Privatization

Presented by – Ridhi Sharma

MBA 1ST Sem
Presented to – Ms Aarti Kalyani
(Assistant Professor)
Contents
 Meaning of Privatization
 Definition of Privatization
 Features of Privatization
 Objectives of Privatization
 Advantages of Privatization
 Disadvantages of Privatization
 Major causes of Privatization
 Adverse impact of Privatization
Meaning of Privatization
 Privatization can mean different things including moving
something from the public sector into the private sector. It
is also sometimes used as a synonym for deregulation
when a heavily regulated private company or industry
becomes less regulated. Government functions and
services may also be privatized; in this case, private entities
are tasked with the implementation of government
programs or performance of government services that had
previously been the purview of state-run agencies. Some
examples include revenue collection, law enforcement,
water supply, and prison management.
Definition of Privatization
 “Privatization isthe process by which a piece of
property or business from being owned by the
government goes to being privately owned. The
basic services, such as education, shouldn’t be
subject to market forces.”
Features of Privatization
• New concept. Privatization is a new concept for economies which has emerged
in last two decades. ...
• Widely accepted. The process of privatization has not only emerged in India but
it is at present widely accepted across many countries all round the globe.
• Economic democracy. Implementing the concept of privatization denotes
establishing economic democracy. ...
• Transfer of ownership. Transfer of ownership is the main feature of
privatization process. Here in this process, the state-owned business,
operations or property are sold off to private firms.
• Lack of government interference. The role of government gets reduced in
economic activities of company once it underdoes the process of privatization.
• Continued process. Privatization is a continuous process which keeps on going.
It takes the shape slowly in an economy and cannot be completed within a
certain period of time.
• Quality management. Another key feature of privatization concept is that
enhance the management level of business. ...
Objectives of Privatization
• Improved Efficiency 

 State-run companies are predominantly influenced by political intentions

rather than economic well-being. It hinders the efficiency of public sector
companies and prevents growth.

 Privatization deters government influence and aids economic growth. As

private bodies do not have a political agenda, they focus more on spurring
growth and efficiency within an organisation for greater generation of
revenues.

• Increased competition

 State-run companies enjoy a monopoly and remain unperturbed by

competition in the market. Privatization, accompanied by deregulation of
the market, allows the private sector to engage more actively and
encourages competition. 

• Revenue from the Sale of a Company

 A primary objective of privatization is a one-time revenue generation for

the government. Several governments have previously resorted to
Continued…
• Promotes Market Dynamism

 Privatization liberates the economy from state control. Without

government regulations dictating market progression, the market
operates organically. Due to a lack of government interference, the
market becomes more dynamic and follows integral economic
values of demand and supply. 
Advantages of Privatization
 Increase Performance Level
 The process of privatization enables companies to perform more efficiently
which results in better performance level. Private companies are profit-incentive
unlike government companies that are politically motivated
 Better Customer Service
 Private companies offers better customer service in market as they are profit
driven. They operate in a competitive environment where their primary focus is
on grabbing more customers by providing quality services. However, this
feature is lacked by state-owned companies which are neither financially
motivated nor faces any competition. 
 Rid Of Political Intervention
 The primary benefit provided by privatization process is removal of
governmental influence in business operations. Public companies are mostly
driven by political agenda which prevent company from taking any decisions
bring economical benefits to them. However, private companies are not
influenced by any political factors and driven by profitable decisions only. 
Continued…
 Attraction Of Investments
 Privately-run companies are more easily able to gain investor
confidence due to their financially and economically sound
infrastructure. This companies bolsters the economy via high inflow of
investments both from national as well as foreign level. 
 Increased Competition
 Companies which are owned and run by government enjoys monopoly
in market and remain uninterrupted by competition. However, the
private firms coming in market due to privatization engages more in
more active manner and encourages competition. It will turn accelerate
the rate of economic as well as industrial growth and avoid
monopolistic sluggishness in the market. 
Disadvantages of Privatization
 Problem Of Regulating Monopolies
 The private sector can exploit their monopoly and ignore social costs.
Privatization of certain state entities such as water and electricity authorities
may just create single monopolies.
 Public Interest
 The industry which performs an important public service, e.g. health care,
education, and public transport. In these industries, profit should not be the
primary objective.
 Accountability
 The public does not have any control or oversight of private companies.
Privatization has a bad side of accountability because Investors has full
authority to do anything.
 Concentration Of Wealth
 Profits from successful enterprises end up in private, often foreign hands
instead of being available for the common good.
Major causes of Privatization
 To reduce the burden on government.
 To strengthen competition.
 To improve public finances.
 To fund for infrastructure growth.
 To reduce unnecessary interference.
 More discipline labour force.
Adverse impact of Privatization
 Profit Making – The sole aim of the private owners is to make a profit
and they try to attain it at any cost be it compromising the quality of the
product, playing with the customer’s emotions or adopting other unfair
means. So just to gain maximum profit, they compromise the quality
and opt for unfair means.
 Price Rise – In sectors, where there is less competition or monopoly of
a private owner, the consumers need to shell a huge amount of money
to buy goods and services.
 Rise in Corruption – Private owners adopt various means to get their
tasks accomplished. There are more and more cases of bribery, fraud,
and others on a daily basis. They indulge in bribery, fraud and various
other such ill practices that give rise to corruption.
 Lack of Transparency – In a democratic government, the public can
question the government for the service provided by the public sector
and the government is bound to show the clear picture. However, the
private sector organizations are not bound by any such law and thus
there is a lack of transparency.
Thank you