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Bolder Divestment Not Better Performance Contracts are the Solution for India's Public Sector

Author

Listed:
  • Ajay Chhibber

    (George Washington University)

  • Swati Gupta

    (Massachusetts Institute of Technology)

Abstract

This paper analyses the performance of India’s Public Sector Undertakings (PSU’s) using measures of labor 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 labor productivity and efficiency, which is not surprising, but it also improves overall efficiency. India should pursue much bolder privatization even of PSU’s which claim to be making operational profits – such as Air India - as 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.

Suggested Citation

  • Ajay Chhibber & Swati Gupta, 2017. "Bolder Divestment Not Better Performance Contracts are the Solution for India's Public Sector," Working Papers 2017-19, The George Washington University, Institute for International Economic Policy.
    • Handle: RePEc:gwi:wpaper:2017-19
    as

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    File URL: http://www2.gwu.edu/~iiep/assets/docs/papers/2017WP/IIEPChhibber2017-19.pdf
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    References listed on IDEAS

    as
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