TOPIC: PRIVATIZATION AND FISCAL POLICY: ANALYSING THE

IMPACT ON GOVERNMENT REVENUES, EXPENDITURES, AND

BUDGETARY IMPLICATIONS.

CHAPTER 1 – ABSTRACT
INTRODUCTION:

Privatization refers to the process of transfer of ownership and management of

public assets, enterprises, or services from the government to private entities.
India witnessed its first major privatization in 2001, with the disinvestment of
Hindustan Zinc Limited (HZL). The government sold 26% of stakes to Sterlite
industries (India) limited. Over time, Sterlite acquired full ownership of HZL.
A government often privatizes public assets to generate revenue and reduce
budget deficits. Selling state-owned enterprises (SOEs) provides an immediate
influx of funds that can be utilized for public debt reduction, financing new
projects etc. It is also believed to increase the efficiency and productivity of the
sector or enterprise. With privatization, the focus shifts to profitability, thus
increasing the service quality and innovation. Privatization is also seen as a
popular means to shift blame for unpopular decisions or failures onto the private
sector.

RESEARCH QUESTIONS:
1. Does privatization assist in increasing the financial performance of the
government? (Increasing revenue and decreasing debt)
2. Is the government forgoing long-term profit for short-term revenue? / Is
Privatization a sustainable strategy?
3. How will privatization affect market competition, hence product/service
accessibility?
RESEARCH METHODOLOGY:

In this research project, the researcher uses secondary sources of data, which are
provided in official websites of the government, privatized firms, and articles
and journals for reference.

OBJECTIVES OF THE RESEARCH:

1. To probe into the economic impact cause by privatization of public assets.

2. To explore how privatization changes the performance of the privatized
sectors.

PROBLEM STATEMENT:
REVIEW OF LITERATURE:

1. DISINVESTMENT OF PUBLIC SECTOR UNDERTAKINGS IN

INDIA AND ITS EFFECT - A CRITICAL ANALYSIS ALONG
WITH CASE STUDIES. Abhishek Rajesh Bhattacharjee, Shreya Das
and Stuti Aastha, International Journal of Advanced Research
(IJAR),2020.

This author critically evaluates various aspects involved in the disinvestment of

public sector undertakings and tries to find out the actual effect of such
disinvestment, with the help of case studies of two PSU’s which were later
privatised, namely Videsh Sanchar Nigam Limited and Indian Petrochemical
Corporation. Through the case studies, the authors had concluded that the
participants in the disinvestment process of Public Sector Undertakings prosper
and achieve their individual milestones.

2. WHITE PAPER ON DISINVESTMENT OF CPSE’s, Department of

Disinvestment, Ministry of Finance, Government of India, published
on 31st July, 2007

In this publication by the Department of Disinvestment, they share the

performance of various Central Public Sector Enterprises and the evolution of
the policies of disinvestment proposed in the Budgets from 1991 to 2007.
Overall, it provides a thorough account of the evolution of India's disinvestment
policy, outlining the key steps taken, the institutions involved, and the changing
objectives of the policy. It offers valuable insights into the government's efforts
to optimize national resources, enhance management, generate employment,
and retire public debt through disinvestment of CPSEs.

3. PSU Disinvestment: Strategically right. Business Line newspaper,

December 06, 2021
In this article, the author highlights the lacklustre approach taken by previous
governments towards PSU disinvestment, focusing on minor stake sales and
transfers between PSUs without relinquishing control. However, the author
commends the current NDA regime for its reformist approach in reviving the
idea of genuine disinvestment through strategic sales of majority stakes in
profitable PSUs to private buyers. The author emphasizes the need for
transparency in the strategic sale process to address concerns of cronyism. They
suggest conducting third-party valuations of PSU assets and ensuring a
minimum number of bidders for each sale to achieve a fair reserve price.
Overall, the literature provides a viewpoint on the importance of transparent and
strategic disinvestment of PSUs in India, highlighting potential concerns and
suggesting measures to address them.

4. India’s turning point: An economic agenda to spur growth and jobs,

McKinsey Global Institute, August 2020.

McKinsey's article titled "India's Turning Point: An Economic Agenda to Spur

Growth and Jobs" provides a comprehensive analysis of India's economic
landscape and proposes an agenda aimed at accelerating growth and creating
employment opportunities. Released in 2020, the article under review explores
the potential benefits of privatising more than 30 state-owned enterprises
(SOEs) in India, with a focus on increasing efficiency, productivity, and
generating revenue for the government. It highlights the importance of
privatisation in boosting growth and suggests that large-scale privatisation could
significantly contribute to India's GDP and overall economic development.

5. Advantages and Disadvantages of Privatization in India, Anant

Kousadikar and Trivender Kumar Singh, International Journal of
Advanced System and Social Engineering Research, Vol 3, Issue 1,
2013.

This author enumerates the benefits and drawbacks of transferring ownership

from the public sector to private entities. Conclusively, the author opines that
Indian policy makers have become more open to privatization and have
implemented liberal reforms to divest the large capital investment in public
sector undertakings (PSUs) and improve the efficiency and profitability of state-
owned enterprises. The author also highlights the potential of privatization in
India, despite obstacles such as bureaucracy, corruption, and political
challenges.