Disinvestment: Capitalism and Public Sector

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1.Public enterprises are neither new nor unique to India. In good old days, Kautilya in his ‘Arthasastra’ talked of a public sector. A person was made incharge of salt manufacture and fixing its price. Similarily there were people made responsible for mining, coinage and gold, all in public sector. Nowadays there is hardly any country that is not engaged actively and directly in the management of economic and industrial enterprises. Various names given to these enterprises are ‘Public Sector Undertakings’ or PSUs, ‘Public Sector Enterprise’ or PSEs, ‘Trading Corporations’, State Owned Enterprise or SOEs, Government Owned Enterprise or GOE etc.

2.The role of government in businesses and otherwise has been questioned in the past. Thoreau said , “That government is best which governs least”. The only purpose of government would be to protect its citizens from force or fraud. The protection from force, that is, the protection of individual rights, would be achieved through the use of a police force to protect the rights of citizens at home; a military, to protect the rights of citizens from foreign aggression; and a court system to enforce contracts and settle disputes between citizens. It is not government business to do business. The poor performance of government owned enterprises around the world led to a world wide withdrawal of government from businesses and coining of a new term called ‘Privatisation’. Privatisation process in India is euphemistically called ‘Disinvestment’ to make it palatable to those who consider privatisation a dirty word. Disinvestment or privatisation in India was initiated in 1991-92 by the Chandrashekhar government and carried forward by subsequent governments.


3.The aim of this paper is to study various aspects of Disinvestment so as to conclude whether it is a boon or bane for India.


4.The paper would be covered under the following heads:-

(a)What is Disinvestment?
(b)Capitalism, Socialism, Communism and Market economy.
(c)Genesis of Government Participation In business.
(d)Performance of Government Controlled Enterprises.
(e)Objectives of Disinvestment.
(f)Genesis of Disinvestment process.
(g)The Disinvestment process in India.
(h)Advantages of Disinvestment.
(j)Disadvantages of Disinvestment.
(k)Disinvestment-Boon or Bane.


5.Disinvestment can be defined as withdrawal of state from production of goods and services or transfer of ownership from the public sector to the private sector.


6.Before we proceed further it would be worth our time to understand the concepts of Capitalism, Socialism, Communism and Market Economy.

7.Capitalism is a political system in which factories, companies, land, etc. are owned privately in order to create profit for the owners. Prices of goods and services fluctuate depending on the desire of the consumer and the availability of the goods (the law of supply and demand). In a capitalist society their will be significant differences in wealth and power between those who have capital (machines, factories, ships, land, etc.) and those who do not. 8.No one can say when capitalism first began. Clearly the development of capitalism was not revolutionary like that of communism. Instead it emerged gradually without anyone making a plan of what it should become. However, aspects of modern capitalism such as the stock exchange, banks and great disparity in wealth came about during the industrial revolution. 9.In 1776 Adam Smith, a Scottish university professor, produced a book which described the workings of a capitalist society. He believed that a country's wealth depends on all people pursuing their own interests. If a person promotes his own interest he or she is unintentionally promoting his country's interest. Smith thought that governments should...
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