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This article is written by Tarannum Vashisht, a student of Rajiv Gandhi National University  of Law, Punjab. This article enumerates the necessity of the applicability of administrative principles to the issue of privatisation. 


Privatisation has entered almost every country in the world. It encompasses various aspects like introducing private capital, selling off assets owned by the government, and even complete privatisation of the economic setup of the country. Commonly, it refers to the shift of an industry, bank, etc into private hands, from the control of the government. Privatisation has been accorded with different meanings. The most widely accepted one is the reduction of government participation in the social and economic lives of the people of the country. It is the exact opposite of nationalisation but may take many forms in varying degrees. In some countries, the government may allow privatisation of only social services and the decision making and management may still vest solely with the government. While in some countries, the government allows complete privatization. Privatization, when maximized, takes the form of macro-level industrialization. This may escalate to the level where the role of government is reduced and the private individuals take over. It is evident from examples of various countries that privatisation is beneficial for a country only when permitted with wise governmental restrictions. 

Aims of Privatisation

Earlier, everything in almost all countries of the world was state-controlled. With time, the control of various industries has shifted to private stakeholders. Countries, in general, have moved from socialistic to capitalist modes. Let’s take a look at the reasons as to why privatisation was introduced in India.

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Promotion  of freedom  of choice  of consumers and high-quality products

With the advent of privatisation, the number of private companies have increased in every sphere. This creates multiple options for consumers. With the increase in competition, the quality of products becomes better. This often results in a reduction in the cost of products. Hence, this whole process is very beneficial for consumers. The reason behind this is that they get a variety of choices, with increased quality and reduced cost. 

Let’s take the example of a country where the production of chocolates was state-controlled. Therefore chocolates from only state-controlled industries were easily available in the market, its quality and rates being fixed. The government of that country gradually opened the gates for the privatisation of chocolate producing industries in that country.

With this, over some years, several chocolate producing industries emerged in that country, producing a wide variety of chocolates. The traditional industries of that country were hence subjected to a lot of competition. With this changed atmosphere in the market, the state controlled industry was forced to provide better quality products at cheaper prices. Henceforth, the outcome of privatisation of industry was the increase in competition, which resulted in better quality products, chocolates in this case, for the consumers at a cheaper price. 

Economic growth

Privatisation’s obvious result is economic growth, be it a developing country or a developed country. Privatisation increases the incentives for both public sector enterprises and private sector enterprises to be more efficient. With the increasing efficiency of industries, the overall economic growth of a country surely increases. Hence privatisation is often considered an important aspect of the economic growth of a country.

Deconstruction  of concentration  of economic power

With privatisation the number of stakeholders wielding economic power increases. The power is then controlled not just by the government of the country or some traditionally elite individuals. In many cases, it helps to propagate the aspirations of the weaker sections of the society.

Enhanced investment

As privatisation happens, there is a spur of investment in that country. This is because the situation in that country promotes more investment by both the native and foreign investors.

Foreign direct investment

With increased privatisation, a lot of foreign investors become interested in investing in that country if the conditions are suitable. This also helps a lot in decreasing the public sector deficit. 

Features of privatisation 

Privatisation has three features, namely-

Ownership of enterprises

There is a shift in the ownership of assets from the government to private individuals. This process is opposite to nationalisation and is a consistent way towards denationalisation. 

Operational measures

Public corporations and companies, often become incompetent due to a lack of motivation. Their efficiency can be catalyzed by providing them with adequate competition from the private sector.

Organizational measures

With privatisation, the organizational setting of industries changes. This can range from the restructuring of the company to leasing to a complete shift in the management of a public sector company. 

Privatization in India 

Before 1991, India was a closed and conservative economy with very little involvement of foreign investors. This occurred as a response to the economic impact of the partition of the country in 1947. However, with the coming of the year 1991, the Rajiv Gandhi government became of the firm belief that India’s industries were ready for competing in the world economy. 

This was when large scale economic reforms were made, privatisation being one of them. After 1991, India experienced major policy changes, which were brought about by the then Finance Minister, Dr Manmohan Singh. This was the starting point from where privatisation has further evolved in India. The pivotal concepts related to privatisation in India are-

  1. Delegation- In this, the government remains the primary stakeholder in the company while the management of the company shifts to private individuals. The daily activities are then regulated by private individuals.
  2. Divestment- In this case, the government ends up selling the majority of the shares of its company to private individuals. Hence, it becomes a minority stakeholder in its own company. 
  3. Displacement- The primary step in this process is deregulation. This is done so that private prayers get a platform to enter the market. With time, these private companies end up replacing the public sector undertakings completely by outperforming them. 
  4. Disinvestment- this is the process by which a constituent of a public sector enterprise or the whole company is sold to a private enterprise. 

Major issues related to privatization in India

Privatisation in India has the following issues-

  1. In the changing scenario, the biggest threat is that the private sector enterprises, performing government like functions may jeopardize the fundamental rights of the citizens of the country.
  2. It is often contended that the economic growth and prosperity brought by privatisation is not shared proportionally by all. The rich become richer and the poor poorer. 
  3. The government also fears that private investors may transfer vital resources of the country to third parties, especially hostile nations.
  4. One of the biggest issues related to privatisation in India is that wholesome privatisation of large public sector undertakings is not possible for private investors. 
  5. The public sector undertakings in India are excessively staffed, and getting rid of this labour is a very challenging task for private investors. 
  6. For privatisation, specific action for that purpose is important. This is because there is a legislative presumption against the delegation of power from the hands of government to private organisation. In addition to this, every country has various other factors that influence privatisation, like the legal traditions, political scenario, etc of the country. In India, limited privatisation is allowed.

Case laws

For a better understanding of the evolution of the applicability of administrative principles to the issues of privatization in India, we need to understand the cases that have come before the Indian judiciary. The first one being Balco Employees Union v Union of India. 

This 2001 case was regarding the extent of administrative power, and control that the government possessed over its share in a government company. In this case, the employees of Balco company challenged the decision of the government for selling its majority shares in the company. This sale of shares would result in a shift in the management of the company from the hands of the government to private hands. This change would have a drastic impact on the professional lives of these workers, and hence they filed the case at hand.

The apex court, however, pronounced the judgment in favour of the government. It was of the view that disinvestment was a purely administrative decision of the state’s economic policy. Therefore, the labour force should not have any say in the decision. It cannot claim in any way that it should be consulted or be given any prior notice at any step of the decision-making process of the government. 

The court was of the view that not even government servants have the absolute right to employment. Henceforth it was solely the government’s decision to sell its stake in Balco company even if it resulted in a shift in the ownership of the company. 

Important developments in this case

Due to this case, the administrative law has witnessed several significant developments. Let’s take a look at the most important ones-

  1. The most important development is the silent approval of the disinvestment process, signifying that privatisation and disinvestment are pivotal for national interest and progress of the Indian economy. 
  2. Secondly, this case provided the much-needed impetus to the administrative discretion of the government in these matters. It cemented the position of the executive with regard to policy-making decisions of the country. 
  3. Thirdly, it was made clear that in cases concerning the change of employer, principles of natural justice did not apply to the prerogative of the employees. 
  4. Fourthly, it brought into picture the limited interference that the judiciary can make in administrative action through the process of judicial review. The courts were not supposed to interfere in policy-decisions or laws passed by the government, until there is a malafide intention or illegality. 
  5. It was also noted that policy-making being a political decision, should be left to the executive and should not be mixed with constitutionality. 

Analysing the case of Balco Employees Union v Union of India, it is evident that the Supreme Court  of India is of the view that the decisions of privatisation are solely a matter of policy. This approach has however proved to be flawed, taking into consideration the current scenario. It has to be noted that some vital spheres like defence of the country and the criminal justice system cannot be privatised. 

Therefore for the legitimisation of privatisation, there has to be an effective policy for its regulation. The foremost thing that has to be adopted is, framing of norms to regulate the private sector, for which a body has to be established. However, sadly there is no comprehensive policy in India for the regulation of privatisation. 

This regulation is primarily required because now the private sector companies have taken over functions that were previously assumed by the government. Therefore the initiatives taken by private sector actors that infringe the fundamental rights of Indian citizens should be made actionable in a court of law. 

Measures to rule out bias and hence corruption, by ensuring fair competition between all contractors should also be taken. Steps should also be taken to ensure that the highest bidder is awarded the bid, to maximise economic benefits for the state. Legal measures should also be adopted to ensure the same.

Some improvement was seen with the case of Delhi Science Forum v Union of India. In this case, the Supreme Court of India held that the government of India and Telecom Regulatory Authority of India have to take an active part in ensuring that there is an adequate contribution of the private sector for the development of the telecom sector in India.

It was held that ‘Sankat Vahini’, a high-speed data network, was cleared hastily without taking proper measures. This was particularly important because this project was to become the backbone of Telecom Regulation In India. 

The next point to be taken into consideration is whether the actions of these private actors would be treated as actions of the state, depending on the functions they are performing and hence be subjected to “state action doctrine”. In the case of MC Mehta v. Union  of India, it was held that these private actors did not fall within the purview state. 

This reasoning was reiterated in the case of Zee Telefilms Ltd. v Union of India, where it was held that BCCI would not come under the definition of a state. In Rahul Mehra v. Union  of India, the public function test was laid down. It was held that whether actors would come under the meaning of state would be dependent on the functions that that company or organisation performs. Hence, private actors may be subjected to regulation if they infringe the fundamental rights of citizens. 

Therefore it can be concluded that the applicability of administrative principles has seen improvement but a lot still needs to be done. 


It is now clear that to ensure economic growth, and efficiency of the public sector companies, privatisation is inevitable. However, it should also be noted that these private actors should be regulated to ensure the rights of the citizens of India, especially the private companies performing government-like functions. This, in my opinion, can be ensured only by giving power for its insurance to the Indian judiciary. 

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