Privatisation

Meaning
Objectives
Ways of Privatisation
Advantage & Disadvantage
Examples
Privatisation in India

1. PRIVATISATION Meaning Objectives Ways of Privatisation Advantage & Disadvantage Examples Privatisation in India By- Jyoti Rastogi

2. Meaning of Privatisation It means a transfer of ownership, management, and control of public sector enterprises to the private sector . Privatization occurs when a government-owned business, operation, or property becomes owned by a private, non-government party. Note that privatization also describes the transition of a company from being publicly traded to becoming privately held. This is referred to as corporate privatization . The purchase of all outstanding shares of a publicly traded company by private investors, or the sale of a state-owned enterprise or municipally owned corporation to private investors. In the case of a for-profit company, the shares are then no longer traded at a stock exchange, as the company became private through private equity 2 Jyoti Rastogi (Assistant Professor)

3. Forms of Privatisation 3 Jyoti Rastogi (Assistant Professor)

4. Objectives of Privatisation : Providing strong momentum to the inflow of FDI Privatisation aims at providing a strong base to the inflow of FDI. Increased inflow of FDI improves the financial strength of the economy. Improving the efficiency of public sector undertaking (PSU’s) The efficiency of PSU’s was improved by giving them the autonomy to make decisions. Some companies were given a special category of Navratna and Mini- Ratna . To achieve higher allocative and productive efficiency, leading to faster economic growth and development; 4 Jyoti Rastogi (Assistant Professor)

5. Objectives of Privatisation: To strengthen the role of the private sector in the economy through job creation and economic development. To improve the public sector’s financial health by reducing the burden incurred by having to subsidize public enterprises. To free resources for use in sectors important to all Nigerians, such as education, health, housing, transportation, and other infrastructure development initiatives. 5 Jyoti Rastogi (Assistant Professor)

6. Ways of Privatisation : Transfer of Ownership Government companies can be converted into private companies in two ways : By withdrawal of the government from ownership and management of public sector companies. By outright sale of public sector companies. Disinvestment  Privatisation of the public sector undertakings by selling off part of the equity of PSUs to the private sector is known as disinvestment. The purpose of the sale is mainly to improve financial discipline and facilitate modernization. 6 Jyoti Rastogi (Assistant Professor)

7. S ix methods of Privatisation 7 Jyoti Rastogi (Assistant Professor)

8. Advantages of Privatization 1. Save taxpayers' money 2. Increase flexibility 3. Improve service quality 4. Increase efficiency and innovation 5. Allow policymakers to steer, rather than row 6. Streamline and downsize government 7. Improve maintenance 8 Jyoti Rastogi (Assistant Professor)

9. Disadvantages of Privatization 1 . Problem of Price The government usually want to sell the least profitable Enterprises, those that the private sector is not willing to buy at a price acceptable to the government. 2 . Opposition from Employees Disinvestment tends to arise political opposition from employees who may lose their jobs, from politicians who fear short-term unemployment consequence of liquidation of cost reduction by private owners, from bureaucrats who stand to lose patronage and from those sections of the public who fear that national assets are being concerned by foreigners, the rich or a particular ethnic group. 3. Problem of Finance In the developing countries under the developed capital market sometimes makes it difficult for the government to float shares and for individual buyers to finance the large purchase. 9 Jyoti Rastogi (Assistant Professor)

10. Disadvantages of Privatization 4. Independence on Government There has been an excessive Regulation and control of the private sector by the government. The  private sector has also become too much dependent on the government for meeting its imports requirement, output sale, finances, etc. This has sniffled the capacity of the private sector to stand on their own. 5 . High-Cost Economy Another problem with the private sector is that its cost, in general, are large and the price of products are unduly high. The two other factors of higher costs are the high costs of raw materials and components and the higher rate of indirect taxes 10 Jyoti Rastogi (Assistant Professor)

11. Disadvantages of Privatization 6. Concentration of Economic Power The dominance of some business groups in terms of capital and assets is an economic and social problem. The private sector operates on the principle of maximization of the Monopoly profits. It is harmful to consumers and society as a whole. 7. Bad Industrial Relations An unfortunate aspect of the private sector is the recurrence of industrial disputes which hamper the smooth progress of the industries. 8 . Ambulance Development Private sector units are influenced in those areas which are most suitable for-profit purpose. 11 Jyoti Rastogi (Assistant Professor)

12. Example of Privatisation Before 2012, In the state of Washington, before 2012, the liquor sales were controlled and operated by the government. The state-regulated when and how the liquor was sold and collected the revenue. But, in 2012, the government privatized liquor sales. After privatization, private businesses could sell liquor to the general public. Dell Inc. is an example of a company that transitioned from being publicly traded to privately held. In 2013, with approval from its shareholders, Dell offered shareholders a fixed amount per share, plus a specified dividend as a way to buy back its stock and delist. Once the company paid off its existing shareholders, it ceased any public trading and removed its shares from the NASDAQ Stock Exchange, completing the transition to being privately held. 12 Jyoti Rastogi (Assistant Professor)

13. Privatisation in India In 1991 India made some major policy changes in their economic ideologies. There were stagnation and slow growth in the economy. To tackle these problems the, then Finance Minister Dr. Manmohan Singh introduced some major economic reforms. Now, we call it the liberalization of the Indian Economy and the LPG reforms. Privatisation has a very broad meaning in economics. Everything that ranges from the introduction of private capital to selling government-owned assets to transitioning to a private economy. 13 Jyoti Rastogi (Assistant Professor)

14. Conceptualization of Privatisation in India Delegation : Here via a contract or franchise or lease or grant etc. the government keeps the ownership and the responsibility of an enterprise. But the private company will handle the daily activities and deliver the product or service. The state will remain an active participant in this process . Divestment : The government will sell a majority stake of the enterprise to one or more private companies. It may keep some ownership but will be a minority stakeholder in the enterprise . Displacement : The first step here will be deregulation. This will allow private players to enter the market. And slowly and gradually the private company will displace the public enterprise. Here the private sector will compete with public companies and ultimately outperform them, causing the public enterprise to be displaced . Disinvestment : Directly selling a portion or whole of a public enterprise to private parties. 14 Jyoti Rastogi (Assistant Professor)

15. THANKS 15 Jyoti Rastogi (Assistant Professor)