Privatization means the transfer of ownership or management of an enterprise from the public sector to the private sector. Privatization is a process in which government dominance is reduced in all economic activities.
The term privatization refers to any shift in activity from the public to the private sector.
They could involve merely the introduction of private capital or management enterprise into a public sector activity.
But more typically, it involves the transfer of ownership of public enterprises to the private sector.
Thus, Privatization is a process in which the private sector is involved in the ownership and management of the public sector or transfer of ownership and management in the private sector and economic democracy is been established by reducing government control in economic activities.
Features of Privatization
Following are the basic features of privatization in points:
1. New Concept
Privatization is a new concept that has emerged in the last two decades.
2. Universal Concept
The concept of privatization has emerged not only in India but it has developed all over the world. Countries like USA, UK, Japan, India, etc. Has adopted this ideology.
3. Wide Concept
It is a wise idea. It involves not only the transfer of the public sector to private hands but it limits government involvement in the economic activities and protects the private sector.
4. Economic Democracy
It is a means of establishing economic democracy.
It provides the chance to the private sector to operate in economic activities freely.
Privatization is a process which goes on continuously.
It cannot be completed in a certain period. It is a process that takes its shape slowly.
6. Private Sector in Place of Public Sector
The private sector is being developed in place of the public sector in the process of privatization.
7. Reduction in State Dominance
It is a process in which state dominance is reduced in the economic sphere.
The privatization is based on the assumption that the private sector is more efficient in the management and control of an enterprise than the public sector.
9. New Strategy
It is a new strategy to face the challenges emerged in the economic sphere recently.
In the process of privatization, the private sector takes the task of economic development of the country.
10. Wide Area
Privatization is a wide concept.
It involves various activities such as denationalization, decontrol, deregulation, economic liberalization.
Scope of Privatization
Privatization covers the different type of measures and techniques as discussed below:
1. Ownership Measures
The set of measures that transfer ownership of public Enterprises, fully or partially, lead to privatization.
The higher the proportion of transfer of ownership to the individual Cooperative or corporate sector, The greater is the degree of privatization.
This can be taken in three forms:
(1). Total Denationalisation
It implies a complete transfer of ownership of a public Enterprise in the private hands.
(2). Joint Venture
It implies the partial introduction of private ownership.
The range of private ownership depends upon the nature of the enterprise and government policy in this regard.
It implies the sale of assets to someone who may use them for the same purpose or some other purpose depending upon the preference of the buyer.
(4). Management Buyout
It is a special version of denationalization. It implies the sale of assets to the Employees.
For this purpose, appropriate provision of loans from the banks, it also made to enable employees to take over ownership.
The employees may form a Cooperative to run the Enterprise.
Related: 20 Types of Entrepreneurship (Explained).
2. Organizational Measure
Following are the organizational measure to Limit state control:
(1). Holding Company
A holding company structure may be changed in such a way that the government limits its control intervention to Apex level decisions and leaves the operating companies within the arrangement to a sufficient degree of autonomy in decision-making within the framework of market forces.
A public enterprise while retaining Ownership may lease out to a private bidder for a specific period for use.
The government ensures the right of obtaining profits as per our agreement, on the other hand, tenure ownership is expected to lead to improve efficiency or lower the cost of operation.
To being public sector enterprises under market discipline, it would be desirable to go in for two forms of restructuring:
- Financial restructuring can be affected in the sense that accumulated losses are written off and capital composition is rationalized in respect of debt-equity ratio.
- The basic restructuring may be affected by redefining the set of commercial activities which the enterprise will undertake henceforth.
3. Operational Measures
These measures are intended to improve the efficiency of the organization, even when full denationalization has not been undertaken.
They, in fact, inject the spirit of commercialization in public Enterprises.
The measures include grant of autonomy to public enterprises in decision-making, for the provision of incentives to blue-collar as well as White-Collar employees consistent with increasing efficiency or productivity, freedom to acquire certain inputs from the market by a system of “Constructing” instead of producing them within the enterprise, development of proper investment criteria, etc.
Objectives of Privatization
It has been observed that the public sector has failed in the optimal use of national resources.
The private sector may succeed in the optimum use of resources by maintaining efficiency.
Following objectives has been observed behind the process of privatization in the world:
- To improve the operational efficiency of Public Enterprises.
- To develop competitive efficiency in the industries.
- To generate resources for a deficit budget.
- For the globalization of domestic Industries.
- To invite foreign capital.
- To earn foreign currency through export promotion.
- To exploit the natural resources of the country with efficiency
- To emerge wide public ownership on the economic resources of the company country.
- To create an environment for rapid industrialization.
- Accord priority to the Welfare activities by the government.
- To operate public enterprise on commercial basis.
- To free the government from The Loss-making Enterprises.
- To protect the industrial peace.
- Privatization: Features Scope Objectives.