PRIVATISATION

MEANING: Privatization is the process of involving the private sector in the ownership or
operation of a state owned or public sector undertaking. In other words privatization means
transfer of ownership and management of enterprise from the public sector to the private sector.
According to Butler: Privatization is the transfer of government assets or functions to the
private sector.
According to D. R. Pendse: Privatization is any process which reduces the involvement of the
state or the government sector in the nation’s economic affairs is a Privatization process.
NATURE OF PRIVATIZATION
1. Transfer of Ownership: Privatization of state owned enterprises. The transfer of firm
ownership from government to private investors has become an important tool of economic
policy especially in less developed and former communist country.
2. Wide Concept: It is a wise idea. It involves not only the transfer of public sector to private
hands but it limits government involvement in the economic activities and protects the s
private sector. Thus, it involves a large number of activities such as reduce government
shares then economic sector the d expansion of the private sector.
3. Increased Competition: Increase competition is another important characteristic of
Privatization.
4. Increased opportunities: The worldwide Privatization wave creates opportunities for
international diversification. This will help to increase the opportunities of employment.
5. Increased Efficiency: Competitive environments and capital market discipline increase the
efficiency of privatized state owned enterprises. The result is a lack of specific guidelines for
shaping deal condition given the characteristics of the firm and country.
SCOPE OF PRIVATIZATION:
1. Ownership Measures: The set of measures which transfer ownership of public Enterprises,
fully or partially, lead to privatization. The higher the proportion of transfer of ownership to the
individual Cooperative or corporate sector, The greater is the degree of privatization. This can
be taken in three forms:
• Total Denationalization: It implies a complete transfer of ownership of a public Enterprise
in the private hands.
• Joint Venture: It implies the partial introduction of private ownership. The range of private
ownership depends upon the nature of the enterprise and government policy in this regard.
• Liquidation: It implies the sale of assets to someone who may use them for the same
purpose or some other purpose depending upon the preference of the buyer.
2. Organizational Measure:
• Holding Company: A holding company structure may be changed in such a way that the
government limits its control intervention to Apex level decisions and leaves the operating
companies within the arrangement to a sufficient degree of autonomy in decision-making
within the framework of market forces.
• Leasing: A public enterprise while retaining Ownership may lease out to a private bidder for
a specific period for use. The government ensures the right of obtaining profits as per our
agreement, on the other hand, tenure ownership is expected to lead to improve efficiency or
lower the cost of operation.
3. Operational Measures: These measures are intended to improve the efficiency of the
organization, even when full denationalization has not been undertaken. The measures include
grant of autonomy to public enterprises in decision-making, for the provision of incentives to
blue-collar as well as White-Collar employees consistent with increasing efficiency or
productivity, freedom to acquire certain inputs from the market by a system of “Constructing”
instead of producing them within the enterprise, development of proper investment criteria etc.
OBJECTIVES OF PRIVATIZATION
1. To improve the operational efficiency of Public Enterprises.
2. To develop competitive efficiency in the industries.
3. To generate resources for a deficit budget.
4. For the globalization of domestic Industries.
5. To invite foreign capital.
6. To earn foreign currency through export promotion.
7. To exploit the natural resources of the country with efficiency
8. To operate public enterprise on commercial basis.
9. To protect the industrial peace
ADVANTAGES OF PRIVATISATION
1. Financial Resources: The main advantage of privatization is to generate financial resources
for the government in order to generate resources disinvestment of public sector enterprises.
2. Optimum Utilisation of Resources: It has been observed that the public sector has failed in
the optimal use of national resources. The private sector may success in the optimum use of
resources by maintaining efficiency.
3. Fostering Competition: Most of the public enterprises enjoy the status of monopoly. It
results in inefficiency and losses. Privatization creates a situation of competition for public
enterprises and they are forced to improve their efficiency.
4. Reduction in Political Interferences: The process of privatization reduces political
interferences in the public sector enterprises by giving more representation to the private
sector in the management of Public Enterprises.
5. Economical: The process of privatization maintains the economy in the operations, whereas
the operations of public Enterprises are costly.
6. Individual Motivation: The success of private sector resides in the profit motive.
Privatization motivates the managers to make efficiency in the operations of the enterprise so
that I can earn more and more profits.
DISADVANTAGES OF PRIVATISATION
1. Problem of Price: The government usually want to sell the least profitable Enterprises, those
that the private sector is not willing to buy at a price acceptable to the government.
2. Opposition from Employees: Disinvestment tends to arise political opposition from
employees who may lose their jobs, from politicians who fear short-term unemployment
consequence of liquidation of cost reduction by private owners, from bureaucrats who stand
to lose patronage and from those sections of the public who fear that national assets are being
concerned by foreigners, the rich or a particular ethnic group.
3. Problem of Finance: In the developing countries under the developed capital market
sometimes makes it difficult for the government to float shares and for individual buyers
to finance the large purchase.
4. Improper Working: The main disadvantage of the private sector is that it has fallen much
short of what this sector is capable of or what it has achieved in some other countries. The
private sector is not interested in cost reduction and quality production. There are again
many unfair practices in which many businesses indulge in often resulting in the generation
of black money and corruption.
5. Independence on Government: There has been an excessive Regulation and control of the
private sector by the government. This has prevented and competition from becoming
a generalized phenomenon of the economy. The private sector has also become too much
dependent on the government for meeting its imports requirement, output sale, finances, etc.
This has sniffled the capacity of the private sector to stand on their own.
6. Concentration of Economic Power: The private sector emerges a monopoly and the
concentration of economic power in the hands of few. The dominance of some business
groups in terms of capital and assets is an economic and social problem. The private sector
operates on the principle of maximization of the Monopoly profits. It is harmful to consumers
and society as a whole.