3.1. Disinvestment

Owing to several shortcomings, the functioning of the public sector has often been questioned. It has been argued that the public sector works well only when it is protected by state measures. Some also argued that the public sector had entered in too many areas and, therefore, it must withdraw itself by giving entry to private players. Thus, privatization of some PSUs was advocated and disinvestment was the process through which this privatization could take place.

Various reasons given for the disinvestment were as follows:

♤ It will release a large amount of public resources locked up in non-strategic PSUs. Then these resources can be redeployed in areas that are much higher on social priority such as health, education, etc.

♤ Reduction in the public debt.

♤ Transferring the commercial risk to private sector where it is willing to share it.

♤ Releasing manpower and other intangible resources for redeployment in high priority social sectors.

♤ Enabling public having ownership or say in management of some PSUs.

But, the critics questioned the way in which disinvestment happened. Private sector took part in the disinvestment of only profit making PSUS. They totally neglected the loss making PSUs. Thus, the aim of sharing risk with the private sector was diluted.

The critics also questioned the disinvestment of profit making PSUs. But, the government used disinvestment as a tool to reduce fiscal deficit. In other words, to cover its inefficiency in the economic management of the country the government lost a profit making and revenue generating entity.