H T Parekh finance forum

Privatisation in India
Despite the poor performance of public sector undertakings, a growing consensus to privatise them, and a transparent and effective apparatus in place, India has been remarkably slow to actually privatise. It is currently hard to get managers and politicians to go along with the privatisation of PSUs, for the private benefits accruing to them from control of these enterprises can be immense. A new privatisation scheme is proposed to undo the manager-politician nexus by putting the onus of privatisation on managers of PSUs, while using competition to restrain any giveaways.
ANIL K MAKHIJA I Introduction
This article focuses on the centrallyowned PSUs, which may account for 85 per cent of the total assets in the public sector.2 It describes their performance, the evolution of policy regarding privatisation, the successes and failures of the privatisation plan so far, and the challenges it faces. That PSUs in India have underperformed may be widely known, but it is instructive to examine the nature of the underlying problems. The stated government policy, which has been strengthened by unambiguous court rulings, has evolved to embrace privatisation fully. Moreover, a reasoned and transparent administrative apparatus for privatisation through open competitive bidding is also in place. Yet, in the decade and half of its life, the privatisation programme has made remarkably little progress. Interestingly, though labour may have added to resistance to privatisations, it seems not to have been the main obstacle. Instead, the primary culprits here may be entrenched managers and politicians, who seem happy to see privatisations elsewhere but not in my backyard. The article concludes with a proposal aimed at addressing this issue. The socialist experiment of PSUs did not meet expectations in India, or elsewhere in the world. PSUs have tended to perform poorly, and glaringly so when compared with firms in the private sector. Gathering steam in the 1980s, as the socialist model came to be questioned and even Russia undertook Perestroika reform, there was demand for privatisation of government-owned enterprises in many countries. Arguably, there are many benefits of privatisation: Private ownership is more efficient than stateownership; privatisation can be an important source of government revenue (over $ 1 trillion have been raised already worldwide, according to Megginson and Netter 2001); privatisation will end the ongoing subsidies to loss-making PSUs; equity from privatised PSUs can help develop local capital markets; world financial markets have matured to the point that the private sector can better finance large long-term investments; and problems of market failure such as monopoly can be better handled through regulation. No wonder, the list of countries with privatisations likely exceeds one hundred today. The official impetus for privatisation in India came as part of a broader change in policy. In response to an external debt crisis and the blessings of the International Monetary Fund (IMF), in 1991 India introduced major reforms to liberalise the economy, including plans for privatisation (though it was initially referred to as disinvestment to disassociate it with the fears of job losses and other capitalist evils commonly attributed to privatisation). In about the first 10 years of the programme only an average of 19.2 per cent of the equity of some 40 PSUs was sold [Gupta 2005], with no sales of a majority stake. According to the World Bank (2001), in 1999 south Asia accounted for only 4 per cent of the revenues raised through privatisation by developing countries. Though the pace picked up after that with equity sales to large block purchasers, who are called strategic partners, it has added at best only another 15 privatisations to date. Simultaneously, the number of failed privatisations, where no further attempts are ongoing is 13, including Air India, Indian Airlines, Scooters of India, and NIDC. In fact, the government has thus far barely raised half the revenue it has itself targeted from its privatisation programme. Yet, one would have predicted a much faster rate of privatisation, based on the clear evidence
The H T Parekh Finance Forum is edited and managed by Errol DSouza, Shubhashis Gangopadhyay, Subir Gokarn, Ajay Shah and Praveen Mohanty.

rior to independence, the public sector had a minor role in the Indian economy. At the commencement of the First Five-Year Plan in 1951, there were only five public sector undertakings (PSUs), with a total investment of a mere Rs 29 crore.1 All that changed with the advent of a Nehru-led socialist model for the country, as ensconced in the Industrial Policy Resolution (IPR) of 1956. The IPR envisaged that PSUs will lead in the economic and industrial development of the nation and build the required infrastructure, under the presumption that the private sector lacked the necessary resources or the long-term investment perspective. Income redistribution, job creation, and balanced regional growth were other objectives of the IPR, besides the normal expectation of profit from business ventures. There was also a postindependence euphoria, though some would term it navet, about placing national economic assets in the trust of patriotic managers and workers. The public sector grew organically and was also later enlarged by the numerous nationalisations in the 1960s. By the mid-1970s, the public sector had grown to account for one-fifth of the GDP [Goyal 2000]. Growing still further, by 2001 the public sector accounted for about one-fourth of the GDP. The number of centrally-owned PSUs is now around 242, with a massive total investment of Rs 2,74,114 crore.

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of poor performance of PSUs and the extent of consensus to privatise them.

II The Performance of PSUs International Evidence

Performance problems in state-owned enterprises may be inherent because they are beset with severe agency problems, with managers in control while the ownercitizens do not assert their ownership rights effectively. Indeed, there is mounting evidence that PSUs underperform when we examine pre- and post-privatisation data.3 Megginson and Netter (2001, Table 5) summarise the findings of three empirical studies that compare the financial and operating performance of newly-privatised firms against their prior performance as state-owned enterprises.4 After privatisation, the firms show significantly higher profitability, higher efficiency, generally higher investment levels, higher output, higher dividends, and lower leverage. Interestingly, the evidence is surprisingly mixed on whether employment (total employees) changes as a result of privatisation. There is also another large literature which compares the performance of stateowned enterprises with private firms. Boardman and Vining (1989) find that private sector performance is superior. Finally, there are numerous case studies. An excellent example of these is the work of La Porta and Lopez de Silanes (1999) which covers the entire population of Mexican privatisations, and compares performance to industry matched private firms. They find that the ratio of operating income to sales went up by significantly. Arguably, state-owned enterprises underperform because they are purposely pursuing other goals, not profit maximisation [Shleifer and Vishny 1994]. Or, stateowned enterprises may be run inefficiently because of poor managerial incentives [Vickers and Yarrow 1991].

One reason for the lower margins for PSUs seems to be their cost structure. From Panel B of Table 1, in all years and in all cost categories, the PSUs had higher costs compared to private firms. Furthermore, there is a discernible trend among private firms to cut costs over time, while the PSUs appear to be unsuccessful in controlling their expenses. The situation appears to be worsening. Finally, a recent study by Gupta (2005) examines Indian PSUs that were privatised between 1991 and 1999. Note that during this period, government largely divested minority shares (only 19.2 per cent of the equity on average). Gupta (2005) finds that both the levels and the growth rates of profitability, labour productivity, and investment spending improve significantly following partial privatisationSince improvements in operating performance are not accompanied by lay-offs, this suggests the continued presence of political interference by the government in these firms. Thus, the results support the hypothesis that partial privatisation addresses the managerial rather than the political view of inefficiency in state-owned enterprises. Management is definitely implicated in the underperformance of state-owned enterprises, a situation that is likely worsened by political factors.

industries were too strategically important to let go into private hands, (iii) who would be allowed to buy PSUs, and (iv) whether or not the PSU was profitable. Table 2 provides a listing of year by year privatisation activities. Behind this trend lie a variety of reasons: Even as the government faced budget deficits, the poor performance of the PSUs required continuing subsidies. There was also greater ideological acceptance of privatisation, consistent with worldwide challenges to the socialist economic model. Notably, there were a number of different governments in power during this period. Thus, Congress initiated the programme in 1991, the United Front formed the Disinvestment Commission, the National Democratic Alliance (NDA) (Bharatiya Janata Party-led) government set up the department of disinvestment, and now Congress has established a national investment fund for channelling privatisation revenues. Labour and left-oriented parties have managed to go along. Finally, attempts to stall the privatisation process through the court system a frequently effective strategy in India were dealt a severe blow in a landmark Supreme Court decision involving the BALCO privatisation. The evolution of privatisation policy since the start of economic liberalisation in 1991-92 is briefly outlined below:
(1) Interim budget and budget speech, 1991-92, Chandrashekhar government The GoI enunciated a policy to divest up to 20 per cent of its equity in selected PSUs to mutual funds and investment institutions in the public sector, as well as workers in these firms. The stated purpose of the policy was to place equity across a broad base, improve management, increase resources to the enterprises, and to raise funds for the general exchequer. Initially,

III Evolution of Policy and Practice

It all began with the 1991 liberalisation, when government even avoided directly mentioning privatisation, calling it disinvestment instead. But, over time the scope of the programme has expanded to fully embrace privatisation,5 so that by 2000 there were few conceptual constraints on (i) what size of equity stake to divest, (ii) what

Table 1: Performance of PSUs in India

Panel A: Profit Margins of Manufacturing PSUs versus Private Manufacturing Firms Year PSUs Private 1990-91 1991-92 -4.50 5.70 -5.30 4.90 1992-93 -5.40 4.90 1993-94 1994-95 1995-96 1996-97 -6.90 6.60 -2.30 9.10 -2.40 9.00 -4.30 7.00 1997-98 -3.90 6.20

Performance of Indian PSUs

For the period 1990-91 to 1997-98, Indian PSUs involved in manufacturing yielded significantly lower profitability than private firms, as can be seen in Panel A of Table 1. In every year, the manufacturing PSUs earned on average negative profit margins, while private firms had healthy positive margins. Apparently, half of all PSUs are loss-making enterprises, according to the department of disinvestment.
Year

Panel B: Cost Structure of Manufacturing PSUs versus Private Manufacturing Firms 1990-91 1991-92 10.9 7.0 17.3 8.8 9.9 6.7 1992-93 12.7 6.9 18.1 8.6 11.3 6.0 1993-94 1994-95 1995-96 1996-97 13.5 6.6 17.7 8.1 11.5 5.2 12.0 6.2 17.6 7.9 9.0 5.2 13.3 6.5 19.2 7.9 9.1 5.8 14.9 6.6 19.1 8.2 9.8 5.9 1997-98 19.5 5.0 23.3 6.5 11.7 4.7

Power and fuel/net sales PSUs 10.3 Private 6.8 Wages/net sales PSUs 18.6 Private 8.9 Interest/net sales PSUs 8.8 Private 6.0 Notes:

(i) Profit margin is measured by profits after taxes/net sales (per cent). (ii) Costs are given as a percentage of sales. The petroleum PSUs are excluded. Source: Department of Disinvestment, http://divest.nic.in.

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as Table 1 shows, shares of different PSUs were bundled together and sold to domestic financial institutions. Later in 1992-93, to ensure better prices individual shares were auctioned separately. (2) Report of Committee on the Disinvestment of Shares in PSEs, Rangarajan Committee, 1993 The committee recommended that the percentage of equity divested could be up to 49 per cent for industries reserved for the public sector, and that, in exceptional cases up to 74 per cent of the equity could be divested. In industries not reserved for the public sector, a 100 per cent of the equity could be divested. Only the following six industries were reserved for the public sector: (i) coal, (ii) minerals and oils, (iii) armaments, (iv) atomic energy, (v) radioactive minerals, and (vi) railways. The GoI did not act on these recommendations. (3) Disinvestment Commission Recommendations: February 1997 October 1999 The commission recommended divestment of 58 different PSUs. Moreover, in a break from a past policy of share public offerings, the commission recommended strategic sales with transfer of management. By 1996-97, sales were open to NRIs and foreigners, and through global depositary receipts in the international markets. (4) Budget speech by Yashwant Sinha, 1998-99 Government has decided that in the generality of cases, the government shareholding in public sector enterprises will be brought down to 26 per cent. In cases of public sector enterprises involving strategic considerations, government will continue to retain majority holding. The interests of workers shall be protected in all cases. (5) Strategic and Non-Strategic Classification, 1999 Reflecting the report of the Rangarajan Committee from some six years earlier, the government announced the classification of industries into strategic and non-strategic areas. Strategic industries were limited to: (i) arms, ammunitions, and related defence industries, (ii) atomic energy, (iii) mining of minerals for the atomic industry, and (iv) railway transport. All other industries were classified as non-strategic. For all PSUs in non-strategic industries, government stakes could be dropped to as low as 26 per cent on a case-by-case basis. Since three-fourths majority is needed to pass certain important board resolutions, for control reasons government set a lower limit of 26 per cent of the equity. (6) Address of president K R Narayanan to joint session of Parliament, February 2001 The governments approach to PSUs has a threefold objective: revival of potentially viable enterprises; closing down of those

PSUs that cannot be revived; and bringing down government equity in non-strategic PSUs to 26 per cent or lower. Interests of workers will be fully protected through attractive Voluntary Retirement Schemes and other measures. As Table 3 shows,

in some cases governments equity stake dropped below 26 per cent. (7) Budget speech by Jaswant Singh, 2003-04 (D)isinvestment is not merely for mobilising revenues for the government, it is mainly

Table 2: Chronology and Methodology of Privatisations in India, 1991 to 2005

Year No of Target Transactions Receipt with Equity Sold (Rs Crore) 47 29 17 5 1 1 5 2500 2500 3500 4000 7000 5000 4800 5000 Actual Receipts (Rs Crore) 3037.74 1912.42 0.00 4843.10 168.48 379.67 910.00 5371.11 Methodology

1991-92 1992-93 1993-94 1994-95 NRIs and 1995-96 1996-97 1997-98 1998-99

1999-2000 2000-01 2001-02 #

5 5 8

10000 10000 12,000

1860.14 1871.26 5632.25

2002-03 #

12,000

3347.98

2003-04

14,500

15547.41

2004-05 2005-06 Total Note:

4,000

2764.87 1567.60

Minority shares sold in December 1991 and February 1992 by auction method in bundles. Shares sold separately for each company by auction method. Equity of six companies sold by open auction but proceeds received in 1994-95. Sale through auction method, in which other persons allowed to participate. Equities of four companies auctioned GDR (VSNL) in international market. GDR (MTNL) in international market. GDR (VSNL)/domestic offerings with the participation of FIIs (CONCOR, GAIL). Cross purchase by three oil sector companies, i e, GAIL, ONGC and IOC. GDR-GAIL, VSNL-domestic issue, BALCO restructuring, MFILs strategic sale, etc. Strategic sale of BALCO, LJMC; Takeover KRL (CRL), CPCL (MRL), BRPL Strategic sale of CMC 51 per cent, HTL 74 per cent, VSNL 25 per cent, IBP 33.58 per cent, PPL 74 per cent, and sale of hotel properties of ITDC and HCI; receipt from surplus cash reserves from STC and MMTC Strategic sale: HZL (26 per cent), IPCL (25 per cent), HCI, ITDC, Maruti: control premium from renunciation of rights issue, put option MFIL (26 per cent), shares to employees in HZL, CMC and VSNL. Jessop and Co (72 per cent Strategic Sale), HZL (18.92 per cent call option), through public offer-Maruti (27.5 per cent), ICI (9.2 per cent), IBP (26 per cent), IPCL (28.945 per cent), CMC (26.25 per cent), DCI (20 per cent), GAIL (10. per cent) and ONGC (9.96 per cent) NTPC (5.25 per cent offer for sale), IPCL (5 per cent to employees) and ONGC (0.01 per cent) By sale of shares to public sector financial instiitutions and public sector banks

96,800

49,214.03

# Figures are inclusive of control premium, dividend/dividend tax, restructuring and transfer of surplus cash reserves prior to disinvestment. Source: Department of Disinvestment, http://divest.nic.in.

Table 3: Privatisations with Strategic Partners in India, 1999 to 2005

No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Name Modern Food Industries (India) (MFIL) Bharat Aluminium Co CMC HTL Lagan Jute Machinery Corporation ITDC 19 different hotels IBP Co Videsh Sanchar Nigam Paradeep Phosphates Hindustan Zinc Maruti Udyog Indian Petrochemicals Corporation State Trading Corporation of India MMTC Jessop and Co Grand Total Per Cent of GoI Equity Sold 80 51 51 74 74 90 33.58 25 74 44.92 4.2 26 Realisation Rs in Crore 149.52 826.92 ^ 158.07 55 2.53 691.63 1153.68 3689^ 151.70 775.07 1000 1490.84 40 ^^^ 60 ^^^ 18.18 10257.19 Profit/Loss Loss Making Profit Making Profit Making Profit Making Loss Making All Loss Making Profit Making Profit Making Loss Making Profit Making Profit Making Profit Making

72

Loss Making

Notes: ^ Including dividend and dividend tax. ^^^ The receipt is on account of transfer of cash reserves. Source: *From Department of Disinvestment, http://divest.nic.in.

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for unlocking the productive potential of these undertakings, and for reorienting the government away from business and towards the business of governance. In a challenge to the sale of a profitable PSU, BALCO, to Sterlite, the Supreme Court in December 2002 handed down a landmark verdict against opponents of privatisation. The court legitimised the privatisation procedures, and refused to second guess the government with respect to its privatisation policy. (8) National Investment Fund, January 25, 2005 A fund is to be established with proceeds from sales of minority shareholdings of the government in profitable PSUs. The fund, to be professionally managed by public sector financial entities, would generate returns that can be applied to investment in education, health, employment, and support of profitable or revivable PSUs.

IV Should India Adopt Rapid Mass Privatisation?

In light of the poor performance of PSUs, and a growing willingness to privatise, it may be argued that India should adopt a process of rapid mass privatisation, as in Russia and the Czech Republic. For example, in a few months in 1992 the Czech Republic privatised nearly one thousand state-owned enterprises through a voucher scheme [Hingorani, Makhija and Lehn 1997]. Though the Czech privatisation was largely clean, the largest Russian enterprises were sold in a massively corrupt fashion to individuals that the Russian press has dubbed kleptocrats [Black, Kraaakman and Tarassova 2000]. These problems were waved away and rationalised, however, under the theory that any private ownership is ultimately preferable to state-ownership. The results proved to be disappointing in both cases, and resulted in stagnant economies for most of the 1990s. In the Czech Republic, a nexus of governmentowned banks and managers in poorly performing privatised firms allowed bad loans to persist, thus failing to liquidate unprofitable firms or undertake necessary restructuring. In Russia, without proper controls against it, massive self-dealing by insiders led to looting of firms, rather than the hard work of better monitoring and the creation of new value. Common to both, the Czech Republic and Russia, was an absence of the development of an infrastructure of laws and regulations prior to privatisation. Strong proponents of a laissez-faire philosophy, such as prime minister Vaclav Klaus whose government

oversaw the Czech Republics mass privatisation, believed that markets would respond spontaneously to a need for laws and regulations. In a sense, both countries were poorly served by western advisors that promoted a shock therapy approach to privatisation, to expeditiously install one of the pillars of the so-called Washington Consensus. China represents the other extreme approach to privatisation. Since the adoption of the open door policy under Deng Xiaoping in 1978, the economy has flourished. However, the engine for growth has not been the state sector. In fact, China has thus far not made any significant moves to privatise some 3,40,000 state-owned enterprises. While the private sector has thrived, about half the state enterprises operate at a loss [Cao 2000]. With over 200 million individuals employed by stateowned enterprises, the state sector does provide an important social safety net. Chinese officials plan to ultimately securitise state-owned enterprises. Possibly by that time, the non-state sector will have grown to such an extent that the privatisation of state enterprises will be a non-event. In the meantime, state subsidies continue. Between the extremes represented by the Czech Republic and Russia, and China, Indias case-by-case approach is arguably the correct path, though it needs to be speeded up. Unlike in China, the Indian PSUs can be privatised without jeopardy to the economy as a whole, and yet free the GoI of its burden of ongoing subsidies. Most importantly, to unlock their maximum potential each firm optimally requires owners with requisite business knowledge and with sufficient holdings to make it economically worthwhile to monitor management and ensure efficiency. Moreover, there is considerable scope for dislocation, mismanagement, and manipulation in a large scale Czech-style wholesale privatisation. The question then is how we can speed up the privatisation process while retaining the value benefits of a case-by-case approach.

V What Is Holding Up the Privatisation Programme?

The prominent groups with vested interests against privatisation of PSUs are workers and their labour unions, managers, and politicians. Workers have not shown as much resistance as might have been expected, though they have organised some very visible large protests. There are a

number of reasons for this. One, privatisations have been accompanied with sweeteners for labour. Voluntary retirement schemes provide compensation of three or more years of salary for early retirement. Shares have also been offered to workers at a third of the market price to buy their nod for privatisation. Two, strikes could prove to be counterproductive if superior private market alternatives are available to customers (e g, rival airlines to Indian Airlines). Indeed, in many cases consumers may not be sympathetic to the cause of PSU workers because they are increasingly exposed to the better services and choices offered by private providers (e g, telephony). Finally, it is unclear if privatisations thus far have led to significant forced declines in employment, though the most difficult cases, as in banking, may lie ahead. In controversial cases like BALCO and Modern Foods, where there were heightened fears, labour has discovered that they may not be adversely affected by privatisations after all. Paying off managers, and particularly politicians, within the privatisation package is much harder because of their larger private benefits of control. In the BALCO case, where workers were eager to retire with an average payment of Rs 4,00,000 in the voluntary retirement scheme, one wonders if the offer of twice that amount to executives was greeted as adequate compensation. It is common knowledge, bolstered by anecdotes of egregious looting, that without effective monitoring of PSUs, managerial opportunities for private benefits of control are immense. The situation is even more intransigent for politicians. PSUs with their bloated employment rolls serve as vote banks, bought off with periodic doles of government subsidies. There are also opportunities for providing political patronage, such as jobs and contracts, in order to curry favour with voters or to obtain kickbacks. While privatisations may offer benefits to the population at large, their costs are localised. This may explain the phenomenon of reluctant privatisation, whereby researchers are finding international evidence that after the official privatisation of state-owned enterprises governments find ways to reassert control [Bortolotti and Faccio 2004]. In other words, managers and politicians may actually favour privatisation, as long as it is not their PSUs. Dinic and Gupta (2005) offer empirical evidence of the significant role of politics in resisting privatisation in India. In particular, based on the privatisations that May 20, 2006

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occurred between fiscal years 1990 to 1995, they find that a PSU is more likely to be privatised if it is located in a state where the ruling party and its allies do not face serious challenge from opposition parties. If, however, the largest opposition party has won a large share of seats, then privatisation is less likely to occur in that state. Moreover, they find that there are no cases of privatisation such that the privatised PSU is located in the home state of the politician in charge of the ministry to which the PSU belongs. If Indias privatisation programme is to make headway, we must admit to these realities and address them.

VI A Proposal
Even if everyone privately agrees that PSUs are underperforming and ought to be privatised, it will take committed leadership to proclaim that the emperor has no clothes. However, the opposition seems surmountable at the moment, and there is a window of opportunity to markedly speed up the process. The following scheme attempts to break up the manager-politician nexus, and possibly turn managers into proponents of the privatisation of their own PSUs.
(i) Basic privatisation proposal: The management of every PSU, in conjunction with its supervising ministry, be required to develop a basic privatisation proposal. As an important part, this proposal would seek out new owners, including workers, managers, and strategic partners, and the prices at which stock would be sold to them. A priori there would be no limits on the allocation of shares and their corresponding prices, though self-interest would lead to restraint in any giveaways. This would bring out the reservation prices of the potential opponents to the privatisation of the PSU. It will also weaken the workermanager-politician nexus, as workers and managers try to negotiate for their selfinterests in the basic proposal. Shifting the burden to PSUs will make it feasible for the department of disinvestment to oversee a clean and transparent process for the privatisation of the remaining two hundred plus PSUs. (ii) Counter privatisation proposals: The department of disinvestment would circulate the basic privatisation proposal widely, and invite counter proposals from domestic or foreign investors. With some restrictions to protect workers, the proposal that brings in the highest assured revenue to the government will be the winning proposal under the theory that it must have put the assets of the PSU to their most

productive use. Competing parties may be allowed opportunities to revise their proposals. If no competing proposal appears, then the basic proposal should be accepted, motivating managers and ministries to seriously develop basic proposals. (iii) National investment fund: Revenue from privatisations will flow to the national investment fund, which was recently set up. Managed professionally, the returns from this fund will be applied to improvements in education, health and employment. Instead of plugging annual budget deficits, privatisation revenues will make the nation more competitive. (iv) Minimum VRS and other protection for workers and managers: All proposals will contain (a) a minimum, say three years pay, as VRS compensation at the expense of the privatised firm, and (b) a maximum re-training programme for retrenched workers and managers, say one year, at the expense of the national investment fund. (v) Timetable: To stop the haemorrhaging of public funds and to expedite more efficient use of their assets, all PSUs will be slated for privatisation within three or five years. The five-year window will be permitted for those PSUs that may be monopolies, and require the development of appropriate regulatory bodies. Obviously, this feature requires a national political consensus. It is an important component of the scheme, however. A nationwide simultaneous privatisation programme for all PSUs will be more palatable to politicians, who will not feel singled out. Since hundreds of billions of dollars can be realised through the full privatisation of Indian PSUs, there may be some benefits countering the local adverse effects of privatisations.

few states are seriously pursuing privatisations plans. 3 Out of a very large literature, we selectively report the findings of a few studies to illustrate the impact of privatisation on performance. 4 The three studies are by Megginson, Nash and van Randenborgh (1994), Boubakri and Cosset (1999) and DSouza and Megginson (1999). 5 See Kapur and Ramamurti (2002) for details.

References
Black, B, R Kraakman and A Tarassova (2000): Russian Privatisation and Corporate Governance: What Went Wrong?, Stanford Law Review, 52, pp 1731-1808. Boardman, A E and A R Vining (1989): Ownership and Performance in Competitive Environments: A Comparison of the Performance of Private, Mixed, and State-Owned Enterprises, Journal of Law and Economics, 32, pp 1-33. Bortolotti, B and M Faccio (2004): Reluctant Privatisation, FEEM Working Paper Series. Boubakri, N and J Cosset (1999): The Financial and Operating Performance of Newly-Privatised Firms: Evidence from Developing Countries, Journal of Finance, 53, pp 1081-1110. Cao, L (2000): Chinese Privatisation: Between Plan and Market, Law and Contemporary Problems, 63, pp 13-62. Department of Disinvestment (2006): Web site: http://divest.nic.in, April 19. Dinic, I S and N Gupta (2005): The Decision to Privatise: The Role of Political Competition and Patronage, University of Indiana Working Paper, June. DSouza, J and W L Megginson (1999): The Financial and Operating Performance of NewlyPrivatised Firms in the 1990s, Journal of Finance, 54, pp 1397-1438. Goyal, S K (2000): Privatisation in India in Gopal Joshi (ed), Privatising in South Asia: Minimising Negative Social Effects through Restructuring, International Labour Organisation, New Delhi, India. Gupta, N (2005): Partial Privatisation and Firm Performance, Journal of Finance, 60, pp 987-1015. Hingorani, A, K Lehn and A K Makhija (1997): Investor Behaviour in Mass Privatisation: The Case of the Czech Voucher Scheme, Journal of Financial Economics, 44, pp 349-96. Kapur, D and R Ramamurti (2002): Privatisation in India: The Imperatives and Consequences of Gradualism, Centre for Research on Economic Development and Policy Reform, Stanford University, Working Paper No 142, July. La Porta, R and F Lopez-de-Silanes (1999): The Benefits of Privatisation: Evidence from Mexico, Quarterly Journal of Economics, 114, pp 1437-67. Megginson, W L, R Nash and M van Randenborgh (1994): The Financial and Operating Performance of Newly Privatised Firms: An International Empirical Analysis, Journal of Finance, XLIX, No 2. Megginson, W L and J M Netter (2001): From State to Market: A Survey of Empirical Studies on Privatisation, Journal of Economic Literature, 39, pp 321-89. Shleifer, A and R Vishny (1994): Politicians and Firms, Quarterly Journal of Economics, 109, pp 995-1025. Vickers, J and G Yarrow (1991): Economic Perspectives on Privatisation, Journal of Economic Perspectives, 5, pp 111-32. World Bank (2001): Privatisation Database, Privatisation by Region, http://rru.worldbank.org/ Privatisation/Region.aspx?regionid=438.

India faces growing international competition. Privatisation can be an important tool to enhance the countrys competitiveness by putting the sizeable assets of PSUs to more productive use, to free government resources from going into subsidies, to raise revenues for health and education to make the nation more competitive, and to bring better opportunities for the workers and managers in the PSUs. EPW Email: Makhija.1@osu.edu

Notes
1 The department of disinvestment maintains a highly informative website (http:// www.divest.nic.in), and is the source of considerable data cited here. This paper also relies on recent research on privatisation in India, particularly Dinic and Gupta (2005), Gupta (2005), and Kapur and Ramamurti (2002), for other data and interpretation of trends in Indian privatisation. 2 The number of state-owned enterprises is even larger, some 941 PSUs, though they are dwarfed in size by the centrally-owned PSUs and very

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