That politics plays a role in deciding which public sector unit gets privatised is intuitively obvious but a new study by two professors from MIT and Indiana University throws up some compelling insights about India’s 16-year old and still fledgling privatisation programme. The paper, ‘The Decision to Privatise: Finance, Politics and Patronage’, co-authored by Nandini Gupta from the Kelley School of Business and Sloan School of Management’s Serdar Dinc, finds that not a single PSU in the home state of the Cabinet minister in charge of it has ever been privatised.

By the time India opened up its economy in 1991, the 280-odd central government-owned firms (not counting the financial PSUs) accounted for 40 per cent of the country’s gross capital formation. While states have a plethora of their own PSUs, central government PSUs account for 85 per cent of the total assets of government-owned companies. In the 16 years since 1991, only about 50 firms have been listed or partially privatised or fully privatised.

Between 1991 and 1995, the P.V. Narasimha Rao government sold minority equity stakes up to 20 per cent in 39 firms, and between 1999 and 2003, the NDA privatised 17 firms (some of which were already listed by the Congress) by selling majority stakes with management control to strategic investors. The Indian Express series, ‘Public Sector Unbound’, examined the current status of PSUs sold by the strategic sale route and found that all stakeholders, including workers, have gained by and large.

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