In the late 1990s, as India’s political establishment began to embrace disinvestment from government ownership in enterprises, a pivotal question emerged: How could the government strategically reduce its involvement in the economy without compromising public welfare and national interests? The government formed the Disinvestment Commission in 1996 to give the idea institutional footing. The commission would oversee and facilitate the process in its entirety, and it was to be helmed by G. V. Ramakrishna, the first chair of the Securities and Exchange Board of India. Members included Dipankar Basu; M. R. R. Nair; Suresh Tendulkar; D. M. Nanjundappa; and P. Shankar. The commission produced 13 reports, covering the privatization of over 50 out of the 72 companies referred to it. An independent Department of Disinvestment was established in 1999, and it evolved into the Ministry of Disinvestment in 2001. In 2004 it merged with the Ministry of Finance. The commission’s reports took a long-term approach, aiming to ensure that profits generated by the public sector enterprises would be proportionate to the investment in them. It shifted from public offerings to strategic and trade sales, in which management was transferred to the new ownership. It also stressed the efficiency benefits of private ownership and exposing the public sector to market competition.
The commission recommended separating disinvestment from the annual budget process because of their differing timelines. It also urged the government to address public misconceptions about disinvestment, such as the notion that it involved sacrificing crucial national assets, jeopardizing job security, and abandoning the state’s welfarist role. The report recommended that the government should take a priority-based approach toward disinvestment so public resources could be used for larger social-welfare goals. In line with the commission’s recommendations, the government reduced budgetary support to public sector enterprises (especially unprofitable ones) in the 1997/98 budget. In the next budget, it committed to bringing down its share in non-defense-related sectors to 26 percent. Between 1999 and 2004, it completed 12 strategic sales (10 privatization deals and 2 sales between public sector enterprises). During the 2001–4 period, however, the process generated just INR 24,619 crore, well short of the government’s INR 58,500 crore target. Various factors contributed to this, including unfavorable market conditions, unappealing offers from private investors, debates over the valuation of companies, and opposition from trade unions. Even for well-known companies such as Indian Oil Corporation, Bharat Petroleum Corporation, Hindustan Petroleum Corporation, and Tata Communications, the proceeds from share sales were modest, and the government retained majority control. The disinvestment program would gather momentum only during the 1999–2004 period. Before then, it remained a predominantly fiscal measure to generate revenues for the government, in practice; now it was seen to strategically privatize.
The Disinvestment Commission laid the groundwork for a more strategic and transparent privatization process, emphasizing efficiency, market competition, and aligning public resources with broader social welfare objectives.
