Deregulation

Global empirical studies of privatised firms show a significant improvement in their performance after privatisation. This is true in case of fully as well as partly privatised firms. What is the evidence for Indian divested enterprises in this regard? This paper attempts an analysis by empirically examining the impact of divestiture. The results indicate that in case of partial divestiture, where divested equity is thinly spread with the majority shareholding still with the government, there has been no improvement in terms of profitability and operational efficiency. The paper therefore endorses the government's current policy of strategic sale, where management control passes to the strategic partner.

This paper examines whether in the financially deregulated regime, shift in the financing pattern of the fiscal deficit away from seigniorage and external debt financing to bond financing has the probability of creating an upward pressure on the rate of interest in India. Using an asymmetric vector autoregressive model, we found that in the deregulated financial regime, the fiscal deficit did not create a rise in the interest rate. Rather, the causality runs from the exante real rate of interest to fiscal deficit. This result is in conformity with the recent trend in Indian public finance where the high interest rate fuelled the accumulation of more debt through increase in interest payments and the consequent debt-deficit spiral.

How have India's public sector banks (PSBs) performed in the years since bank deregulation was set in motion in 1992-93? The banking system has not collapsed nor has there been a banking crisis and the efficiency of the system as a whole measured by declining spreads has improved. This paper documents and evaluates the performance of PSBs since deregulation in absolute and relative terms and attempts to understand the factors underlying their improved performance.

The budget's strategy for stepping up growth in the near term rests on certain key premises: (i) fiscal consolidation is under way; (ii) fiscal consolidation and reduction in administered interest rates will lead to lower lending rates; and (iii) lower interest rates, along with continued deregulation, will make for higher investment and growth. Each of these premises needs to be carefully examined.