Privatisation

Meaning:
"Privatisation means endorsing / assigning the ownership of a public
property/business to a private party."
Uses:
1)Development would be faster(due to competetion with the other private
parties)
2)Innovative solutions (due to again competetion with the other private
parties)
3)effective & time bound results
4)cost cuttings
5)improves quality in work
6)in turn more services to public are possible
7)increase the productivity
8)significant Growth in the business
9)controlled monitoring of public property gives public in turn good
services

possible Losses
1)always a threat to working staff.
2) as private parties try to extract work from minimum resources,
downsizing is the common problem
3)un-employment increases
4)if the private party is inefficient, there is every possibility of the
business winding up.
5) more restrictions on many things

6)purely commercial in natrure and lacks ethical / human morales at

times.

What are the Important Reasons for Privatisation

in India?
(1) Releasing the large amount of public resources locked up in non-strategic PSEs, for redeployment
in areas that are much higher on the social priority, such as, basic health, family welfare, primary
education and social and essential infrastructure;
(2) Stemming further outflow of these scarce public resources sustaining the unviable non strategic
PSEs;
(3) Reducing the public debt that is threatening to assume unmanageable proportions.
(4) Transferring the commercial risk, to which the taxpayers' money locked up in the public sector, is
exposed, to the private sector where ever the private sector is willing and able to step in.
(5) Releasing other tangible and intangible resources, such as, large manpower currently locked up
in managing the PSEs, and their time and energy, for redeployment in high priority social sectors
which are short of such resources.
The need for privatisation arises out of the situations like
(1) Control of budgetary deficit
(2) Resource mobilisation
(3) Reduction of extra tax burden
(4) Flow of funds to public
(5) Production increase
(6) Retrieval of civil servants from public enterprises to better utilisation in governance and
administration.
(7) Increase in competition, both in domestic as well as international markets.
Based on the recommendations of the Arjun Sen Gupta Committee on Public Sector Enterprise, the
privatisation of public enterprises in India can take one of the following forms:
(1) Complete privatisation
(2) Partial privatisation
(3) Privatisation of the management

(4) Creating competitive conditions

(5) Deregulation
(6) Delicensing and
(7) Disinvestments and other liberalisation measures.
As a consequence, they must also follow the trend of the overall economic policy, which, in the
current context, is heavily tilted towards liberalisation, democratisation, marketisation and
globalisation, and a decisive move away from extensive social controls.
State intervention in the market arises out of two main reasons. Either, the market does not exist at
all, as was the case with most developing countries who had acquired independence from colonial
rule in the second half of the 20th century, mainly located in Asia-Africa and Latin America; or, there
were cases of severe market failures which required governments to intervene decisively in public
interest as was the case in many developing and even developed economies, like the UK, France,
Italy, etc.
Benefits of disinvestment
(1) Disinvestment would expose the public sector companies to market discipline, thereby forcing
them to become more efficient and survive on their own financial and economic strength or cease.
(2) Disinvestment would result in wider distribution of wealth through offering of shares of
privatised companies to small investors and employees.
(3) Disinvestment would have a beneficial effect on the capital market; the increase in floating stock
would give the market more depth and liquidity, give investors easier exit option, help in establishing
more accurate benchmarks for valuation and pricing, and facilitate raising of funds by the privatised
companies for their projects of expansion, in future.
(4) Opening up the public sector to appropriate private investment would increase economic activity
and have an overall beneficial effect on the economy, employment and tax revenues in the medium to
long term.