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PRIVATISATION OF THE ECONOMY

CONCEPT OF PRIVATISATION:

Privatisation has to be viewed in two ways:

  In a narrow sense, it implies the induction of private ownership in a public sector undertaking.

  In a broader sense, it implies the enlargement of the scope of the private sector in the growth of the economy.

Privatization is closely associated with the phenomena of globalization and liberalization. Privatization is the transfer of control of ownership of economic resources from the public sector to the private sector. It means a decline in the role of the public sector as there is a shift in the property rights from the state to private ownership.

The public sector had been experiencing various problems, since planning, such as low efficiency and profitability, mounting losses, excessive political interference, lack of autonomy, labour problems and delays in completion of projects. Hence to remedy this situation with Introduction of NIP’1991 privatization was also initiated into the Indian economy.

 

MAIN OBJECTIVES OF PRIVATIZATION

  The process of Privatization has been triggered with the main intention of improving industrial efficiency and to facilitate the inflow of foreign investments.

  It also wants to make the public sector undertakings strong able efficient companies. It recommends a change in the role of the government from that of the “owner manager” to that of a mere “controller” or “regular”.

  It also intends to ensure efficient utilization of all types of resources including human resources.

  Privatization insists on the government to concentrate on the area such as education administration and infrastructure and to give up the responsibility of looking after business and running industries. It is expected to strengthen the capital market by following appropriate trade policies.

 

The main aspects of privatization in India are as follows:

1. Autonomy to Public sector:

 Greater autonomy was granted to nine PSUs referred to as ‘navaratnas’ (ONGC, HPCL, BPCL, VSNL, BHEL) to take their own decisions.

2. De-reservation of Public Sector:

  The numbers of industries reserved for the public sector were reduced in a phased manner from 17 to 8 and then to only 3 including Railways, Atomic energy, specified minerals.

  This has opened more areas of investment for the private sector and increased competition for the public sector forcing greater accountability and efficiency.

3. Disinvestment Policies:

 Till 1999-2000 disinvestment was done basically through sale of minority shares but since then the government has undertaken strategic sale of its equity to the private sector handing over complete management control such as in the case of VSNL , BALCO etc.

4. Joint Venture:

 This implies partial induction of private ownership from 25 to 50 per cent or even more in a public sector enterprise, depending upon the nature of the enterprise and state policy in this regard.

Three kinds of proposals have been put forward:
i) 26 per cent ownership by the private sector (banks, mutual funds, corporations, or individuals) and

workers also to be included to the extent of 5 per cent equity to be transferred to them. However, in this situation, veto power remains with the public sector against the private sector.

ii)  Government retains 51 per cent equity and sells 49 per cent equity to the private sector. Although the basic character of the enterprise remains unaltered and it continues to be a public sector unit, it introduces a big share for the private sector.

iii)  74 per cent of the equity is transferred to the private sector and the Government retains 26 per cent with the added provision of Government veto power and minority control over major corporate decisions.

These three variants of privatization indicate different degrees of ownership by the private sector in the joint venture. The basic aim of the transfer of ownership is that it will enable the joint venture to improve productivity of assets and convert them into profitable concerns.

 

ARGUMENTS IN FAVOUR OF PRIVATIZATION

  Privatization is Necessary to Revitalize the State Owned Enterprises

  Privatization is Necessary to Face Global Competition

  Privatization is Needed to Create More Employment Opportunities in Future

  Helpful for Mobilizing and Investing Resources

  Recognition of Talents and Good Performance of work

 

ARGUMENT AGAINST PRIVATIZATION

  Profitability Alone Should Not Become the Sole Yardstick to Measure Efficiency

  Role of Public Sector Undertaking From the socio-Economic Angle Also Cannot be ignored

  Protection of the Interests of the Weaker Section

  Price –fixing Policy Here is Not Profit- Oriented

  Argument that the Private Sector Is More Efficient than the Public Sector is Not Right.

 

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