Objectives of Rationale for Disinvestment It is appropriate to refer to the background of public ownership of industries before setting out the objectives of/rationale for disinvestments.

II.1	Background of Public Ownership Main reasons for the state ownership of industries could be stated as under :-
a)	The development of public enterprises was seen as an appropriate policy response to bring about improvements in the economy, both in the developed as well as the developing countries. There appeared to be an economic consensus around the world accepting public enterprises as an inevitable part of the economy, specially to manage natural monopolies and also the core industry. While the public sector contributed significantly to the development effort, the low rates of return on such investments and the inability of governments to finance the growing demands of such industries, changed the consensus in favor of economic liberalisation and privatization from the 1970's, in almost all countries.
b)	Such industries could not have been developed by private sector during 1940's or 1950's as there was not enough money in the money market and entrepreneurship was limited. So Government used high rates of taxation and deficit inflationary financing to develop public industries.
c)	Rescue Missions / Nationalisation - Some times Government had to step in to rescue certain enterprises, whose closure could result in significant loss of jobs and also because of several other economic and social reasons.
d)	Control of strategic sectors - Another rationale for state ownership was the belief that state investment in and the control of the strategic sectors of the economy was necessary for the economic development of those sectors and the security of the country.
e)	Developing the economy - A few Public Sector Enterprises were established to balance or replace weak private sectors, to develop the industrially backward areas, to generate employment and to make goods available at lower cost.
II.2	Evolution of Public Sector Policy in India
2.1	In the 1948 Industrial Policy Resolution, the manufacture of arms and ammunition, production and control of atomic energy, ownership and management of railways became the State monopoly. Six basic industries viz., iron & steel, coal, aircraft manufacture, ship building, mineral oils, manufacture of telephone, telegraph and wireless apparatus were to be developed by the State. All other areas were left open to private initiatives.
2.2	Within a decade of laying down the policy parameters in 1948, another policy statement was issued in April 1956 by the Government to give a new orientation to the "mixed economy" concept. This Policy Resolution categorised industries into three groups. Industries exclusively reserved for development by the State viz., arms and ammunitions, iron & steel, heavy castings and forging, heavy plant & machinery required for iron and steel production and mining, heavy electrical plant, coal and lignite, zinc, copper, lead, aircraft, ship building and telecommunication equipment. Industries, which would progressively be State owned and in which the State will therefore, generally take the initiative in establishing new undertakings but in which private enterprise will also be expected to supplement the efforts of the State. These include aluminum, fertilizers, other minerals, machine tools, ferro-alloys and tools, basic and intermediate products required by chemical industries, antibiotics and other essential drugs, synthetic rubber, carbonisation of coal, chemical pulp, road transport and sea transport.
3	The remaining industries were left open for private sector initiatives.
2.3	In the context of the significant changes in fiscal, monetary, trade and industrial policies, the need for a review of the continued presence of the public sector in a wide range of activity was felt in the nineties. A new strategy for the public sector was spelt out in the policy statement in July 1991, which marked a turning point in the policy guidelines as far as public sector was concerned. The philosophy behind the New Economic Policy (NEP) was that the State should, by and large, leave industry and commerce to the private sector and concentrate on those areas where it had a special or unique responsibility.
	The broad features of 1991 reforms were as follow:
1.	Portfolio of public sector investment would be reviewed with a view to focus the public sector on strategic, high-tech and essential infrastructure. Whereas some reservation for the public sector was being retained, there would be no bar for areas of exclusivity to be opened up to the private sector selectively. Similarly, the public sector would also be allowed entry in areas not reserved for it.
2.	The list of industries reserved for public sector was reduced from 17 included in the Industrial Policy Resolution of 1956 to only eight by the July 1991 policy statement; subsequently, in March 1993, two more items were dereserved. The six industries for exclusive operation in public sector were (i) arms and ammunitions and the allied items of defence equipment, defence aircrafts and warships, (ii) atomic energy, (iii) coal and lignite, (iv) mineral oils, (v) minerals specified in the schedule to Atomic Energy (Control of Production and use) Order 1953, and (vi) railway transport
2.4	Other developments since then were:
1.	Dereservation of mining activity. With this coal extraction has been permitted for captive use by user industries.
2.	Invitations have been extended to private sector to invest in oil exploration and refining, otherwise reserved for public sector, as well as infrastructure projects like roads, ports, telecom etc.
3.	Private sector venture in power generation even with 100 % foreign equity has also been allowed.
2.5	THE NEED FOR DISINVESTMENT / PRIVATISATION
1.	The cornerstone of the case for privatization is the concept that private ownership leads to better use of resources and their more efficient allocation. Through out the world, the preference for market economy received a boost after it was realised that the State could no longer meet the growing demands of the economy and the State shareholding inevitably had to come down. The 'State in business' argument thus lost out and also the presumption that direct and comprehensive control over the economic life of citizens from the Central government can deliver results better than those of a more liberal system that directly responds according to the market driven forces.
2.	Another reason for adoption of privatization policies around the globe has been the inability of the Governments to raise high taxes, pursue deficit / inflationary financing and the development of money markets and private entrepreneurship. Further , technology and W.T.O. commitments have made the world a global village and unless industries, including public industries do not quickly restructure, they would not be able to survive. Public enterprises, because of the nature of their ownership, can restructure slowly and hence the logic of privatization gets stronger. Besides, techniques are now available to control public monopolies like Power and Telecom, where consumer interests can be better protected by regulation / competition, and investment of public money to ensure protection of consumer interests is no longer a convincing argument. The objectives of the disinvestment programme vary from improving efficiency of the Public Sector Enterprises to transformation of the society.
2.6	The primary objectives for privatizing the PSEs are as follow :
	releasing the large amount of public resources locked up in non-strategic PSEs, for redeployment in areas that are much     higher on social priority, such as, public health, family welfare, primary education and social and essential infrastructure;
	stemming further outflow of these scarce public resources for sustaining the unviable non-strategic PSEs.
	reducing the public debt that is threatening to assume unmanageable proportions,
	transferring the commercial risk, to which the tax-payers' money locked up in the public sector is exposed, to the private sector wherever the private sector is willing and able to step in - the money that is deployed in the PSEs is really the public money; and, is exposed to an entirely avoidable and needless risk, in most cases.
	releasing other tangible and intangible resources, such as, large manpower currently locked up in managing the PSEs, and their time and energy, for redeployment in areas that are much higher on the social priority but are short of such resources.
	The other benefits expected to be derived from privatization are: -
	Disinvestment would expose the privatised companies to market discipline, thereby forcing them to become more efficient and survive or cease on their own financial and economic strength. They would be able to respond to the market forces much faster and cater to their business needs in a more professional manner. It would also facilitate in freeing the PSEs from the Government control and introduction of corporate governance in the privatised companies. Disinvestment would result in wider distribution of wealth through offering of shares of privatised companies to small investors and employees. Disinvestment would have a beneficial effect on the capital market; the increase in floating stock would give the market more depth and liquidity, give investors easier exit options, help in establishing more accurate benchmarks for valuation and pricing, and facilitate raising of funds by the privatised companies for their projects or expansion, in future. Opening up the erstwhile public sectors to appropriate private investors would increase economic activity and have an overall beneficial effect on the economy, employment and tax revenues in the medium to long term. In many areas, e.g., the telecom sector, the end of public sector monopoly would bring relief to consumers by way of more choices, and cheaper and better quality of products and services - as has already started happening.

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