Privatization means transfer of ownership, management and control of public sector enterprises to the entrepreneurs in the private sector. It implies greater role of the private sector in the economic activities of the country. Another term that is relevant here is ‘disinvestment’. Disinvestment means transfer of apart of Government shareholdings in the public sector enterprises to the private sector. It results in dilution of stake of the of the Government in the public enterprise. If there is dilution of Government ownership beyond 51 per cent, it would result in transfer of ownership and management of the enterprise to the private sector.

Under the Industrial Policy, 1956, the public sector had been given a dominant role while the sphere of operation of the private sector was severely curtailed. But the industrial policy of 1991 sought to reverse this position through various policies that limit the area of public sector and give way to expansion of private sector.

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