Authors: Muskan Gupta, Prathamesh Joshi
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Privatization generally is defined as the process of transfer of ownership, it can also be permanent or just for the years for which a particular contracted has been drafted between the parties. It is basically a route from public ownership to private ownership. On the other side it is also a strategy that provides advantage to a few at the price of many. In the 1960\'s and 1970\'s academicians, economists and politicians favored state ownership over personal possession within the production and provision of products and services. By the tip of the 1980\'s, however, there was a reversal of public policy from state domination of the assembly and provision of products and services to non-public ownership and operation. This was due partly to what the globe Bank observed as “state failure”, that was characterized by inefficient service delivery, unprofitable SOEs, high government debt, and stagnant economic process rates. Consequently, privatization caught on in several countries as a policy tool to foster potency, encourage investment, free public resources for investment in infrastructure and social programs to boost economic process and spatial arrangement equity. This paper also discusses the causes and reasons for privatization to happen in India and what are its pros and cons.
The Economist magazine, in the year 1930, has first defined privatization as :-
The transfer of ownership, property or business from the government to the private sector is termed as privatization. The government ceases to be the owner of the entity or business.
The process in which a publicly-traded company is taken over by a few people is also called privatization. The stock of the company is no longer traded in the stock market and the general public is barred from holding stake in such a company. The company gives up the name 'limited' and starts using 'private limited' in its last name.
Privatization is considered to bring stability to the company, something that a government company is not worried about. When the new economic policy was formed in 1991, the term privatization was introduced in India.
Privatization is a vast construct. It claims to unleash economic freedoms and allow private initiative and enterprise. On the other hand, however, privatization has been denounced for its essentialist notions of efficiency and rationality and for undercut democracy and community.
Our country was chosen as a case study as it is symbol in many ways of a number of developing countries who have made the move to open their economies and engage in privatization reforms in the last ten years. Moreover, India is also an interesting case, as democracy here has succeeded for more than half the twentieth century and has proved substantial as well as resisting.
Privatization includes various operations, such as the introduction of private capital, the selling of government-owned assets, and transition to a private economy.
Even though the privatization has mixed meanings, in general it means that the government has huge amount of control over the ownership of a business enterprise. Indeed, every government has a bound responsibility to have active and professional ownership to create value. Such value can include economic value, social value, sustainability value, livelihood value, and so on.
The structure of this paper is as follows
Over the last 62 years or so, the condition of India’s Public Sector enterprises has been severely attacked. The public sector enterprises have been set up not purely out of ideological considerations of creating a communist pattern of society. At this time creating good infrastructural domain of the country was top of the agenda of the government.
Bearing in mind that the private sector is not only in doubt, but also incapable, of building social economic infrastructure.
In a mixed economy framework, the two sectors are expected to play a role which helps both parties. But what happened in India was rather different where public sector, in spite of its own inefficiencies acted as a feeder to private sector. At this time more loss would not have been afforded by the public sector. This is why in the year 1990, government started to form a policy in which both public and private sector will work in complimentary manner. After knowing that all public sector are failing and private sector are in success the demand of privatization of the public sector came forward when the Congress Government came to power in `1991. Wave of privatization swept all of India. The World Bank in its 1991 report, promoted for the introduction of market friendly approach and advised to deregulate and decontrol the public sector.
B. Conceptualization of Privatization in India
The concept of privatization in India consists of the following:
C. Governments opposition to Complete Privatization
In the 1990’s budget the Indian government made it clear that they have the desire and it was important to extract and release the massive amount of investment made in the state-owned enterprises and this led to privatization in India. This led the foundation for Foreign Direct Investment and liberalization of business practices and protocols as well. However, being a socialist economy (in which goods and services are produced directly for the use) the government was not in favored for privatization. Many experts are of the view that the government wrongly positioned their disinvestment strategy by dangling between the principles and other off their approaches. Though all political parties acknowledged the way of privatization but all adopted an escapist attitude towards complete privatization for safe guarding their vote banks. They employed tactics of “videshi” and “swadeshi”, and strategies like getting a strategic partner or enlarge the equity base through and initial public offer before divesting. Indian government has been conservative in allowing partial privatization of strategic sectors like power supply, telecom, banking, roadways, insurance, civil aviation, postage and telegraph services etc. Mostly, both state owned enterprises and privately run enterprises co-exist in these sectors. Government uses the shield of social interests of the employees of the PSUs to camouflage the interest of the bureaucrats and politicians. However, intensified competition of the delicensed and liberalized sectors have surely made the lethargic state owned enterprises to pull up their socks and shedding the complacency of monopoly to face the competition
D. Major Causes of Privatization are
The private sector have many policies in solving the issues of external parties, by without bargaining with cost , driven by the individual profits of the company. When comparing with the public sector, the private sector does will to the profits in the market. On the other way public sector has more non-economic goals.
The public sector is highly driven to maximize the production and use all the resources effectively, because of this government has to run at high cost for low-income enterprise.
Privatization shifts the focus from political aims to economic aims, which directly impacts in the growth of economic condition of the government. The downscaling aspect of the privatization is there to look because of the government bad economic policies and corruption. By privatizing, the role of government has less impact in the country’s economy. Privatization have a positive impact on the country’s economy situation.
It should not be used to pay the expenditure of the government and pay off debts. Privatization helps in reducing the interest rates and raising the level of investment in the country to help the country’s economy to get better. By reducing the public sector, the government reduces the total expenditure and collecting taxes on all the business that are being privatizes. The major method or privatizing to sell government owned company to private parties.
E. Impacts of privatization
F. Advantages and Disadvantages of Privatization
G. Future prospects for India in terms of Privatization
Our country’s economy is a dynamic economy that is showing us great potential of growth in the world market. Globalization, liberalization and privatization are the three corner stones of any country’s economic policy. Privatization is slowly getting accepted in India and changes like enhanced efficiency in work and deposition of public funds into public sector will happen eventually. It has already shown great advancement in the sectors like banking sector, insurance, telecom, civil aviation etc. Indian economic has shown average growth of 8.5 percent in past for before covid happened this itself is a great achievement for our nation and this mainly happened because of some firm decisions made by the government such as privatizations. However, it feels little bad to know that India is not very tempt place for foreign investors. Different political powers, red tapism, bureaucracy, corruption needs to be stopped if we have to make our country an economic superpower in the world. In spite of having all the issues we can see higher rate of returns as compared to capital intensive industrialized countries. With more changes and development in the future, privatization seems to be a great way of foreign investment.
Over the period of time, the policy makers in our country have lean towards their conscious nature about privatization and have formed many new reforms to deprive the huge capital investment in Public Sector Enterprise and made more profit with an increased efficiency. Many sectors and industries who found it difficult to enter in the market were welcomed now for investment from both domestic as well as international investors. The banking sector, various types for small- and large-scale industries showed a great improvement in them after privatization. But however complete privatization of the nation is a long road to run.
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