Chapter - Iii: Privatization: Meaning and Concepts
Chapter - Iii: Privatization: Meaning and Concepts
Chapter - Iii: Privatization: Meaning and Concepts
3.1 Introduction.
3.2 Privatization - A Conceptual Analysis.
3.3 Privatization - Macro Dimensions.
3.4 Privatization - Micro Dimensions.
3.5 Conclusion
References.
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3.1 Introduction:
The decades of 1960s and 1970s were largely attributed to the era of
fast growing public enterprises almost the world over. Public Enterprises
were then considered the chief source of attaining socio-economic
development. However, with the passage of time, this very concept has
come under severe attack because of lack-lustre performance (physical and
financial both). In the latter part of the decade of 80's and with the onset of
the decade of 90's, the word competition has gained currency in every walk
of business activities. Many countries of the world adopted vigorous reform
programmes through liberalization, delicencing and privatization of public
sector enterprises. Among them 'privatization' is the 'buzz' word every
where in the world under the shade of competition and efficiency. In the
succeeding paragraphs, an extensive analysis as regards the concept of
privatization is presented.
There are various methods which are used for transferring public
enterprises to private sectors. The succeeding paragraphs in this chapter
make a comprehensive conceptual analysis of the privatization process.
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ownership, greater accountability and providing the companies an access to
domestic and international capital market.'Privatization can generally be
defined ' as any measure resulting in the transfer from the public to the
private sector of ownership or control over assets or activities'.*
functioned concerned.
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i. Load shedding or Transfer of defaults,
ii. Limited Government Arrangements,
iii. User charges and
iv. Competition.
The first technique urges that if the objectives of the public enterprises
are not achieved and justified, then the private sector should come ahead and
take the responsibility of the state socio-economic systems and to satisfy
the needs of the people by ensuring better performance in the form of
higher profitability, improved productivity and efficiency. This technique is
termed as load shedding or transfer by default technique.
The third technique, i.e. User charges refer to such arrangement that
are taxed on all services provided, including private as well as government
controlled agencies. Thus, user can compare between the cost and quality of
services provided by the private and public enterprises.
The last technique is ' competition. There is a common belief that the
competition is the key factor of achieving better performance of both the
sectors i.e. private and public. Privatization makes a situation where both
the sectors compete with each other as a result, the services extended to the
users become effective and qualitative.
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According to D.R. Pendse" Privatization, in broader spectrum includes:
i. Divestiture.
ii. Denationalization.
iii. Relaxation in Industrial Policy Resolution.
iv. Closure or liquidation of any State Owned Enterprises.
V. Leasing of a State-Owned Enterprise to a private sector party.
vi. Transfer of management and control of SOEs to a Private Sector
individual or agency,
vii. Abandoning or postponing the prospects of state, expand or diversify
the activities of SOEs, and
viii. Farming out to private contractors or agencies the function of supplying
various goods and services needed by the SOEs.
iv. Employing private contractors for supplying various goods and services
needed by the public enterprises.
vi. Cold privatization - any measrue which distances the public enterprise
from the government.
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power from the public sector to the private sector.
From the analysis of above definitions, it can be observed that all three
experts have expressed almost the same view regarding the process of
privatization which can be applied successfully.
Ramanadham '^ has opined that the best answer to the issue of
privatization is to take the necessary steps to improve the efficiency of
public enterprises by making suitable changes in the management structure
and their relationship with the government and parliament. Steps should be
taken to replace the civil service culture by commercial culture in public
enterprises.
Vi-
which can not be viable may be closed down or sold off or restarted as private
enterprises."
iv. The private provision of services, allowing the private sector to provide
services to the public.
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iii. Privatization of Denationalization : It is the most important and
undisrupted form of privatization which involves the selling of shares
of Public Enterprises (PEs) partly or wholly to the private investors.
In the first step, it could be started with 20 to 30 per cent public as well
as Financial Institutions leading to 51 per cent government holding or more.
This may be called a government majority enterprise.
Thirdly, this is partly similar to GCE, but only to the extent that the
government holding here also is 26 per cent. But in the balance 74 per cent,
25 per cent may be given to one 'partner'. This partner could be a successful
well-managed private firm. The operational management could be left with
the Private Partne. Government will have control will benefit from the
profitability and share value appreciation.
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on privatization, such as:
The term privatization can be defined from two points of view - first,
at the economy level (i.e. Macro view and second, at the enterprise level
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(i.e. Micro view).
1. Ownership measures.
2. Organization measures.
3. Operational measures.
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(iv) Joint Venture: Joint venture denotes that private capital may
be introduced in a public enterprise either through a sale of some
government equity or in the course of its expansion.
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3. Operational Measure: It is very important and meaningful measures
of privatization which is appropriate for both planned and mixed
economy. It has seven dimensions:
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The micro economic measures of privatization is shown in chart - 1.
Privatization is transfer of ownership and control of State Owned Enterprises
(SOEs) to the private sector through sale of assets. The main objective of
privatization is to transfcT ownership and control of economic activities from
the public sector to the private sector market. 'The market sector is based on
competition, voluntary transactions, and private property rights'".
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o
o
en
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3.5 Conclusion:
References:
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7. Johnson, G.W. and Heilman, J.G., " Metapolicy Transition and Policy
Implementation: New Federalism and Privatization," Economic Impact,
Nov. - Dec. 1987, Quoted from Ahmed Momtazuddin, op.cit. p. 117.
9. Slev H.Haukeg (ed) " Prospect for Privatization." New York, 1987,
p.2.
15. Sammuel Paul, "Privatization and the Public Sectors," Financial and
Development, Dec. 1985, IMI p . 42.
16. Ibid.
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Economic Impact, 1987, p.6.
29. Ibid.
31. Ibid.
32. Ibid
33. Ibid.
34. Ibid.
36. Ibid.
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