Privatization in Indian Economic

Topics: Industry, Private sector, Public sector Pages: 91 (22208 words) Published: December 8, 2012
Chapter - 4
Privatization in Indian Economic



Public Sector in the Indian Economy
Division of the Economy into Public and
Private Sectors
Role of Public Sector in the Indian Economy
Problem of Public Sector Enterprise
Policy Towards Public Sector Since 1991
Role of the private sector in Indian economy
Role of the Private Sector
Private Sector in the Post in the Post
Libera-lisation Phase
Problems of the Private Sector
Privatisation of Public Sector Enterprises :
The Disinvestment Programme in India
Meaning and Rationale of Privatisation
Methods of Privatisation
4.3.3. Evolution of Privatization Policy in India
A Critique of Privatisation and Disinvestment



4.1 Public Sector in the Indian Economy14
The present Indian economic structure is often characterised as 'mixed economy. There are two fields of production in the structure — the private sector and the : sector. The present chapter is devoted to a discussion of issues pertaining to the public sector. In particular, we discuss: 

Division of the economy-into public and private sectors

Role and performance of the public sector

Problems of public sector enterprises

Policy towards public sector since 1991.

4.1.1 Division of the Economy into Public and Private Sectors At the time of Independence, activities of the public or were restricted to a limited field like irrigation, power, railways, ports, communications and some departmental undertakings. After Independence, the area of activities of the public sector expanded at a very rapid speed. To assure the private sector that its activities will not unduly curbed, two industrial policy resolutions were issued in 1948 and 1956 respectively. These policy resolutions divided the industries into different categories. Some fields were left, entirely for. the public sector, some fields were divided between the public and the private sector and some others were left totally to the private sector. A cursory glance at the division of fields of industrial activity into the pub lic and private sectors clearly brings out, that while heavy and basic industries were kept for the public sector, the entire field of consumer goods industries (having high and early returns) was left to the private sector. Outside the industrial field, while most of the banks, financial corporations, railways, air transport, etc., are in the public sector, the entire agricultural sector (which is the largest sector of the economy) has been left for the private sector.


Mishra & Puri, Indian Economy, 2010, Himalaya Publication. Pg.391


The important point that arises at this juncture, is — why were the heavy and basic industries like iron and steel, heavy engineering, heavy electrical plant, etc., selected for development in the public sector while quick -yielding consumer goods industries were left for the private sector?

The answer to this question has been attempted by R. K. Hazari according to whom the industrial programmes of government that emerged after 1955 were built around two hypotheses:
(i)private investment in relatively simple goods would be promoted by shutting out imports as well as through excess capacity at home, with a consequent boost to profits; and
(ii) public investment, being autonomous of profits, would take place in basic areas which had long gestation periods, low or no profits, a large foreign exchange component, complex technology and equally complex problems of co-ordination.

The logic of the first hypothesis was that private investment was in the nature of 'induced investment' and could be promoted by adopting a policy of protection against imported substitutes. The logic of the second hypothesis was that investments in low profit yielding and heavy investment requiring industries were in the nature...
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