April 1, 2021


Around the globe, the transfer of state owned enterprises to the private owners has become a common economic policy tool. Also, the process in which a publicly-traded company is taken over by a few people is termed as Privatization. India went for privatization in the historic reforms budget of 1991, also known as 'New Economic Policy or LPG policy'. Privatization is considered to bring more efficiency and objectivity to the company, provide financial belief, boost wider ownership, and increase the availability of credit for the private sector. The trend toward privatization is debatable issue. Indeed, the debate between the superiority of the private and public sectors has been going on for the past four to five decades.

Privatization did not contribute to growth but helped to reduce income inequality is demonstrated by many studies. To the contrary, several economists stated that Privatization, a method of reallocating assets and functions from the public sector to the private sector play vital role for economic growth. Recently, many political systems has acquired Privatization and it is spreading to every region of the world. The process of privatization can be successful way to bring about fundamental structural change by formalizing and establishing property rights, which directly creates strong individual incentives.

A free market economy mainly depends on well-defined property rights in which people make individual decisions in their own interests.Privatization may have a positive impact on a country's economic situation. There are some major causes of Privatization which are as follows:
To reduce the burden on Government.
To strengthen competition.
To improve Public finances.
To fund infrastructure growth.
Accountability to shareholders.
To reduce unnecessary interference.
More disciplined labour force.

One of the noticeable feature of privatization is the improved competitive characteristics it provides to the enterprises which prove to be fruitful for the business as well as the country. Privatization can be categorized in to three parts:
• Delegation- Government keeps hold of responsibility and private enterprise handles fully or partly the delivery of product and services.
• Divestment- Government surrenders the responsibility.
• Displacement- The private enterprise expands and gradually displaces the government entity.

Privatization certainly is beneficial for the progress and sustainability of the state-owned enterprises. It brings about fundamental structural changes providing momentum in the competitive sectors. It leads to implementation of the global best practices along with management and motivation of the best human talent to foster sustainable competitive advantage and improvised management of resources Privatization has a positive impact on the financial growth of the sector which was previously state dominated by way of decreasing the deficits and debts. The net transfer to the State owned Enterprises is lowered through privatization. It helps in escalating the performance benchmarks of the industry in general. It can initially have an undesirable impact on the employees but progressively in the long term, shall prove advantageous for the growth and prosperity of the employees. Privatized enterprises provide better and quick services to the clients and help in improving the overall infrastructure of the country. There are many examples of privatization of companies in India such as:
Lagan Jute Machinery Company Limited (LJMC)
Videsh Sanchar Nigam Limited (VSNL)
Hindustan Zinc Limited (HZL)
Hotel Corporation Limited of India (HCL)
Bharat Aluminium Company limited (BALCO)

Privatization is overriding process to enhance productivity and competitiveness, as well as attracting foreign direct investment.

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