Topic 03 of 6 · Chapter 09 · Indian Economy
Privatisation — Disinvestment & PSU Reforms
Disinvestment policy, strategic sale, Air India privatisation, and the debate around privatisation of PSUs.
📋 In This Article
1. What is Privatisation?
Privatisation means transferring ownership or management of public sector enterprises to the private sector. In India, it primarily takes the form of disinvestment — the government selling its equity stake in PSUs.
⭐ Disinvestment vs Privatisation: Disinvestment = government sells some equity (may retain majority). Privatisation = government sells majority equity + transfers management control. India has done both, but full privatisation is rare.
2. Types of Disinvestment
- Minority Disinvestment: Government sells less than 49% equity; retains majority control. Example: IPO of ONGC, Coal India.
- Majority Disinvestment: Government sells majority equity but retains some stake.
- Strategic Sale: Government sells majority equity + transfers management control to private buyer. Example: Air India sold to Tata Sons (2022).
- Complete Privatisation: Government sells entire stake. Rare in India.
3. Rationale for Privatisation
- Raise revenue for government (reduce fiscal deficit)
- Improve efficiency of PSUs (private management is more efficient)
- Reduce government’s role in commercial activities
- Encourage private investment and competition
- Unlock value of government assets
✅ Air India Example: Air India accumulated losses of ₹70,000+ crore under government ownership. After privatisation to Tata Sons (2022), it has been restructuring and improving. This shows how private management can turn around loss-making PSUs.
4. Criticism of Privatisation
- Selling “family silver” — government selling profitable PSUs to raise short-term revenue
- Job losses — private companies may retrench workers
- Essential services may become unaffordable for poor
- Strategic sectors should remain with government (defence, nuclear energy)
- Undervaluation — PSUs may be sold below their true value
5. Key Points for Exam
🔑 Must-Remember Facts
- Disinvestment = government selling equity in PSUs
- Strategic sale = majority equity + management control transferred
- Air India privatised: January 2022; sold to Tata Sons
- DIPAM = Department of Investment and Public Asset Management
- Disinvestment proceeds = capital receipt (not revenue receipt)
- National Investment Fund (NIF) = receives disinvestment proceeds
- Maharatna PSUs can invest up to ₹5,000 crore without approval
- Currently only 2 industries reserved for public sector
- Privatisation debate: efficiency vs equity
- SEBI regulates disinvestment through stock exchanges