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Privatization: Meaning, Features, Scope, Objectives

Meaning
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.

Privatization is a process in which government dominance is reduced

in all economic activities.

Thus, Privatization is a process in which private sector is involved in

the ownership and management of 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 Privatisation
Following are the basic features of privatization:

1. New Concept

Privatisation is a new concept which 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. The 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 public sector to

private hands but it limits government involvement in the economic
activities and protects the s private sector.

Thus, it involves a large number of activities such as reduce

government shares then economic sector the d expansion of the
private sector.

4. Economic Democracy

It is a mean of establishing economic democracy. It provides the

chance to the private sector to operate in economic activities freely.

5. Process

Privatization is a process which goes on continuously. It cannot be

completed in a certain period. It is a process which 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.

8. Assumption

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 Privatisation
Privatization covers the different type of measures and techniques as
discussed below:

1. Ownership Measures

The set of measures which 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.
(3) Liquidation
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.

2. Organisational 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.

(2) Leasing
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.

(3) Restructuring
To being public sector enterprises under market discipline, it would be
desirable to go in for two forms of restructuring:
(1) 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.

(2) 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
Following objectives has been observed behind the process of
privatization in the world:

1. To improve the operational efficiency of Public Enterprises.

2. To develop competitive efficiency in the industries.
3. To generate resources for a deficit budget.
4. For the globalization of domestic Industries.
5. To invite foreign capital.
6. To earn foreign currency through export promotion.
7. To exploit the natural resources of the country with efficiency
8. To emerge wide public ownership on the economic resources of
the company 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
14. Privatization: Meaning, Features, Scope, Objectives

22 Advantages and Disadvantages of Privatization (Economics)

July 26, 2018 Leave a Comment

Privatization is a process in which private sector is involved in the

ownership and management of 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.

22 Advantages and Disadvantages of Privatization

Privatization benefits society in several ways. The fact that
privatization and important strategy of economic rejuvenation of even
the Communist Nations is a testimony to the economic role of
privatization.

Advantages of Privatisation
The arguments or advantages of privatization maybe be as:

1. Financial Resources

The main advantage of privatization is to generate financial resources

for the government in order to generate resources disinvestment of
public sector enterprises.

2. Optimum Utilisation of Resources

It has been observed that the public sector has failed in the optimal
use of national resources. The private sector may success in the
optimum use of resources by maintaining efficiency.
3. Fostering Competition

Most of the public Enterprises enjoy the status of monopoly. It results

in inefficiency and losses. Privatization creates a situation of
competition for public Enterprises and they are forced to improve their
efficiency.

4. Reduce Fiscal Burden

Privatization reduces the fiscal burdenof the state by relieving it of the

losses of the public enterprise and reducing the size of the
bureaucracy.

5. Economic Democracy

Privatization helps to control government Monopoly. It helps to attract

more resources from the private sector. It emerges economic
democracy by private participation in Economics sphere.

6. Better Industrial Relations

Privatization may increase the number of workers and the common

man who are shareholders. This could make the Enterprises subject
to more public vigilance.

7. Reduction in Political Interferences

The process of privatization reduces political interferences in the

public sector enterprises by giving more representation to the private
sector in the management of Public Enterprises. 

8. Reduction in Bureaucracy

Public Enterprises become synonyms bureaucracy. They can be

made from bureaucracy by the process of privatization.

9. More Productivity

The private sector can improve productivity by maintaining efficiency

in its operations.
10. Economical

The process of privatization maintains the economy in the operations,

whereas the operations of public Enterprises are costly.

11. Individual Motivation

The success of private sector resides in the profit

motive. Privatization motivates the managers to make efficiency in the
operations of the enterprise so that I can earn more and more profits. 

Disadvantages of Privatisation
The process of privatization is facing the following problems:

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.
4. Improper Working

The main disadvantage of the private sector is that it has

fallen much short of what this sector is capable of or
what it has achieved in some other countries. The private
sector is not interested in cost reduction and quality
production. 

There are again many unfair practices in which many

businesses indulge in often resulting in the generation of
black money and corruption. There is the little flowering
of genuine entrepreneurship with can innovate and dare
into new products and new processes.

5. Independence on Government

There has been an excessive Regulation and control of

the private sector by the government. This has prevented
and competition from becoming a generalized
phenomenon of the economy.

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.

6. 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. Barring a small proportion of companies which are
efficient and show good profitability ratio, many are
insufficient.

The cost of production in large part because of the poor

technology and partly because of the poor management.
The two other factor of higher costs are the high costs of
raw materials and components and the higher rate of
indirect taxes.

7. Concentration of Economic Power

The private sector emerges Monopoly and the

concentration of economic power in the hands of few.
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.

8. Bad Industrial Relations

An unfortunate aspect of the private sector is the

recurrence of industrial disputes which hamper the
smooth progress of the industries. For a number of
years, there have been larger than in the public sector.

The harmful consequences are obvious work stoppages

leading to the nation utilization of capital equipment, idle
labor, wastage of Manpower, loss of production, law and
order problems etc.
9. Widespread Sickness

The private sector Industries such as Textiles,

engineering, Chemicals, iron, and steel and people are
suffering from the problems of industrial sickness. These
industries are facing continues losses. It adversely
affects the industrial environment.

10. No Guarantee of Success

Privatization is not a guarantee of the success of an

individual unit. It has been observed that many private
sector units make huge losses.

11. Ambulance Development

Private sector units are influenced in those areas which

are most suitable for profit purpose. It results in the
concentration of individual units in a few areas. Thus,
privatization will be harmful to balance economic
development.