PROJECT TOPIC

PRIVATIZATION OF PUBLIC ENTERPSISES (AGAINST)

Submitted by Submitted to

Mukesh choudhary Mrs. Aruna hyde

B.A LL.B (hons.) Faculty (legal language)
Sem. ~ 1st Hidayatullah National Law University
Roll no. 73 Raipur

Date ~ 12th October 2012

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 DECLARATION

I, Mukesh Choudhary, hereby declare that, the project work entitled,

“PRIVATIZATION OF PUBLIC ENTERPSISES (AGAINST)

” submitted to H.N.L.U., Raipur is record of an original work done by me under the

able guidance of Mrs. Aruna hyde, Faculty Member, H.N.L.U., Raipur.

Mukesh Choudhary
B.
A. L.Lb.(Hons.)

Sem. - 1st

Sec. - B (Eco.)

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 ACKNOWLEDGEMENTS

Thanks to the Almighty who gave me the strength to accomplish the project with sheer
hard work and honesty. This research venture has been made possible due to the
generous co-operation of various persons. To list them all is not practicable, even to
repay them in words is beyond the domain of my lexicon.

May I observe the protocol to show my deep gratitude to the venerated Faculty-in-
charge Mrs. Aruna hyde, for his kind gesture in allotting me such a wonderful and
elucidating research topic.

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 TABLE OF CONTENTS

 Introduction
 Definition ~ Public enterprises
 Definition ~ Privatization
 Examples
 Reasons of opposing Privatization
 Opposite Effects of Privatization
 Conclusion
 Bibliography

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 INTRODUCTION

The term public enterprise denotes a form of business organisation owned and managed by
the state government or any other public authority. So it is an undertaking owned and
controlled by the local or state or central government. The whole or most of the investment is
made by the government.1
Privatization, also spelled privatisation, can have several meanings. Primarily, it is the
process of transferring ownership of a business, enterprise, agency, public service or public
property from the public sector (a government) to the private sector, either to a business that
operate for a profit or to a non-profit organization. The term can also mean
government outsourcing of services or functions to private firms, e.g. revenue collection, law
enforcement, and prison management.

Losses of privatization

Always a threat to working staff. As private parties try to extract work from minimum
resources. Downsizing is the common problem. Un-employment increases. If the private
party is inefficient, there is every possibility of the business winding up. More restrictions on
many things. Purely commercial in nature and lacks ethical / human morals at times.

1
Chowdhury, F. L. ‘’Corrupt Bureaucracy and Privatisation of Tax Enforcement’’, 2006: Pathak Samabesh, Dhaka.

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 PUBLIC ENTERPRISES

Public enterprise, a business organization wholly or partly owned by the state and
controlled through a public authority. Some public enterprises are placed under public
ownership because, for social reasons, it is thought the service or product should be provided
by a state monopoly. Utilities (gas, electricity, etc.), broadcasting, telecommunications, and
certain forms of transport are examples of this kind of public enterprise. Public enterprises
are by definition intended to be operated in the public interest.

They are created by a special act of Parliament that defines its powers, management
structure, and relationship with government bodies. As a corporation it has legal entity. Its
capital requirements are met by the treasury, but it is supposed to meet its current expenses
from its normal commercial operations. Its employees are not civil servants, and the top
management is often appointed by the minister in charge.

Another administrative form that is popular in parts of the world is the state company, which
is simply an ordinary joint-stock company whose shares are owned wholly or partly by the
state. Public enterprises are usually intended to pay their way in the longer term, and yet they
may be subject to political constraints in their pricing policy that could be in conflict with
that objective. Conversely, for social reasons they may receive hidden subsidies or enjoy
additional protection not available to competitors. Such factors tend to distort the normal
commercial operations of the corporation.2  

The measurement of the efficiency of a public enterprise is no easy matter. When it produces
a marketable product, such as coal or steel, that competes with other products, the normal
commercial criterion of profit may be adopted to assess its performance. In the case of a
utility enjoying monopoly power, economists have developed concepts like cost-benefit
analysis as a performance measurement tool. In recent years many state enterprises in the
developed world have been given financial targets that take into account both social and
commercial responsibilities.

2
http://www.britannica.com/EBchecked/topic/482353/public-enterprise

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Public enterprises in India

In India, a government-owned corporation is termed as a Public Sector Undertaking (PSU). This

term is used to refer to companies in which the government (either the federal Union Government or
the many state or territorial governments, or both) own a majority (51 percent or more) of the
company equity. There are 251 PSU companies in India as of 2012.

Some examples include:

 Nuclear Power Corporation of India Ltd

 Bharat Sanchar Nigam Limited
 State Bank of India
 Air India
 Food Corporation of India
 Life Insurance Corporation of India
 Indian railways
 Indian army

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 PRIVATIZATION

 It means the shift of some or all of the responsibility for a function from government to the private
sector. The term has most commonly been applied to the divestiture, by sale or long-term lease, of a
state-owned enterprise to private investors. Transfer of ownership of property or businesses from a
government to a privately owned entity.

The objective of government contracting is to,

…acquire goods and services and to carry out the use of those services in a manner that enhances
access, competition, visibility and fairness and results in best value or, if appropriate, the optimal
balance of overall benefits to the people

Privatization, by all accounts, is not a new concept. A background paper by the Urban Institute states
that privatization efforts have typically increased in periods of both government expansions (The
Progressive Era of the late 19th Century, The New Deal and The Great Society), in order to fill the
gap between government capacity and needed services.

However, after more than two decades of privatization efforts, serious questions still remain about
which sector is best equipped to provide services to the public, and whether or not privatization
serves the public good.
Privatization in India

 After Independence in 1947, India adhered to socialist policies. Attempts were made to liberalize
economy in 1966 and 1985. The first attempt was reversed in 1967. Thereafter, a stronger version of
socialism was adopted. Second major attempt was in 1985 by Prime Minister Rajiv Gandhi. The
process came to a halt in 1987, though 1966 style reversal did not take place.3 In 1991, after India
faced a balance of payments crisis, it had to pledge 20 tons of gold to Union Bank of Switzerland and
47 tons to Bank of England as part of a bailout deal with the International Monetary Fund (IMF). In
addition, IMF required India to undertake a series of structural economic reforms. 4

3
 For a complete history & analysis of liberalization episodes in India, see: Sharma, Chanchal Kumar (2011) "A Discursive Dominance Theory of
Economic Reforms Sustainability]." India Review (Routledge, UK)126-84
4
 Economic Crisis Forcing Once Self-Reliant India to Seek Aid, New York Times, June 29, 1991

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 EXAMPLE

The examples against the privatization

 As the government give the power of petrol prices in hands of companies. They just increased
their profit by price hikes. Which get more burdens on common mans pocket.
 Privatization of electricity supply is also not beneficial for country as the companies are not
able to provide constant and reasonable price supply
 Privatization in education system led to the expensive education which every one can’t
afford, thus the children of poor are not able to get quality education and the percentage of
higher education is not increasing.
 Privatization in retail sector also led to unemployment for small retail shop owners. Big
players swiped the market and led to monopoly, as they have the power to control the prices.
 Health facilities in private hospitals are not affordable. And government hospital distributes
free medicine.
 Privatization in transport led to increase in cost of production.
 Private companies

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 REASONS OF OPPOSING PRIVATIZATION

Certain public goods and services should remain primarily in the hands of government in order to
ensure that everyone in society has access to them (such as law enforcement, basic health care, and
basic education). There is a positive externality when the government provides society at large with
public goods and services such as defense and disease control. Some national constitutions in effect
define their governments' "core businesses" as being the provision of such things as justice,
tranquility, defense, and general welfare. These governments' direct provision of security, stability,
and safety, is intended to be done for the common good (in the public interest) with a long-term (for
posterity) perspective. As for natural monopolies, opponents of privatization claim that they aren't
subject to fair competition, and better administrated by the state.
 Performance. A democratically elected government is accountable to the people through a
legislature, Congress or Parliament, and is motivated to safeguarding the assets of the nation.
The profit motive may be subordinated to social objectives.
 Improvements. The government is motivated to performance improvements as well run
businesses contribute to the State's revenues.
 Corruption. Government ministers and civil servants are bound to uphold the highest ethical
standards, and standards of probity are guaranteed through codes of conduct and declarations of
interest. However, the selling process could lack transparency, allowing the purchaser and civil
servants controlling the sale to gain personally.
 Accountability. The public does not have any control or oversight of private companies.
 Civil-liberty concerns. A democratically elected government is accountable to the people
through a parliament, and can intervene when civil liberties are threatened.
 Goals. The government may seek to use state companies as instruments to further social goals
for the benefit of the nation as a whole.
 Capital. Governments can raise money in the financial markets most cheaply to re-lend to state-
owned enterprises.
 Strategic and Sensitive areas. Governments have chosen to keep certain companies/industries
under public control because of their strategic importance or sensitive nature.
 Cuts in essential services. If a government-owned company providing an essential service (such
as the water supply) to all citizens is privatized, its new owner(s) could lead to the abandoning of
the social obligation to those who are less able to pay, or to regions where this service is
unprofitable.

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 Natural monopolies. Privatization will not result in true competition if a natural
monopoly exists.
 Concentration of wealth. Profits from successful enterprises end up in private, often foreign,
hands instead of being available for the common good.
 Political influence. Governments may more easily exert pressure on state-owned firms to help
implementing government policy.
 Downsizing. Private companies often face a conflict between profitability and service levels, and
could overreact to short-term events. A state-owned company might have a longer-term view,
and thus be less likely to cut back on maintenance or staff costs, training etc., to stem short term
losses. Many private companies have downsized and reduced the quality of services while
making record profits.
 Profit. Private companies do not have any goal other than to maximize profits. A private
company will serve the needs of those who are most willing (and able) to pay, as opposed to the
needs of the majority, and are thus anti-democratic. The more necessary a good is, the lower
the price elasticity of demand, as people will attempt to buy it no matter the price. In the case of
price elasticity of demand is zero (perfectly inelastic good); demand part of supply and demand
theories does not work.
 Privatization and Poverty. It is acknowledged by many studies that there are winners and losers
with privatization. The number of losers —which may add up to the size and severity of poverty
—can be unexpectedly large if the method and process of privatization and how it is
implemented are seriously flawed (e.g. lack of transparency leading to state-owned assets being
appropriated at minuscule amounts by those with political connections, absence of regulatory
institutions leading to transfer of monopoly rents from public to private sector, improper design
and inadequate control of the privatization process leading to asset stripping.5
 Job Loss. Due to the additional financial burden placed on privatized companies to succeed
without any government help, unlike the public companies, jobs could be lost to keep more
money in the company.

5
Dagdeviren (2006) "Revisiting privatisation in the context of poverty alleviation" Journal of International Development, Vol. 18, 469–488

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 OPPOSITE EFFECT OF PRIVATIZATION
Although private companies will provide a similar good or service alongside the government,
opponents of privatization are careful about completely transferring the provision of public goods,
services and assets into private hands. Though less well known, the arguments against privatization
of government services are numerous as well, including:
 Reduction of good government jobs in favor of lower paying jobs with fewer benefits.
 Abdicates government responsibilities to the private sector, whose motives are profit, not public
good.
 High potential for corruption, waste, fraud, conflicts of interest and cost overruns.
 Any cost savings are directed towards enhancing corporate profit needs, not lowering taxpayers’
costs.
 Decreases government accountability and citizen participation.
 Inadequate oversight and taxpayer protections in place.
 Great temptation to maximize profits by reducing access and quality of services. 6

6
Dannin, n.d.; Hefetz & Warner, 2004; Nightingale & Pindus, 1997, Opdyke, 1999

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 CONCLUSION

Can we expect all private hospitals in our cities in our town which do not have an entry for poor
people, can we have only private sector telephone companies, can we have private companies have
complete control on oil reserves, can we have all transport be provided by private sector and RTC
vanishes, can we expect an private sector to take care of our defence. In the same way we can’t
expect the government to set up an IT industry on its own, we can’t expect them to handle all the
load of flight transport. There are some strategic sectors, which need to be under control of Indian
government like oil/gas sector. The subsidy we enjoy will be never provided by a private sector. The
government in this case helps its citizens to a great extent and making them available to its citizens.
The ration card system is a great boon to the poor.

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 BIBLIOGRAPHY
 Chowdhury, F. L. ‘’Corrupt Bureaucracy and Privatisation of Tax Enforcement’’, 2006:
Pathak Samabesh, Dhaka.
 For a complete history & analysis of liberalization episodes in India, see: Sharma, Chanchal
Kumar (2011) "A Discursive Dominance Theory of Economic Reforms
Sustainability]." India Review (Routledge, UK)126-84
 Economic Crisis Forcing Once Self-Reliant India to Seek Aid, New York Times, June 29,
1991
 www.britannica.com/EBchecked/topic/482353/public-enterprise
 Dannin, n.d.; Hefetz & Warner, 2004; Nightingale & Pindus, 1997, Opdyke, 1999

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