Privatisation

 

The transfer of ownership, property or business from government to private sector is termed as Privatisation. The process in which a publicly-traded company is taken over by a few people (Private Company) is also called privatization. The company gives up the name 'limited' and starts using 'private limited' in its last name.

Privatization is considered to bring more efficiency and objectivity to the company, something that a government company is not concerned about. Also, it helps in escalating the performance benchmarks of the industry in general.

India went for privatization in the historic reforms budget of 1991, also known as 'New Economic Policy or LPG policy'. 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.

Privatization will give ample space for creative and innovative thinking as well as systematic and strategic planning to realize the full potential of economy.

India adopted a number of economic restructuring measures such as privatisation, liberalisation, globalisation, etc. Former Prime Minister Rajiv Gandhi was way ahead of his time and his understanding of his nation was excellent. Looked like, he could foresee things.

Let’s get to know how privatisation has its roots in the Rajiv Gandhi era.

During his era, the focus was also on privatisation, liberalisation, globalisation, deregulation and free-market economy. These were strange words in early 80s. People didn’t know what privatisation meant.

Roots of privatisation lie in the Rajiv Gandhi era. License Raj was beginning to get a new face in his era. Ultimately “former Prime Minister Narsimha Rao’s government and then former Prime Minister Manmohan Singh’s initiative really brought privatisation” to the forefront, deregulation to mainstream and dismantle significant part of the License Raj.

Advantages of Privatization:

Improved Performance:

                Performance improvement is measuring the output of a particular business process or procedure, then modifying the process or procedure to increase the output, increase efficiency, or increase the effectiveness of the process or procedure. Performance improvement can be applied to either individual performance or a commercial business. Private companies assess their employees based on their performance and adequately incentivise better performance.

Better Customer Service:

                Since private companies are profit-driven and function in a competitive market, their primary focus rests on efficient customer service. When compared to government sector, most of the customers feel unsatisfied. But if the government concentrate and improve the customer satisfaction, efficiency and performance then customers might not go to private sectors, they might not show the willingness to visit private sectors. Customer satisfaction is been raised as private companies is looking for retention of customers due to competition by privatization.

Quality:

                Due to privatisation people in India gets more quality goods.

Political Interference:

                In a public company, there is a lot of political interference. This may affect the actions to do something that the company from taking economically beneficial decisions. However, a private company will not let political factors affect their performance.

More Productivity:

                The private sector can improve productivity by maintaining efficiency in its operations.

Individual Motivation:

The success of the private sector resides in the profit motive. Privatization motivates the managers to make efficient in the operations of the enterprise so that I can earn more and more profits.

Disadvantages of privatization:

Prices:

                Price is been raised as a private firm's main aim is to earn the profit, which affects the middle class and low class families. Because the income is less and they can’t bare the highest prices. Private sector focuses more on profit maximization and less on social objectives.

Lack of Transparency:

                There is lack of transparency in private sector and stakeholders do not get the complete information about the functionality of the enterprise.

Inflexibility:

                There is also the issue of inflexibility that can come with privatization. Typically, governments sign lengthy contracts with private service providers. These contracts can span for decades, locking residents into one service provider for lifetimes. Although a private company might make itself attractive to win a contract.

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.

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.

 Many Govt. firms are been having a loss due to privatisation. for e.g. Air India

Salaries given to workers is been lowered than the public sector.

Many fraud companies and organisations make frauds in a county like Kingfisher etc. and this is been raising problem in India.

No control over fee structure and other financial aspects.

Admissions can have a management quota for the sake of money.

The issue of privatisation has come to the forefront due to the poor performance of several public sector enterprises and the consequent huge fiscal deficits faced by the government. One can conclude from this move of the Government that the private sector industries in India are not inefficient as public sector industries. Administrative and managerial inefficiency are the hallmarks of public sector industries. Government is unable to run these high cost public sector industries. Unable to correct this situation, the Government went for privatisation. So, it was a forced privatisation.