic reforms. But the same party, which claims to be pro-poor and one with a political alignment of centre-left, went ahead with outright privatisation of the PSEs in the late 2000s and early 2010s. This was clearly the result of the political parties’ shift towards neo-liberalism after the 1991 economic reforms. The process of privatisation has come under the scrutiny of CAG (Comptroller and Auditor General) and many financial irregularities were found in the CAG’s reports. Many instances of crony capitalism being practised were also seen, with the CAG reports stating instances of undervaluation and sale of PSUs which were performing well and were making a good margin of profits. The NDA which had publicly promoted privatisation in the year 1998 maintained its stance on it after coming back to power in 2014. The BJP led NDA has been the biggest implementers of privatisation and the principle of neo-liberalism which supports minimal governmental interference in the economy is clearly seen in their regime. The process of privatisation is a necessary step in the development of a nation and its economy, but it can turn out to be against the interests of the public when it is done without fairness and by pandering to vested interests.

(Rohith is pursuing Master’s Programme in Public Policy at the National Law School of India University. He can be reached at rohithch@nls.ac.in)


Bhattacharya, Dipankar. 1999. “Political Economy of Reforms in India”. Economic And Political Weekly 34 (23): 1408-1410.

Chandrashekar, C.P. 2014. “An Obsession To Sell”. Frontline. http://www.frontline.in/cover-story/an-obsession-to-sell/article6496179.ece.

“Government On A “Selling Spree” Of Profit-Making PSUs: CPI (M)”. 2016. The Financial Express. http://www.financialexpress.com/india-news/government-on-a-selling-spree-of-profit-making-psus-cpim/328162/.

“Home Page – DIPAM”. 2016. Dipam.Gov.In. http://dipam.gov.in/

Makhija, Anil. 2006. “Privatisation In India”. Economic And Political Weekly41 (20): 1947-1949.

Mathur, B.P. 2006. “Audit Reports On Disinvestment”. Economic And Political Weekly 41 (50): 5114-5118.

Mohan, T. T. Ram. 2005. Privatisation In India. London: RoutledgeCurzon.

R. Iyer, Ramaswamy. 1988. “The Privatisation Argument”. Economic And Political Weekly 23 (11): 554-555



Featured image source: http://www.frontline.in/cover-story/an-obsession-to-sell/article6496179.ece?homepage=true




Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s