Privatisation

PRIVATISATION
Meaning of Privatisation
It means the transfer of ownership, management, and control of the public
sector enterprises to the private sector.Privatisation can suggest several
things including the migration of something from the public sector to the
private sector.. Government services and operations may also be
(denationalised) privatised. In these circumstances, private entities are
tasked with the application of government plans or the execution of
government assistance that had earlier been the vision of state-run
companies. Some instances involve law enforcement, revenue collection,
and prison management.Privatisation of the public sector companies by
selling off parts of the equity of PSEs to the public is known as
disinvestment.
OBJECTIVES OF Privatisation
(i) Improving the financial condition of the government.
(ii) Raising funds through disinvestment.
(iii) Reducing the workload of the public sector.
(iv) Increasing the efficiency of the government undertakings.
(v) Providing better goods and services to consumers.
(vi) Bringing healthy competition within an economy.
(vii) Making way for foreign direct investment (FDI).
 Methods of Privatization
There are mainly five methods to privatize a company. These are
–
Public Auction: Public auctions are held with the motive of
raising the highest amount for a government-owned property.
Shares of a public company or long-term assets can be
auctioned through this route.
Sale of Shares: Equity shares of a public sector company or
undertaking can be sold through stock exchanges for
privatization. The state hands over complete authority of an
organization’s economic activities through a public sale of
shares.
Direct Negotiations: When the government enters into
dealings with specific private bodies for carrying out the
privatization of state-owned property, it is called ‘direct
negotiation’. Direct negotiations are potentially more beneficial
for participating bodies as both the seller and purchaser are
present and agree on necessary and advantageous stipulations.
Public Tender: It refers to a contract issued to attract offers
from interested procurers. A tender is essentially like an auction
where the bidder with the most lucrative offer procures it. The
process that follows public tender for the privatization of
government property is similar to direct negotiations. Except in
direct negotiations, there are already selected purchasers who
can participate in the dealing. In a public auction, there are no
such provisions.
Lease with a Right to Purchase: Under this method, a private
company only assumes possession and usage of a state-run
company or undertaking by meeting certain criteria. The private
company can later choose to exercise the option to convert the
lease of a property to ownership by paying the necessary sum
and following certain stipulations.
Advantages of Privatization
Improved Performance: Private companies are profit-
incentivized rather than politically motivated. Privatization,
therefore, allows companies to become more efficient by
eliminating unnecessary elements within an organization like
overwhelming bureaucracy & red tape. Moreover, private
companies assess their employees based on their performance
and adequately incentivize better performance. This factor
spurs overall performance in an organization.
Better Customer Service: As private companies are profit-
driven and function in a competitive market, their primary focus
rests on efficient customer service. State-run companies lack
this feature as they face no competition and are not financially
motivated. Furthermore, customer service is enhanced in
privatization due to the elimination of unnecessary bureaucratic
hassle.
Improved Management: Privatization enhances management
of a company. As managers of a privately-owned organization
are accountable to the company’s owners, it becomes their
responsibility to ensure efficient management. This factor of
accountability is less intense in public sector companies which
results in poor and inefficient operations that may ultimately
harm the economy.
Disadvantage of Privatization
Issues of Regulating Monopolies: The private sector can
manipulate their monopoly and neglect social costs.
Privatization of certain state industries such as water and
electricity regulators may create only single monopolies.
Unassured Success: Privatization is unassured in terms of the
success rates of any individual unit, due to which many private
sector companies suffer huge losses.

Privatisation

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PRIVATISATION

(i) Improving the financial condition of the government.

(ii) Raising funds through disinvestment.

(iii) Reducing the workload of the public sector.

(iv) Increasing the efficiency of the government undertakings.

(v) Providing better goods and services to consumers.

(vi) Bringing healthy competition within an economy.

(vii) Making way for foreign direct investment (FDI).

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