Introduction

July 1991,India has taken a series of measures to structure the economy and improve
the BOP position. The new economic policy introduced changes in several areas.

The 'process of privatization was initiated in 1991-92 by disinvesting shares of 31

public enterprises to raise Rs 25,000 million to reduce the fiscal budgetary deficit.

In 1992-93, 20 more, public sector enterprises were disinvested to raise Rs 35,000

million. 286 bids were received for 392 million shares of 8 public sector enterprises
valued at Rs 20,940 million as most bids were below expectations.

This exercise was primarily aimed at raising revenues for reducing the budgetary
deficit.

The policy have salient feature which are:

1.Liberlisation
(internal
and external)
2.Extending Privatization
3.Globalisation of the economy
Which are known as “LPG”. (liberalisation privatisation
globalization)
 The following preconditions are necessary for
privatization:

Liberalization and deregulation of the economy are a prerequisite, if privatization is to take

off and help facilitate higher productivity and profits. For instance, with barriers to entry
and exit, the sale of a public sector monopoly to the public will only result in the
replacement of one monopoly by another.

The development of capital markets is another precondition. To ensure the smooth transfer
of public sector shares into the hands of the general public/corporate entities, both within
the country and outside, financial intermediation should have reached a certain level of
efficiency
 Liberalization

Liberalization is a very broad term that usually refers to fewer

government regulations and restrictions in the economy.
Liberalization refers to the relaxation of the previous government
restriction usually in area of social and economic policies. When
government liberalized trade , it means it has removed the
tariff ,subsidies and other restriction on the flow of goods and
services between the countries.
Advantages of liberalization
• Industrial licensing
• Increase the foreign investment.
• Increase the foreign exchange reserve.
• Increase in consumption and Control over price.
• Check on corruption.
• Reduction in dependence on external commercial borrowings
Privatisation
It means a transfer of ownership, management,
and control of public sector enterprises to the
private sector.

Ways of Privatisation:
Government companies are transformed into private companies in 2 ways,
Transfer of Ownership
Government companies can be converted into private companies in two ways :
By withdrawal of the government from ownership and management of public sector
companies.
By outright sale of public sector companies.
Disinvestment 
Privatisation of the public sector undertakings by selling off part of the equity of PSUs
to the private sector is known as disinvestment.
The purpose of the sale is mainly to improve financial discipline and facilitate
modernization.
Need for Privatization.

Though the PSUs have contributed heavily to

develop the industrial base of the country, they
continue, even today, to suffer from a number of
shortcomings which are identified below very briefly.

A sizable number of PSUs have been incurring and

reporting losses on a continual basis. Consequently, a
large number of PSUs have already been referred of
loss giving units;
Ineffective and widespread inefficiency on management;
• With a view to provide opportunities for more and more
unemployed youths, more number of people, than required,
were recruited and therefore, many PSUs are over-staffed
resulting in lower labour productivity, bad industrial relations,
etc.;
• A number of sick companies (40 companies) which were in
the private sector were taken over by public sector mainly to
protect the employees. These sickunits are causing a big drain
on the resources of the state; etc.
 Advantages of Privatization

• Privatization helps to reduce the burden on Govt.

• It will help profit making public sector unit tomodernize
and diversify their business.
• It will help in making public sector unit more competitive.
• It will help to improving the quality of decision making,
because the decisions are free from any political interference.
• Privatization may help in reviving sick units which are the
liability of the public sector.
• Industrial growth.
• Increase the foreign investment.
• Increase in efficiency.
Privatization : Lessons from different countries
1. UK
Privatization ation in UK involved the sale of a total of over 13 billion shares. It fetched the
British government over £ 25 billion pound sterling and led to the creation of 13 listed
companies with market capitalization of over £ 1 billion pound sterling.

British Telecom, the sixth largest telephone company in the world, transferred 51 per cent of
its ownership to private hands. This exercise resulted in a 25 per cent increase in profits. Some
. public sector bodies that were privatized in Britain include, British Rail, hotels.
other

British Airways emerged as a market leader. The privatized sector of the economy fared well in
the 1990’s.
2. France
In France, the first three companies to be privatised were Saint-Gobain, a glass and
engineering group, Banque de Paris, an investment bank and Group des Assurance
Geneerales de France, the second largest insurance company. This was followed
by.privatisation of a multi­ tude of banks, finance houses. insurance companies and large
industry groups.
MAJOR INOUSTRY GROUPS WHICH STAND DEREGULATED
These include:
A Comprehensive History of Business in India: From 3000 Be to 2000
AD
I. Iron and steel;
2. Heavy castings and forgings of iron and steel;
3. Heavy electrical plants including _largehydraulic and steam
turbines;
4. Aircraft;
5. Heavy plant and machinery;
6. Air transport;
7. Shipbuilding and merchant ships;
8. Telecom equipment (switching. transmission and terminal
equipment)
9. Electricity generation and distribution

Source:' Annexure 1, New Industrial Policy Statement, Government of India, July

24, 199
 Globalization
Globalization implies integration of the economy of the country with
the rest of the world economy and opening up of the economy for
foreign direct investment by liberalizing the rules and regulations and
by creating favorable socio-economic and political climate for global
business

According to IMF: -” The growing economic interdependence of

countries worldwide through increasing volume and variety of cross
border transaction in goods and services and of international capital
cash flows, and through the more rapid and widespread diffusion of
technology.
 Globalization benefits

Free flow of capital and increase in the total capital employed.

Free flow of technology.
Increase in industrialization.
Spread of production facilities throughout the globe.
 Balanced development of world economies.
Increase in production and consumption.
Commodities at lower price with high quality.
Increase in jobs and income.
Higher Standard of living.
Balanced human development