Economic Policy and State Owned Enterprises: Evolution Towards Privatisation in India

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  • 1 January 2006
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      • Published in RePEc
Abstract
The paper endeavours to look into the evolution of the role of the state and move towards privatisation in India. It starts with a discussion on the role of State intervention in the economic development within the contours of socio-economic and political circumstances. It recognises the fact that different scholars have advocated various ways through which state can intervene in an advanced capitalist economy and a developing economy or a colony. The nature of intervention is different in each case. The paper argues that State owned enterprises (SOEs) are one such manifestation of state Intervention. In many developing countries, state enterprises are assigned the responsibility of fulfilling specific social goals, which have their origin in colonial period. Whatever may be the idea behind the creation of such enterprises, they come into existence either by direct state investment or through nationalisation of private enterprises. The state intervenes through state owned enterprises in the countries where investment needs for different projects are large and the expected returns at least in the short run are too low to motivate private capital to invest. Since 1980, however, the intervention by the state through state owned enterprises has been undergoing a close scrutiny in many developing countries including India. The argument is that excessive political interference and lack of managerial interests (autonomy) hamper the performance of state enterprises. It has resulted in the reflection of various theories on assessing the performance of state enterprises which includes property rights theory, public choice theory, non-market failure and competition theory. Since economic policy making by the state requires balance of accumulation and legitimisation, then generally, the adopted economic policy serves the interests of a few major social groups. These dominant social groups react to the adopted policy and their reactions are normally taken into account while amen
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