DMPQ- Discuss the approach of disinvestment and privatization in 1991 economic policy.

Both disinvestment as well as privatization is the reverse of investment. For setting up  public sector, the government had to invest by subscribing in shares of the new public  sector from budgetary resources. Thus, disinvestment and privatization both imply ‘selling  of shares of public sector by the government’. We all know that shares are traded at the  stock market and the traded value of each share is decided by the buyers and the sellers in  the market.

If buyers of shares of a particular company are more than the sellers of the same, the  traded value of the shares would be at a premium’ or otherwise it would be at a ‘discount’.  Thus, in both the cases of disinvestment as well as privatization, selling of shares of public  sector would be at a premium.

The policy took a mature decision  in seeking privatization of the public sector for the following reasons:

  • The public sector as mentioned earlier had broadly delivered in terms of creating significant capacities in key areas such as self-reliance, substituting for import of  industrial goods, created the platform for further industrialization and industrial  There is a requirement now to moving into higher gears and look at issues  such as developing greater capabilities, improving productivity and efficiency, sharp  focus on profitability.
  • The policy of liberalization has opened the gates for liberal private sector investment in key areas and competition would only intensify. This requires the public sector  to now run as pure businesses, as a commercial venture which is possible solely in  private sector. As a public sector, there will always be a limitation of not being to  operate as a pure business in the same way as their counter pans in the private sector.
  • The role of the government as a producer of industrial goods is always interim, short-term and never permanent. It can be permanent producer only of those where  direct welfare of people is affected like railways or in the national interest like atomic


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