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Bolder Disinvestment or Better Performance Contracts? Which Way Forward for India’s State-Owned Enterprises

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  • Ajay Chhibber
  • Swati Gupta

Abstract

This paper analyses the performance of India’s Public Sector Undertakings (PSUs) using measures of labour and overall efficiency and productivity indicators as opposed to financial returns. Using methods that correct for selection bias, the results show that performance contracts do not improve firm efficiency but disinvestment has a very strong positive effect on firm efficiency. Disinvestment improves labour productivity and efficiency, which is not surprising, but it also improves overall efficiency. India should pursue much bolder privatization even of PSUs which claim to be making operational profits – such as Air India, because privatization improves overall firm efficiency and unlocks capital for use elsewhere, especially in public infrastructure, and reduces the possibility of political interference in their functioning in future.

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  • Ajay Chhibber & Swati Gupta, 2017. "Bolder Disinvestment or Better Performance Contracts? Which Way Forward for India’s State-Owned Enterprises," Working Papers id:12127, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:12127
    Note: Institutional Papers
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    References listed on IDEAS

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    1. Mühlenkamp, Holger, 2013. "From state to market revisited: more empirical evidence on the efficiency of public (and privately-owned) enterprises," MPRA Paper 47570, University Library of Munich, Germany.
    2. T. G. Arun & F. I. Nixson, 2000. "The Disinvestment of Public Sector Enterprises: The Indian Experience," Oxford Development Studies, Taylor & Francis Journals, vol. 28(1), pages 19-32.
    3. Ajay Chhibber & Swati Gupta, 2017. "Public Sector Undertakings: Bharat’s other Ratnas," Working Papers 2017-6, The George Washington University, Institute for International Economic Policy.
    4. Nandini Gupta, 2005. "Partial Privatization and Firm Performance," Journal of Finance, American Finance Association, vol. 60(2), pages 987-1015, April.
    5. Chhibber, Ajay & Gupta, Swati, 2017. "Public Sector Undertakings: Bharat's Other Ratnas," Working Papers 17/186, National Institute of Public Finance and Policy.
    6. Sangeetha Gunasekar & Jayati Sarkar, 2014. "Does autonomy matter in state owned enterprises? Evidence from performance contracts in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-034, Indira Gandhi Institute of Development Research, Mumbai, India.
    7. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
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    Cited by:

    1. Tandon, Suranjali & Rao, R. Kavita, 2017. "Tax Compliance in India: An Experimental Approach," Working Papers 17/207, National Institute of Public Finance and Policy.
    2. Chhibber, Ajay, 2021. "India's Interventionist State: Reduce Its Scope and Increase Its Capability," MPRA Paper 105711, University Library of Munich, Germany, revised 01 Feb 2021.
    3. Banerjee, Sudipto & Sane, Renuka & Sharma, Srishti & Suresh, Karthik, 2022. "History of disinvestment in India: 1991-2020," Working Papers 22/373, National Institute of Public Finance and Policy.
    4. Ajay Chhibber, 2021. "India's Interventionist State: Reduce Its Scope and Improve Its Capability," Working Papers 2021-02, The George Washington University, Institute for International Economic Policy.

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