PRIVATISATION
Privatisation means allowing the private sector to set up more industries in the areas that were originally reserved for public sector.
It means a transfer of ownership, management, and control of public sector enterprises to the private sector.
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OBJECTIVES OF PRIVATISATION
1. To realize higher allocative and productive efficiency, resulting in faster economic process and development;
2. To strengthen the role of the private sector in the economy through job creation and economic development;
3. To enhance the general public sector’s financial health by reducing the burden incurred by having to subsidize PEs.
4. For the globalization of domestic Industries.
5. To invite foreign capital.
6. To earn foreign currency through export promotion.
7. To take advantage of the natural resources of the country with efficiently.
8. To emerge wide public ownership on the economic resources of the corporate country.
9. To create an environment for rapid industrialization.
10. Accord priority to the Welfare activities by the government.
11. To operate public enterprise on commercial basis.
12. To free the government from The Loss-making Enterprises.
13. To protect the industrial peace.
WAYS OF PRIVATISATION
Following methods can be used to privatise a company:
1. Public auction- In this share of a public company or any other long-term assets that are owned by the government are auctioned.
2. Sales of shares- Equity shares of a public sector company or undertaking can be sold through stock exchanges for privatisation.
3. Direct negotiations- In this government enters into dealing with specific private bodies. These are more beneficially to both the participating bodies.
4. 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 offers procures it.
Bidders may be required to negotiate the transfer agreement before submitting their bids and to accompany their bids with a signed copy of the agreement.
In this way, the seller avoids the risk of a post-tender negotiation on issues not addressed in the tender document.
5. Lease with a right to purchase- Under this a private company only assumes possession and usage of a state-run company or undertaking by meeting certain criteria.
PROS OF PRIVATISATION
1. Improved efficiency- The main argument for privatisation is that private companies have a profit incentive to cut costs and be more efficient.
5. Lease with a right to purchase- Under this a private company only assumes possession and usage of a state-run company or undertaking by meeting certain criteria.
PROS OF PRIVATISATION
1. Improved efficiency- The main argument for privatisation is that private companies have a profit incentive to cut costs and be more efficient.
2. Lack of political interference- It is argued governments make poor economic managers. They are motivated by political pressures rather than sound economic and business sense.
3. Short term view- A government many think only in terms of the next election. Therefore, they may be unwilling to invest in infrastructure improvements which will benefit the firm in the long term because they are more concerned about projects that give a benefit before the election.
4. Shareholders- It is argued that a private firm has pressure from shareholders to perform efficiently.
Increased competition- increase in competition that can be the greatest spur to improvements in efficiency.
DISADVANTAGE OF PRIVATISATION:-
1. Natural monopoly- Privatisation would just create a private monopoly which might seek to set higher prices which exploit consumers.
2. Public interest-There are many industries which perform a crucial public service, e.g., health care, education and conveyance. In these industries, the profit motive shouldn’t be the first objective of firms and therefore the industry.
It is feared privatising health care would mean a greater priority is given to profit instead of patient care.
3. Education levels may become lower- Problem with the privatization of education facilities is that only children from rich parents would get the opportunity for good education while the general public might not be ready to afford this type of education for his or her kids.
4. Public companies may be sold too cheap to private corporations-In many cases, private corporations and investment funds know way better how to negotiate and what a company is worth compared to public servants who are going to be liable for selling those companies to non-public corporations.
3. Education levels may become lower- Problem with the privatization of education facilities is that only children from rich parents would get the opportunity for good education while the general public might not be ready to afford this type of education for his or her kids.
4. Public companies may be sold too cheap to private corporations-In many cases, private corporations and investment funds know way better how to negotiate and what a company is worth compared to public servants who are going to be liable for selling those companies to non-public corporations.
In turn, this might also cause a state where public companies are sold at a quite cheap price.
Consequently, this will be considered to be quite bad for the taxpayer and thus , selling those companies at a rather cheap price might not be within the interest of the general public
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