In the context of the 1991 economic reforms in India, what was the underlying rationale for promoting privatization, and why was it considered a shift in the philosophy of state intervention in the economy?
Show answer & explanation
Correct answer: C
Explanation
Solution: The correct answer is To reduce the fiscal burden, improve efficiency of public enterprises, and redefine the role of the state from owner to facilitator.
Explanation:
☛ In July 1991, India launched the New Economic Policy (NEP) centered on Liberalisation, Privatisation, and Globalisation (LPG).
☛ Prior to 1991, many Public Sector Enterprises (PSEs) suffered from operational inefficiencies, excessive bureaucratic control, and persistent financial losses, placing a heavy burden on public finances.
☛ The rationale behind privatisation was to introduce competitive market discipline, enhance corporate efficiency, and infuse modern management practices and capital into enterprises.
☛ It marked a fundamental shift in economic philosophy from the Nehruvian socialist model of direct state control and ownership to redefining the government's role as a regulator and facilitator rather than a direct producer.
Extra Exam-Relevant Facts:
☛ Privatisation in India was primarily executed through disinvestment, which involved selling equity shares of public sector undertakings to the public or private entities.
☛ The New Industrial Policy was announced on 24 July 1991 by then Prime Minister P. V. Narasimha Rao and Finance Minister Dr. Manmohan Singh.
☛ In 1996, the Government of India set up the Disinvestment Commission under the chairmanship of G. V. Ramakrishna to advise on disinvestment strategies.
☛ The number of industries exclusively reserved for the public sector was sharply reduced from 17 to 8 in 1991, and subsequently reduced further to only two (Atomic Energy and Railway operations).
☛ The status of Navratna, Maharatna, and Miniratna was subsequently conferred on top-performing CPSEs to grant them greater operational and financial autonomy.
Important One-Liners for Upcoming Exams:
☛ Who presented the historic Union Budget of 1991? → Dr. Manmohan Singh
☛ Which Committee on Disinvestment of Shares in PSEs was set up in 1992? → C. Rangarajan Committee
☛ What was the initial number of industries reserved for the public sector under the Industrial Policy of 1956? → 17 industries
☛ When was the Department of Disinvestment created as a separate department under the Ministry of Finance? → December 1999
☛ What is the current name of the Department of Disinvestment? → DIPAM (Department of Investment and Public Asset Management)