Perils of public sector enterprises in India: is privatization of central public sector enterprises a sustainable strategy?

Abstract

Purpose This paper aims to attempt to empirically investigate the impact of privatization on the performance of central public sector enterprises in India. Further attempt is made to explore whether privatization is a necessary or sufficient condition for improvement of performance of central public sector enterprises. Design/methodology/approach The scope of the study is limited to financial and operating performance analysis of 206 central public sector enterprises in India. Multiple regression analysis has been used to determine the magnitude and direction of relationship between dependent and independent variables and identify variables other than privatization which affects performance. Findings The study found that financial and operational performance of firms has improved significantly due to privatization. Further, firm-specific factors and other parallel reforms adopted by enterprises have significantly influenced their performance. The established regression model is highly significant with F-ratio of 31.825 at 99% significance level. The degree of explanation of the model is robust with adjusted R2 at 0.956 implying that only 4.40% of explanation in the dependent variable cannot be explained by designated independent/explanatory variables. Originality/value The study would be useful to public policymakers to reach to a policy view on whether further disinvestment/privatization of central public sector enterprises need to be continued, and if so, then to what extent and direction.