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Privatization of oil sector

 Privatisation of oil sector

When India gained independence in 1947, there was a great desire to create a strong nation with a government that was sensitive to the needs of its people and worked to improve their well-being and prosperity. It was believed that a powerful government would own businesses that would create jobs and work toward eradicating poverty and other issues. Between independence until the 1990s, there was a massive industrialization, with the government establishing firms and constructing a strong infrastructure.

After the 1990s

By the early 1990s, the government had spread its tentacles over practically every industry, including iron and steel, agriculture, telecommunications, and autos. While many of these government enterprises were performing well in their fields, others were not. The concept of disinvestment was originally introduced in 1991, when the government set the following goals for disinvestment: It would broaden the equity base.

  • Enhance management

  • Enhance the Disinvestment Commission's resource availability


The Disinvestment Commission, which was established in 1996, is currently the key authority in charge of disinvestment issues. The disinvestment commission's responsibilities include: facilitating the public sector's departure from non-core strategic sectors

  • To provide job stability for workers and employees,

  • Assuring retraining and redeployment possibilities.

  • Assuring that any disinvestment decision was made and implemented in a transparent way.

The government has disinvested a significant portion of its stock in companies including ITDC, IPCL, VSNL, CMC, BALCO, Hindustan Zinc, and Maruti Udyog, based on the recommendations of the Disinvestment Commission. In certain situations, such as BALCO, the mechanism for disinvesting the various government undertakings was different. For example, while BALCO was a strategic sale, Maruti was disinvested through a public bid. However, because the majority of these units were ill, unable to be resurrected, or under-productive, the subject of disinvestment was not deemed contentious.


The disinvestment of HPCL and BPCL raises a number of issues. The main point of contention in the disinvestment of HPCL and BPCL is that these entities are not only profitable, but they also belong to the oil sector, which is a sector of strategic importance to the nation.

Following the arguments of the petitioners, The Oil Sector Officers Association and the Centre for Public Interest Litigation, and the respondents, the Supreme Court, speaking through Justice S. Rajendra Babu and Mr. Justice G.P. Mathur, ruled on September 16, 2003, that the Centre must seek prior approval from Parliament before selling stakes in the two PSU oil majors, Hindustan Petroleum Corporation Ltd (HPCL) and Bharat Petroleum Corporation Ltd. (BPCL).

The petitioners' main arguments were that:

 1. The decision to sell the majority of HPCL and BPCL shares to private parties without parliamentary approval is contrary to and in violation of the provisions of the ESSO (Acquisition of Undertakings in India) Act, 1974, the Burma Shell (Acquisition of Undertakings in India) Act, 1976, and Caltex (Acquisition of Shares of Caltex Oil Refining India Ltd. And All Undertakings in India for Caltex India Limited) Act, 1977.

2. Is it possible for the president to override the two enactments of the legislature that nationalise oil firms by executive orders?

Although oil is one of the largest consumer markets, based on historical history, it can be fairly assumed that privatisation in this sector will benefit consumers. One viewpoint is that the oil business is far too crucial for the nation's economic development, and that putting it in the hands of private firms may not be the best option. In terms of the verdict's long-term implications on the government's disinvestment strategy, the highest court answered this question in the judgement itself, noting that the decision has no consequence on the disinvestment process and is restricted to the context of the two oil PSUs.
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