The government has been slowly trying to offer a wider role to the private sector in many areas which were, till now, believed to be the sole domain of public sector enterprises (PSEs). Take coal mining, where the government has finished the historical monopoly of Coal India. Or smaller airports, which have seen rapid passenger growth but have been unable to take advantage of this due to parent Airports Authority of India (AAI) and its constraints. They are now being offered to private operators, with terms which are different from the conditions under which the large ones like Delhi and Mumbai operate.
Even train travel, which has always been seen as a public service with subsidized fares, but is now beginning to witness “privatization’. The Indian Railways plans to offer some trains to private parties and this would mean only limited fare concession options may be available to passengers.
Does increasing role of private parties necessarily bring in efficiencies of scale, does it improve service standards as a thumb rule and will it be a panacea for the economic crisis engulfing India as the Covid19 pandemic rages on? Also, how successful has this government been in its first term in achieving disinvestment targets and will it be comparatively keener to pursue the targets now onwards?
India has a mixed economy in which both Private and Public Sectors exist especially in the areas of Banking, Telecom, Road Transport, Education, Healthcare, Manufacturing, Trading of different goods among others. Many Business analysts and experts on Economy are of the view that privatization could speed up economic growth with the increase in competition while number of them find that the privatization could bring more problems like unemployment taking the economy back wards due to its inherent issues.
Privatization in India
In 1991 India made some major policy changes in their economic ideologies. There were stagnation and slow growth in the economy.
To tackle these problems the, then Finance Minister Dr. Manmohan Singh introduced some major economic reforms. Now, we call it the liberalization of the Indian Economy and the LPG reforms.
Privatization has a very broad meaning in economics. Everything that ranges from the introduction of private capital to selling government-owned assets to transitioning to a private economy.
As the definition of privatization is so very diverse let us take a look at the three main features of privatization.
Ownership Measures: The ownership of all public enterprises ultimately shifts to private owners. The denationalization can be complete or partial.
Organizational Measures: This is where we limit the control of the state in public companies. Some methods include holding company structuring, leasing. restructuring of the enterprises etc.
Operational Measures: Public organizations and companies were running into huge losses. So the efficiency of these companies was to be increased.
Conceptualization of Privatization in India
1] Delegation: Here via a contract or franchise or lease or grant etc. the government keeps the ownership and the responsibility of an enterprise. But the private company will handle the daily activities and deliver the product or service. The state will remain an active participant in this process.
2] Divestment: The government will sell a majority stake of the enterprise to one or more private companies. It may keep some ownership but will be a minority stakeholder in the enterprise.
3] Displacement: The first step here will be deregulation. This will allow private players to enter the market. And slowly and gradually the private company will displace the public enterprise. Here the private sector will compete with public companies and ultimately outperform them, causing the public enterprise to be displaced.
4] Disinvestment: Directly selling a portion or whole of a public enterprise to private parties.
Advantages of Privatization
Private companies always have a better incentive than public companies. The managers and officials of a private company have skin in the game, i.e. their income is related to the performance of the company. In public companies, such an incentive is not present. So privatization usually leads to higher efficiency in the company.
In a public company, there is a lot of political interference. This may dissuade the company from taking economically beneficial decisions. However, a private company will not let political factors affect their performance.
In public companies, at times the government can only think about the upcoming elections. So all their goals may be short-term in the process of trying to gain favours of the voting public. But a private company does not have such restrictions. They have long-term goals and ambitions and steer the company in the right direction.
Privatization will also increase competition in the market. Consequently, this has proved to be very beneficial to consumers. Healthy competitiveness in an economy will push efficiency and performances.
Privatization: Adverse Impact
No Welfare State: The concept of welfare state may get defeated with the Privatization of economy. Private sector would not care about the society as its main objective is to earn profits.
Less Social Development: Government or Public sector companies also keep doing social work simultaneously. In case privatization happens, it will result in fewer funds for society because private companies have no obligation to do social work.
Unemployment: Privatization will also result in retrenchment of employees. In private sector enterprises there is emphasis on performance which indirectly results in work pressure and meeting deadlines or targets and individuals who have been doing work for years without much pressure find it difficult to adjust to new setting and many end up resigning from their service.
Long Term Risk: Risk of short term gains is prominent in private companies. There are decisions to start ventures which result in short term benefits but may not be good for long term.
So, That’s all in Today’s Blog!
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Thank You very much to all of you………..Namaskaar!!!!!
