ABSTRACT
The entire debate on disinvestment would have been only of academic interest if India did not have such a large public sector. Against this background, is it sensible for the government to push for privatization, or should the public sector remain as is? This chapter puts forth a theoretical model on the basis of a mixed-oligopoly structure to study the impact of disinvestments on the Indian economy, especially after two and a half decades of economic reforms. In this paradigm, corporate tax revenue is introduced to figure out how it impacts disinvestment efforts. The chapter’s important questions are as follows. Does disinvestment augment growth? Can an increase in corporate tax revenue take place along with a rise in disinvestment efforts? Can the empirical relation between the focus variables – disinvestments, economic growth, and corporate tax revenue in a vector autoregressive framework during 1993 to 2018 – be estimated? The results support that disinvestments and corporate tax revenue collection by the government have indeed promoted growth in postliberalized India during 1993–2018. The two-way causality between growth and disinvestments means that growth brings in disinvestments and encourages the participation of the private sector – such as via foreign direct investment (FDI). Also, the study affirms a theoretically consistent result, where more disinvestments not only help revamp the existing PSUs but also promote growth.
