Comment: Impact of disinvestment and privatization on planning in India. (2001, 20 Marks)
Nehruvian planning worked through the public sector: P. C. Mahalanobis’s heavy-industry strategy and the Industrial Policy Resolution of 1956 reserved 17 industries for the state, so Plan targets became public investments. Disinvestment (selling government equity) and privatisation (handing over management control) therefore changed what planning could do. They did not end state direction of the economy, but they moved it from ownership-led command to indicative facilitation. By 2015 the Planning Commission itself was gone.
How the state withdrew
- 1991-92: minority stakes in profitable enterprises were sold in bundles to plug the deficit.
- Rangarajan Committee (1993): up to 49% disinvestment in industries reserved for the public sector and 74% or more elsewhere, with proceeds to go to investment or debt reduction, not current spending.
- Disinvestment Commission (1996) under G. V. Ramakrishna classified enterprises as strategic or non-strategic and recommended a method of sale for each.
- Strategic sales, 1999-2004: a Department of Disinvestment was created in December 1999 and became a Ministry in 2001. Modern Food Industries went to Hindustan Lever (2000), BALCO (51% to Sterlite for ₹551.5 crore, March 2001) and VSNL to Tata (2002).
- Later frame: the National Investment Fund (2005), DIPAM (2016), and the New Public Sector Enterprise Policy (2021), which keeps a “bare minimum” presence in four strategic sectors. Air India went to Tata (January 2022), 3.5% of LIC was sold in an IPO (May 2022), and the National Monetisation Pipeline (2021) leases public assets to private operators.
The case for all this was János Kornai’s soft budget constraint: an enterprise that cannot fail has no reason to become efficient.
What it did to planning
- The Plan lost its main instrument. The Eighth Plan (1992-97) declared planning indicative. This admitted that the state now had fewer investments of its own to direct; its outlays narrowed to infrastructure, social schemes and defence.
- Plan capital was used for current spending. Sale proceeds repeatedly closed current deficits, breaking both the Rangarajan principle and the National Investment Fund’s ring-fence.
- Planning’s social goals weakened.
- Regional balance: plants such as Bhilai or Rourkela were sited by plan decision; private capital goes to corridors that already have infrastructure.
- Employment: the public sector’s role as a model employer shrank.
- Reservation: a privatised firm is no longer “State” under Article 12, so SC/ST/OBC quotas in its jobs lapse.
- Accountability moved to the executive. In BALCO Employees’ Union v. Union of India (10 December 2001) the Supreme Court held that disinvestment is economic policy, outside judicial review unless it is arbitrary or mala fide. Chhattisgarh’s government contested the sale, and a Comptroller and Auditor General audit reported in 2006 found that BALCO’s leasehold plant and township land had been left out of the valuation.
- The planning institution ended. NITI Aayog replaced the Planning Commission on 1 January 2015, and the Twelfth Plan (to March 2017) was the last. The plan/non-plan classification of spending was abolished from 2017-18.
The counter-view: planning changed form
The state gave up ownership but kept strategic direction. The PLI schemes (2020), the semiconductor mission and NMP 2.0 (February 2026, prepared by NITI Aayog) are medium-term, target-bearing allocations of national effort. Privatisation itself has slowed: IDBI Bank’s strategic sale stalled in 2026, and receipts now come mostly from minority offers-for-sale, the 1990s pattern.
Conclusion
Disinvestment and privatisation changed planning’s means more than its ambition. They cost planning its owner-led instruments and weakened its regional, employment and social-justice goals, which markets do not provide by themselves. Strategic direction survives through incentives, pipelines and indices. The task now is to protect those older goals through fiscal transfers and regulation, since public ownership no longer secures them.