India’s Gradual Privatisation

India’s economy in the years after independence was organised in such a way that the State would be at the centre of things. The government had a hand in producing just about anything, from vehicles to soft drinks and from hotels to cement. The problem is that it still owns a number of these companies, with many being loss-making enterprises or simply inoperational. The Modi government seems to be the first to be properly committed to privatisation since the gradual disinvestment policy of the 90s first came into effect. Yet it is having a hard time finding buyers.

Privatisation generally tends to occur due to serious economic issues faced by a government. India was facing a balance of payments crisis in the early 90s that forced the implementation of a number of reforms that fundamentally changed the economy of this country. Disinvestment was one such policy. The government at the time began by only offering between 5% and 20% stake in the companies that it chose to disinvest in. It faced opposition not only in parliament but also from rent-seeking bureaucrats. As a result, India had to go about its privatization in a very gradual manner.

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