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

Author

Listed:
  • Chhibber, Ajay

    (National Institute of Public Finance and Policy)

  • Gupta, Swati

    (National Institute of Public Finance and Policy)

Abstract

This paper analyses the performance of India's Public Sector Undertakings (PSUs) us-ing measures of labour and overall efficiency and productivity indicators as opposed to finan-cial 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 privati-zation 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, espe-cially in public infrastructure, and reduces the possibility of political interference in their functioning in future.

Suggested Citation

  • Chhibber, Ajay & Gupta, Swati, 2017. "Bolder Disinvestment or Better Performance Contracts? Which Way Forward for India's State-Owned Enterprises," Working Papers 17/205, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:17/205
    Note: Working Paper 205, 2017
    as

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    References listed on IDEAS

    as
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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. 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.

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    More about this item

    Keywords

    Public Sector Undertakings ; State Owned Enterprises ; Public Sector Restructuring ; MOU (performance contract) ; Disinvestment (privatization);
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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