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RISING PRIVATISATION

  Dec 20, 2020

RISING PRIVATISATION

Q. What is privatisation? 

Q. What are its objectives?  

Thus it was done to : 

  1. To reduce the burden on Government
  2. To strengthen competition
  3. To improve Public finances
  4. To fund infrastructure growth
  5. Accountability to shareholders
  6. To reduce unnecessary interference
  7. More disciplined and trained work force.

Q. What are some of examples of privatisation in Indian context? 

Q. What are methods of privatisation?

Initial Public Offers (IPO).

IPOs are the most preferred method of privatisation in it the shares/equity holdings of the PSUs are sold to the private retail investors and institutions like Mutual Fund houses, Pension Funds and Insurance Companies etc.

Transfer of Ownership

Government companies can be converted into private companies in two ways :

Strategic Sale.

Strategic Sale is a method in which the government decides to sell PSU shares to a strategic partner. The management in all such cases passes to the strategic buyer.

Sale to Foreign Firms.

The method is a variant of the strategic sales method where the government decides to sell the PSUs to the foreign firms.

Management and Employees Buy outs.

In this route, management and employees come forward to but the shares and equities of the PSUs.

Disinvestment.

The method is followed in India from time to time. The method involves the sale of the Public sector equity to the private sector and the public at large.

Q. What are its some of advantages?

Microeconomic advantages:

  1. State owned enterprises generally are outdone by the private enterprises competitively. When compared the latter, it shows better results in terms of profits and efficiency and productivity. Therefore, privatization can provide the necessary push to the underperforming PSUs.
  2. Privatization brings about fundamental structural changes providing momentum in the competitive sectors.
  3. Privatization leads to implementation of the global best practices along with management and motivation of the best human talent to foster sustainable competitive advantage and improvised management of resources.

Macroeconomic advantages:

  1. Privatization has a positive impact on the financial growth of the sector which was previously state dominated by way of decreasing the deficits and debts.
  2. The net transfer to the State owned Enterprises is lowered through privatization.
  3. It helps in escalating the performance benchmarks of the industry in general.
  4. It can initially have an undesirable impact on the employees but progressively in the long term, shall prove advantageous for the growth and prosperity of the employees.
  5. Privatized enterprises provide better and quick services to the clients and help in improving the overall infrastructure of the country.

Q. What are the Challenges?