Question

“The disinvestment policy of India under the 1991 reforms involved selling of part of the government’s stakes in Public Sector Undertakings (PSUs).”
Explain the rationale behind the decision undertaken by the government.

Answer 1

The disinvestment policy was a key component of the New Economic Policy of 1991. The rationale for this decision included:

1. To Reduce Fiscal Burden: Loss-making PSUs were draining government resources. Disinvestment helped reduce the fiscal deficit.
2. To Improve Efficiency: Private sector participation aimed to increase competitiveness, productivity, and efficiency in PSUs.
3. To Encourage Private Investment: Disinvestment opened up sectors for private participation, encouraging investment and innovation.
4. To Raise Resources: It generated revenue for the government to fund infrastructure and social sector projects.
5. To Professionalize Management: Reducing political interference and bringing in market discipline helped improve performance.

Disinvestment was thus a strategic move to reform the public sector and stimulate economic growth.