Bala, Madhu (2006): Economic Policy and State Owned Enterprises: Evolution Towards Privatisation in India.
Download (103kB) | Preview
The paper endeavours to look into the evolution of the role of the state and move towards privatisation in India. It starts with a discussion on the role of State intervention in the economic development within the contours of socio-economic and political circumstances. It recognises the fact that different scholars have advocated various ways through which state can intervene in an advanced capitalist economy and a developing economy or a colony. The nature of intervention is different in each case.
The paper argues that State owned enterprises (SOEs) are one such manifestation of state Intervention. In many developing countries, state enterprises are assigned the responsibility of fulfilling specific social goals, which have their origin in colonial period. Whatever may be the idea behind the creation of such enterprises, they come into existence either by direct state investment or through nationalisation of private enterprises. The state intervenes through state owned enterprises in the countries where investment needs for different projects are large and the expected returns at least in the short run are too low to motivate private capital to invest.
Since 1980, however, the intervention by the state through state owned enterprises has been undergoing a close scrutiny in many developing countries including India. The argument is that excessive political interference and lack of managerial interests (autonomy) hamper the performance of state enterprises. It has resulted in the reflection of various theories on assessing the performance of state enterprises which includes property rights theory, public choice theory, non-market failure and competition theory.
Since economic policy making by the state requires balance of accumulation and legitimisation, then generally, the adopted economic policy serves the interests of a few major social groups. These dominant social groups react to the adopted policy and their reactions are normally taken into account while amending the existing policy or making the new economic policy. Hence, the proper understanding of the economic policy of an economy like India necessitates its historical evaluation. Therefore, in this chapter, the whole period of interaction of economic policy and state owned sector in the post-independence India has been divided into following four phases: (i) 1950-1965, (ii) 1966-1984, (iii) 1984-91 and (iv) post-1991 policy regime. During the first phase, i.e. 1950-65, the growth rates of the economy were generally high and state owned sector was occupying the position of 'commanding heights'. Despite the economy passing through crisis during this phase, the state owned sector enjoyed by and large a significant position.
The policy adopted in 1982 was a step forward towards the process of liberalisation. In state owned enterprises, a visible change in the attitude took place. The economy was made predominantly dependent upon market forces rather than on the state. The industrial policy that was initiated in 1985 was the culmination of the process of drifting away, which started during the second phase of the economic policy in India. In the Post 1991, Policy Regime, the Eighth, Ninth and Tenth Plan documents suggested many policy initiatives towards restructuring, modernisation, rationalisation of capacity, product-mix changes, privatisation, autonomy, performance accountability and disinvestments policy.
However many studies emerged in favour of and against the policy of privatisation and disinvestment of SOEs and also on the performance of those enterprises that were privatised. While referring to those studies, the chapter looks into the trends of the privatisation of State Owned Enterprises from 1991 to 2000 and points out that during this period, the government offloaded shares in as many as 39 state owned enterprises. However, since March 2000 emphasis has increasingly been on strategic sales of identified state owned enterprises (SOEs). The chapter ends with a critical analysis of the performance of disinvestment process in india and observes that the policy of disinvestment has been looked upon with scepticism.
JEL Classifications: O11, P41, P47, P52
|Item Type:||MPRA Paper|
|Original Title:||Economic Policy and State Owned Enterprises: Evolution Towards Privatisation in India|
|Keywords:||economic policy, privatisation, state owned enterprises, evolution, disinvestment|
|Subjects:||P - Economic Systems > P4 - Other Economic Systems > P47 - Performance and Prospects
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development
P - Economic Systems > P4 - Other Economic Systems > P41 - Planning, Coordination, and Reform
P - Economic Systems > P5 - Comparative Economic Systems > P52 - Comparative Studies of Particular Economies
|Depositing User:||Madhu Bala|
|Date Deposited:||18. Oct 2009 18:14|
|Last Modified:||12. Feb 2013 18:00|
Ahluwalia M., (2002) ‘Economic Reforms in India since 1991: Has Gradualism Worked?,’Journal of Economic Perspectives, American Economic Association, 16(3): 67-88.
Alchian,A. and H. Demesetz, (1972) ‘Production Information Cost and Economic Organisation’,American Economic Review, 62, 777-95.
Alchian, A. and R. Kessel. (1962) ‘Competition, Monopoly and the Pursuit of Money’. In National Bureau of Economic Research, Aspects of Labour Economics, Princeton, N.J.: Princeton University Press.
Bacon, R. and Eltis, W. (1976) Britain’s Economic Problem: Too few Producers, London: Macmillam.
Bagchi, A.K., (1972) Political Economy of Underdevelopment. (New Delhi: Orient Longman).
Bardhan, Pranab. (1984) The Political Economy of Development in India (Oxford: BasilBlackwell)
Baumol, W.J. (1967) Business Behavior, Value and Growth, (New York: Harcourt, Brace & World).
Bottomore, T. (ed.), (1987) A Dictionary of Marxist Thought (Delhi: Oxford University Press).
Caves D.W. and L.R. Christiansen, (1980) ‘The Relative Efficiency of Public and Private Firms in a Competitive Environment: The Case of Canadian Railroads’, Journal of Political Economy,88,956-76.
Chaudhuri, S. (1994) ‘Public Enterprises and Private Purposes’, Economic and Political Weekly,29(22), 1338-47.
Chokshi, A. (1979) State Intervention in the Industrialization of Developing Countries, World Bank Staff Working Paper No.341, Washing D.C, The World Bank.
D.T. Lakdawala cited in C.T.Kuries, (1982) ‘The Budget and the Economy’, Economic and Political Weekly, March 20, pp. 435-38.
Datt, R. (1997) ‘Employment Policy for the Ninth Plan’, presented in the seminar on Employment Policy for the Ninth Plan 27March, organised by Institute of Applied Manpower Research, New Delhi.
Dholakia, B.H. (1987) ‘Relative Performance of Public and Private Manufacturing Enterprises in India: Total Factor Productivity Approach’, Economic and Political Weekly, February25, 13(8),M4-11
Feldstein, M. (1974) ‘Social Security, retirement and aggregate capital accumulation’, Journal of Political Economy, 82, 905-26.
Furuboton, Eirik G. and Svetozar Pejovich. (1972) ‘Property Rights and Economic Theory: A Survey of Recent Literature’, Journal of Economic Literature, 10, 1137-62.
Ghosh, (1995) ‘Employment and Labour under Structural Adjustment: India Since 1991’, The Indian Journal of Labour Economics, 38(4).
Ghosh, A. (1984). ‘Productivity and Efficiency in Manufacturing Industries: Some Case Studies’, Economic and Political Weekly, Annual Number, 1397-1453.
Gillis, M., (1980) ‘The Role of State Enterprises in Economic Development", Social Research,47: 248-289.
Gough, I. (1979) ‘The Political Economy of Welfare State’, (London: Macmillan Educational).
Jessop, (1982). The Capitalist State (UK: Oxford).
Kalecki, M, (1972) Selected Essays on the Dynamics of a Capitalist Economy (Cambridge:Cambridge University Press).
Kapur, D. and Ramamurti (2004) Privatization In India: The Imperatives and Consequences of Gradualism in TN Srinivasan (Ed.) India After A Decade of Economic Reforms: Retrospect And Prospects, USA: Stanford University Press.
Kohli, A. (1989) ‘Politics of Economic Liberalisation’, World Development, 17(3), 305-328.
Majumdar, K. (1995) ‘Public, Joint and Private Sectors in Indian Industry: Evaluating Relative Performance Differences’, Economic and Political Weekly, 30(7&8), M25-32.
Marathe, S. (1986) Regulation and Deregulation (New Delhi: Sage Publications).
Martin and Parker (1997) The Impact of Privatisation: Ownership and Corporate Performance in the UK, (London and New York: Routledge).
Mehta, B.R. (1989) ‘India’s Mixed Economy’, (New Delhi: Popular Prakashan)
Miliband, R. (1969) The State in Capitalist Society, (London: Quartest Books).
Mohan, T.T. Ram. (2001) Privatisation: Theory and Evidence, EPW Special Article, 29 December.
Naib, S. (2004) Disinvestment in India Policies, Procedures, Practices, (New Delhi: Sage).
O'Connor, (1973) The Fiscal Crisis of the State (New York: St. Martin's Press).
Public Enterprise Survey, Various Issues , Department of Public Enterprises, Ministry ofIndustry, Government of India.
Raj, K.N., (1985) ‘New Economic Policy-I’, Mainstream, October 14, pp.7-10.
Raj, K.N., (1985). ‘New Economic Policy-II’, Mainstream, October 21, pp.15-19.
Sathe, V., (1989). Restructuring of Public Sector in India (New Delhi: Vikas Publishers).
Shepherd, (ed.), (1976) Public Enterprises: Economic Analysis of Theory and Practice (Massachusetts: Lexington Books).
Shirokov, G.K. (1973) Industrialisation of India (Moscow: People's Pub-lishing House).
Starr P. (1988) ‘The Meaning of Privatization,’ Yale Law and Policy Review, 6,6-41.
Stiglitz, Joseph (1997) Whither Socialism, (Cambridge: MIT Press).
Sweezy, Paul M. (1991) Theory of Capitalist Development, Indian Edition (Calcutta: K.P.Bagchi and Co.)
Varshney, A., (1984) ‘Political Economy of Slow Industrial Growth in India’, Economic and Political Weekly, 19(35), 1511-17.
Williamson, O.E. (1969) ‘Corporate Control and the Theory of the Firm’, in H. Manne (ed.),Economic Policy and the Regulation of Corporate Securities, (Washington, DC: American Enterprise Institute).
Williamson, O.E. (1970) Corporate Control and Business Behavior: An Inquiry into the Effects of Organizational Form on Enterprise Behavior. (Englewood Cliffs, N.J: Prentice Hall).
Wolf, C. (1979) “A Theory of Non-market Failure: Framework for Implementation Analysis,” Journal of Law and Economics (1979): 22(1), 107-44.
Yarrow, G. (1986) ‘Privatisation in theory and practice’, Economic Policy, 2, 324-364.