The Employment Implication of Divestiture: The Indian Experience

Abstract

This paper attempts to explore the employment implications of disinvestment of State Owned Enterprises (SOEs) in India. Contrary to popular belief that disinvestment would severely undermine employment growth in central SOEs, the present analysis suggests that such fears are largely exaggerated, if not mistaken. There has been a uniform decline in growth rate of employment among all SOEs during the post reform period viz 1991–2000. As a result, the share of employment in disinvested SOEs and non-divested SOEs to total SOEs has remained constant. Another important conclusion is that the decline in absolute employment during this period was more a result of changes in the macro policy regime (e.g. a more open economy) than of disinvestment per se. Specifically, competition was more closely linked to employment than ownership, implying a more significant role of factors other than disinvestment. The apprehension that disinvestment may result in layoffs/retrenchment on a large scale is thus unwarranted.