PRIVATISATION

Privatisation 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 privatisation is opening up of an industry that has been reserved for the public sector to the private sector. Privatization means a change in ownership resulting in a change in management. According to the World Bank, privatisation is the transfer of ownership of State owned Enterprises (SOEs) to the private sector by sale (full or partial) of going concerns or by sale of assets following their liquidation.

PRIVATISATION AND DISINVESTMENT

These two terms are loosely used interchangeably, there is vital difference between the two. Disinvestment may or may not result in privatisation. For example ; In a company ,the Government retains 26 per cent of the shares carrying voting powers ,while selling the remaining to a strategic buyer, it would have disinvested all right but would not have privatised, because with 26 per cent it can stall vital decisions for which generally a special resolution (three-fourths majority) is required

BACKGROUND
The economies of the world are getting further integrated and interlinked. There are shifts towards lesser government involvement in the field of business. The famous quote The business of government is not to be in business by John Moore The case of U.K. in 1980s where Ms. Margaret Thatcher , the mother of all privatisation schemes ; Thatcher shored up a Conservative-led government, favored privatization rather than government expansion, led the country through the economiccrisis,

RATIONALE FOR PRIVATISATION

The reduction of political interferences in the management of the enterprises, leading to improved efficiency and productivity To reduce the burden on government. To Strengthen Competition and Efficiency . More Disciplined Labour Force To reduce problem of concentration of economic power

MODES OF PRIVATISATION
Sale of Enterprise Lease of entity( with short- term purpose) Joint Ventures

REASONS FOR PRIVATISATION

To reduce the burden on government To strengthen the competition and efficiency To improve Public Finances To Fund infrastructure growth To reduce Unnecessary interference More Disciplined labour Force

PROBLEMS OF PRIVATISATION
Ownership

to a privileged few Labourers would be at the Mercy of the Owner Price and Ignorant Factors Lack of Social Responsibility Loss of Experienced Managerial Expertise

BENEFITS OF PRIVATISATION
Reduces the fiscal burden of the State Enables the Government to collect funds. Helps the State trim the size of the administrative machinery. Enables the Government to concentrate on the essential state functions. Helps accelerate the pace of economic development. May result in better management of the Enterprises. May encourage entrepreneurship. May increase the number of shareholders and thereby distribution of wealth. In areas such as telecom and insurance, it would bring an end to the monopoly and thereby result in wider choices for consumers.

DISADVANTAGES OF PRIVATISATION

Will encourage concentration of economic power. Privatization should not result in substitution of government monopoly by private monopoly. Could result in foreign firms acquiring national firms. Privatisation of profit making public enterprises would mean foregoing future sources of income. Privatisation of strategic and vital sectors is against national interests. Capital markets of developing countries are not adequately developed for carrying out privatization. Privatisation at times is a half hearted measure and thus is not properly executed. Private sector is driven more by a profit motive than the public sector, which sees its aim as more of a social guardian providing employment and security to all.

CONCLUSION

An important fact that needs to be remembered in the context of divestment is that the equity in PSUs essentially belongs to the people. The Industrial Policy Statement 1991 stated that the Government would divest part of its holdings in selected PSEs, but did not place any cap on the extent of disinvestment. However, the Budget 1991-92 reinstated the cap of 20% for disinvestment. In 1993 the GOI set up a Committee in Disinvestment under the chairmanship of C. Rangarajan Inadequate information about PSUs has impeded free, competitive and efficient bidding of shares, and a free trading of those shares. Also, since the PSUs do not benefit monetarily from disinvestment, they have been reluctant to prepare and distribute prospectuses. This has in turn prevented the disinvestment process from being completely open and transparent. The assumption of higher efficiency, better / ethical management practices and better monitoring by the private shareholders in the case of the private sector all of which supposedly underlie the disinvestment rationale is not always borne out by business trends and facts.
The creation of PSUs originally had economic, social welfare and political objectives, their current restructuring through disinvestment is being undertaken primarily out of need of government finances and economic efficiency. Lastly, to the extent that the sale of government equity in PSUs is to the Indian private sector, there is no decline in national wealth. But the sale of such equity to foreign companies has far more serious implications relating to national wealth, control and power, particularly if the equity is sold below the correct price