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Privatization

Privatization involves transferring ownership of government-owned enterprises to private hands to introduce competitive market pressures and encourage efficiency. It was felt necessary due to inefficient performance of public sector enterprises (PSEs) and to reduce the government's role. Privatization introduces competition that leads to increased efficiency, quality, and consumer choices as private players face incentives to reinvest profits. The proceeds from privatization can also help finance public sector deficits.

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18 views7 pages

Privatization

Privatization involves transferring ownership of government-owned enterprises to private hands to introduce competitive market pressures and encourage efficiency. It was felt necessary due to inefficient performance of public sector enterprises (PSEs) and to reduce the government's role. Privatization introduces competition that leads to increased efficiency, quality, and consumer choices as private players face incentives to reinvest profits. The proceeds from privatization can also help finance public sector deficits.

Uploaded by

anuragsinghrajput900003
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Privatization: An Overview

 Privatization
implies the shedding of the ownership or
management of a government owned enterprise.
 Itconveys the ideas of transferring the ownership of
public enterprise to private hands.
 Thisserves many purposes in the context of national
economy.

Replacing government monopolies with competitive


Privatization pressures of the marketplace to encourage efficiency,
quality, and innovation in the delivery of goods and services.
Rationale behind Privatization

• Need of privatization was largely


Why felt due to inefficient performance
Was by PSEs and to concentrate the
Privati government’s purview on issues of
zation larger significance.
Felt
Necess
ary?
Govt.
Monopoly
in PSEs

Inefficiency
in PSEs

Bureaucracy Lack of
and Red- Competitivene
Tapism ss
How Will Privatization Tackle These
Issues?
The entry of private players in the market introduces competition that leads to
diversification of consumer choices and increased efficiency and quality of goods
and services provided, as high incentives, lesser political interference, and
reinvestment follows.

The proceedings from the sale of ownership of PSEs to private players could be
used to finance the public sector deficit.

It allowed the government to focus on things which it alone can do (social


infrastructure, eradicating poverty, and enhancing standard of living).
Measures towards Privatization

India’s private sector became the major engine of growth and


employment generation during 1990s and 2000s.

The government reduced the number of industries reserved for the


public sector from 17 to 2, at present (i.e. Atomic Energy and
Railway Operations).

It has now been planned to reduce the share of the public sector
investment to 45%. It increased the share of private sector to 55%.

The general policy was to sell the shares of PSUs maximum up to 49%
which, after facing criticism, was raised beyond this majority
shareholding limit.
Disinvestment in Indian Economy

Privatisation of the public sector enterprises by selling off part


of the equity of PSEs to the public is known as disinvestment.
Public Sector
The purpose of Disinvestment
disinvestment is Commission was
to improve The process of
appointed in 1993
financial disinvestment in
to strengthen
discipline and to equity was
PSUs, to
facilitate initiated by the
facilitate
modernization. government
Private capital disinvestment,
during 1991-92 as
and Managerial protect
a part of package
capabilities would employees’
of PSU reforms.
improve the interest and
efficiency of PSUs. broad-base
ownership.
Pros of Privatization Cons of
Privatization
Privatization
Private players are increases
more sensitive to inefficiency,
consumer tastes quality, range of Assets acquired by
and have choices, foreigners diverted Low Competition
enhanced innovation, majority of their may lead to
consumer reduces cost and profits outside the monopoly of a
services. prices, and raises country, which led single private
Citizens profits. to no benefits to system.
experience national economy.
greater personal Reduces
freedom, corruption in Private players
because of the public Wealth may get
reduction in are more
sector. concentrated in
state profit-oriented
the hands of
involvement. than welfare
few.
oriented.
Used to finance
the public
sector deficit.

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