India Is Privatising and Here’s Why You Should Be Concerned

Since India’s Independence India had largely been until 1991 a closed and a regulated economy functioning on the socialist welfare state model with very little in the way of open markets. The nation’s growth rate compared to other capitalist countries was very less. Under this system all the necessities of all individuals were generally fulfilled by the state and the private sector was miniscule.

This meant that due to the regulated nature of the market and the state monopoly over goods, their production and their distribution, the entire system was hugely inefficient as the price of the goods was determined not by the market forces of demand and supply, but rather by the mandate of the state. Due to such gross inefficiencies as well as corruption and black marketizing most of these commitments made by the government to provide better living standards for the people failed and the entire system could not provide even the basic which was guaranteed to it.

It was therefore, in 1991 after an economic crisis that the government decided to provide a greater share to the private sector in the economy. Earlier almost no sector was open for the private players to do business in, but today almost everything has been liberalised. The government has even gone as far as disinvesting its stake in many business entities to turn them from state owned to private sector undertaking.

Historically, it has always been the case that all societies and lands have always followed a liberal, open and a free market type of system. Such a system has been in use since time immemorial. It was either due to the general lack of a state authority or weak state control over its subjects which meant that prevention or restriction of the free markets and the trade routes was very difficult and could not be maintained for long durations. This meant that the state did not actively restrict or interfere with the business dealings of people. The state’s job from Rome to the Mauryan empire was to create a sense of safety, security, dispute resolution and justice as well as, specifically in the case of the Mauryan Empire, anti-monopoly laws.

This meant that the free market was considered to be the normalcy and many states such as France and Britain and other European countries strictly followed the Laissez-faire economic system where the governments made no direct or indirect interference in the economic affairs of the country. It is defined as ‘an economic theory from the 18th century that opposed any government intervention in business affairs. The driving principle behind laissez-faire, a French term that translates to “leave alone” (literally, “let you do”), is that the less the government is involved in the economy, the better off business will be, and by extension, society as a whole.’

Government of India's Privatisation Drive

Today in India the private sector has the liberty to do business all across the spectrum all the restrictions on owning and running private enterprises were lifted and the requirement to get licences from the government also known as the license Raj was abolished. Foreign Direct Investment or FDI was allowed into India and other foreign companies could invest and set up shop as well as production facilities in India.

Due to this liberalisation and disinvestment the private sector has contributed to the economy and over the years improved it in ways the state-run socialist system could never have been able to. On top of this the GDP growth of the nation increased dramatically after 1991 from an average of 4% per annum to more than 7% per annum since the reforms and this will privatize and disinvest entities continues even today.

Recently the government merged 10 PSUs and banks together which were performing badly due to a large number of NPAs as well as corruption in the system, but the move to privatise any of these banks has caused significant concern for the government due to the backlash it has faced from the employees as well as the people who oppose the privatisation.

This is not the only case as in many cases the government’s attempts to privatise were stopped by the people and the employees who feared they would be removed from their jobs if they were sent off into the private sector and its competitive environment. Similarly other entities like Air India and Ordnance Factory Board (OFB) and their employee unions have spoken up against the privatisation of these industries.

Air India in spite of being a large airline with the best routes and aircraft available has not been able to make even a penny of profit and has been in loss for a long time. The airline is overstaffed and is marred by delays inefficiencies as well as bad services, as such it doesn’t have a good reputation in India as an airline. This is now planned to be 100% privatised by the government which might lead to many staff being fired and removed.

There is a similar case in OFB where the workers fear that the privatisation of the firm, which is inefficient, badly run, unable to generate profits and fails to produce quality equipment, will lead to many of them being removed from their jobs by the company once it privatises to reduce cost.

India's Privatisation Drive


It is clear that India is trying its best to privatise its state run, inefficient and badly managed public sector companies and at the same time is facing hurdles from the trade unions and the employees who fear exploitation at the hands of their capitalist bosses.

LIC Privatisation

At the same time the government was seemingly calling for the privatisation of those few profitable PSUs such as LIC. This move has also been met with sharp opposition against the decision to privatise by the employees. The government has of course made it clear now in the Lok Sabha that LIC will actually not be privatised but rather the Initial Public Offering (IPO) will bring in transparency into the system.

Whatever the case maybe it certainly is important to make the economy more friendly for the private sector and India, albeit slowly, is steadily trying to convert PSUs in to private undertakings but not without its own share of problems.

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Shashank Sekuri
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