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Privatization is the shedding of ownership or management of a government owned firm. This can be achieved in two ways:
  1. By direct sale of the public sector enterprise
  2. By the withdrawal of the government from the ownership and management of the public sector firm
Disinvestment is the process of privatization of the public sector enterprises by selling part of the PSUs to the public. The purpose of disinvestment was to modernize the PSUs and to improve financial discipline. It was believed that bringing in private capital and private management would improve the performance of the PSUs. The government also envisaged that privatization could provide a strong push to the inflow of FDI. The government also tried to improve the efficiency of the PSUs by giving them freedom to take managerial decisions. Some PSUs have also been granted a special status as navaratnas and mini ratnas.

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