ECONOMIC TRANSITION IN INDIA:
PRIVATISATION AND GLOBALISATION
Privatization, which has become a universal trend, means transfer of ownership and/or
management of an enterprise from the public sector to the private sector. It also means
the withdrawal of the state from an industry or sector, partially or fully. Another
dimension of privatization is opening up of an industry that has been reserved for the
public sector to the private sector.
Privatization is an inevitable historical reaction to the indiscriminate expansion of the
state sector and the associated problems. Even in the ‘communist’ countries it
became a vital measure of economic rejuvenation.
The objects are:
• To improve the performance of PSUs so as to lessen the financial burden on
• To increase the size and dynamism of the private sector, distributing
ownership more widely in the population at large.
• To encourage and to facilitate private sector investments, from both
domestic and foreign sources.
• To generate revenues for the state
• To reduce the administrative burden on the state
• Launching and sustaining the transformation of the economy from a
command to a market model.
The important ways of privatization are:
• Divestiture, or privatization of ownership, through the sales of equity.
• Denationalization or reprivatisation.
• Contracting - under which government contracts out services to other
organizations that produce and deliver them.
• Franchising- authorizing the delivery of certain services in
designated geographical areas- is common in utilities and urban
• Government withdrawing from the provision of certain goods and services
leaving then wholly or partly to the private sector.
• Privatization of management, using leases and management contracts
• Liquidation, which can be either formal or informal. Formal
liquidation involves the closure of an enterprise and the sale of its assets.
Under informal liquidation, a firm retains its legal status even though some
or all of its operations may be suspended.
The benefits of privatization may be listed down as follows:
• It reduces the fiscal burden of the state by relieving it of the losses of the
SOEs and reducing the size of the bureaucracy.
• Privatization of SOEs enables the government to mop up funds.
• Privatization helps the state to trim the size of the administrative
• It enables the government to concentrate more on the essential state
• Privatization helps accelerate the pace of economic developments as it
attracts more resources from the private sector for development.
• It may result in better management of the enterprises.
• Privatization may also encourage entrepreneurship.
• Privatization may increase the number of workers and common man who
are shareholders. This could make the enterprises subject to more public
Some of the important argument against privatization is as follows:
• The public sector has been developed with certain noble objectives and
privatization means discarding them in one stroke.
• Privatization will encourage concentration of economic power to the
• If privatization results in the substitution of the monopoly power of the
public enterprises by the monopoly power of private enterprises it will be
• Privatization many a time results in the acquisition of national firms by
• Privatization of profitable enterprises, including potentially
profitable, means foregoing future streams of income for the
• Privatization of strategic and vital sectors is against national interests.
• There are well managed and ill-managed firms both in the public and
private sectors. It is not sector that matters, but the quality and
commitment of the management.