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Privatisation

Q.27. What do you mean by Privatisation ? Discuss the main features and objectives of privatisation in India.

Or

Explain the concept of privatisation and give a statement of progress of privatisation in India.

Ans. In 1950, the expansion of public enterprises was supported by the argument that while taxes would be transparent and hence difficult to raise, the public enterprises could raise revenue by making profits. But these enterprises have so far failed in attaining these objectives. The main reason of criticism has been the colossal wastage of national resources as manifested in the form of sluggish growth in turnover, internal resources and the return on capital employed as compared to private sector. The critics of public enterprises have come to advocate the privatisation of public enterprises.

MEANING OF PRIVATISATION STUDY MATERIAL NOTES

Privatisation refers to a process in which ownership and management of public sector transfers to the private sector. It also means the withdrawal of the state from an industry or sector.

In the words of Stuart M. Bulter, “Privatisation is the transfer of Government assets or functions to the private sector.”

D. R. Pendse defines the term privatisation as follows, “Any process which reduces the involvement of the State or the Government sector in the nation’s economic affairs is a privatisation process.

Barbara Lee and John Nellis define private sector as “Privatisation is the general process of involving the private sect in the ownership or operation of a state owned enterprise. Thus, term refers to private purchase of all or part of a company. It com écontracting out’ and the privatisation of management thr management contracts, leases or franchise arrangements.

Thus, it becomes clear that privatisation is a process in private sector is involved in the ownership and manageme public sector. It is a mean of establishing economic democr reducing economic control in economic activities.

FEATURES OF PRIVATISATION STUDY NOTES

Basic features of privatisation are as follows:

(1) It is a new concept which has developed in the last two decades. Under this, private sector being prepared to take the responsibility of economic growth of the country in place of public sector.

(2) Privatisation denationalisation, deregulations and activities of economic is a universal concept which includes liberalisation, etc.

(3) It establish economic democracy by providing more chance to the private sector to operate in economic activities freely.

(4) Privatisation is based upon assumption that private enterpreneurs are relatively more efficient than the bureaucrats managing public sector.

(5) In the process of privatisation state dominace is reduced in the economic field.

(6) In this process, private sector is being developed in place of public sector.

(7) It is a wide and new strategy which has adopted to face the challenges emerged in the economic sphere recently.

OBJECTIVES OF PRIVATISATION QUESTIONS ANSWERS

Main objectives of the policy of privatisation can be summarised as follows:

(1) To solve the problem of inefficiency and low profitability in the public enterprises.

(2) To increase competitive efficiency in the industries.

(3) Toinvite foreign capital in the country.

(4) For the globalisation of domesticindustries.

(5) To integrate themselves with the concept of economic liberalisation in international world.

(6) Toreduce deficit in the budget and to write down the public debt.

(7) To maintain the industrial peace.

(8) To exploit natural resources of the country with efficiency.

(9) To create rapid industrial development environment in the country.

10. To earn foreign currency by export promotion.

(11) To operate the public enterprises on commercial basis.

EFFORTS FOR PRIVATISATION IN INDIA NOTES

steps taken by the government for privatisation can be ummed up as follows:

(1) Reduction in Number of Sectors Reserved for Sector : To encourage private sector enterprises, the numb sectors reserved for the public sector was reduced from 17 to 8 in vear 1991-92. It was reduced to 6 in the year 1993 and furth reduced to 2 sectors. Now, the private sector has been allowed enter into air transport, petroleum, power etc., the areas so far controlled by the public sector.

(2) Delicensing of Industries : In the industrial policy of 1991, 18 industries were remained under compulsory licensing but at present only 5 industries require licensing. It provide chance to the private sector to operate in economic activities freely. It also prove helpful to reduce state dominance in economic sphere.

(3) Dis-investment in Public Sector Undertakings : To initiate private sector, the government of India introduced the policy of disinvestment of the government equity in certain public sector undertakings. The disinvestment has been made by selling shares of the units to financial institutions, mutual funds and general public. In order to give thrust to the process of disinvestment, a Disinvestment Commission was set up in 1996-97. Till the end of March 2011, share of public sector worth Rs. 99,739 crore were sold.

(4) Amendment in MRTP Act: To initiate privatisation, the investment ceiling of Rs. 100 crore with regard to MRTP companies had been abolished. Moreover, it is not necessary for these companies to obtain prior approval of the Central Government for expansion of the existing undertaking.

(5) Privatisation of Public Services : The government is encouraging privatisation of public services such as supply of electricity and water, construction and maintainance of roads and overbridges, banking and insurance services etc.

(6) Development of Capital Market : Securities and Exchange Board of India (SEBI) has been established by the government to regulate Stock Exchange and to promote an orderly growth of securities market. SEBI aims at the development and regulation of securities market in the interest of investing public and healthy development of capital market.

(7) Raising Investment Cap for Foreign Financial Institutions : The government has announced to raise the investment cap for Foreign Institutional Investors from existing 40% to 49%.

(8) Policy Towards Foreign Direct Investment : The Government has permitted Foreign Direct Investment (FDI), to

Facilitate industrial growth through foreign participation, through whe automatic route for all industries except a small negative st. The time frame for consideration of FDI proposals has been reduced from 6 weeks to 30 days for communicating Government decisions.

(9 Establishment of Banks in Private Sectors: Under the policy of privatisation, private sector has been allowed to open banks. The FDI limit in private banks has been increased.

(10) Simplification of Procedures : Investment promotion and project monitoring cell has been set up by the government to provide information and guidance about licensing, tariffs, corporate laws and incentives available at state level for setting up industries.

Q.28. What do you understand by Privatisation ? Explain

the factors which affect privatisation in India.

(Meerut, 2014)

Ans. For the Meaning of Privatisation see Q.No. 27.

CAUSES OF PRIVATISATION NOTES

The main causes of privatisation may be summarised as follows:

(1) Disintegration of Socialist Economies : Most crucial sector of Russia and other socialist economies was public sector. Taking these economies as model, almost all underdeveloped countries gave excessive importance to public sector. However, public enterprises turned inefficient and proved to be the single factor responsible for the failure of these economies. Russian economy disintegrated thereafter. As a result, other economies also lost confidence in the efficiency of public sector. On the other hand, economies of USA, Japan, Germany, etc. were making rapid progress under private sector. Thus, economies of rest of the world were attracted towards market economy and private sector because ofits efficiency.

(2) Inefficient Public Sector : Management of public sector does not have the independence to take decisions. Most of the decisions of public sector enterprises are taken by the ministers. their decisions are politically motivated. Because of bureaucratic up decisions are delayed. As a result, production capacity is not fully utilised and there is fall in productivity. All these factors render public sector inefficient.

(3) Uneconomic Price Policy : Prices of public utility ces like, electricity, irrigation, transport, water, etc. are not mined on the basis of commercial principles. These are mined on the basis of political, social and other non-economic considerations. In some cases, prices are deliberately kept less than the cost of production. Consequently, public sector enterprises suffer losses. Privatisation is advocated to avoid such losses.

(4) Burden on the Government : Losses incurred by public sector enterprises are not borne by their management or any other person. Managers are therefore indifferent to profits earned or losses incurred. No attention is paid to the productivity and the efficiency of the enterprise. For reducing its economic burden government has promoted privatisation.

(5) Experience of New Industrial Nations of Asia : Industrial nations of Asia like Japan, Korea, Singapore, Hong Kong, Taiwan have achieved a faster rate of economic development with the help of privatisation. So government of other countries started thinking to adopt privatisation and to expand the area of private sector.