Privatisation

Meaning of Privatisation

It means the transfer of ownership, management, and control of the public sector enterprises to the private sector.

Privatisation can suggest several things including the migration of something from the public sector to the private sector. It is also used as a metonym for deregulation when a massively regulated private firm or industry becomes less organised. Government services and operations may also be (denationalised) privatised. In this circumstance, private entities are tasked with the application of government plans or the execution of government assistance that had earlier been the vision of state-run companies. Some instances involve law enforcement, revenue collection, and prison management.

Privatisation of the public sector companies by selling off parts of the equity of PSEs to the public is known as disinvestment.

Objectives of Privatisation

Providing strong momentum for the inflow of FDI

  • Privatisation aims at providing a strong base for the inflow of FDI.
  • The increased inflow of FDI improves the financial strength of the economy.

Improving the efficiency of public sector undertakings (PSUs)

  • The efficiency of PSUs is improved by giving them the autonomy to make decisions.
  • Some companies were given special categories of Navratna and Miniratna.
Privatisation in India

Ways of Privatisation

Government companies are transformed into private companies in two ways.

Transfer of ownership

Government companies can be converted into private companies in the following two ways:

  • By the withdrawal of the government from the ownership and management of public sector companies
  • By the outright sale of public sector companies.

Disinvestment

  • Privatisation of the public sector undertakings by selling off parts 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 modernisation.

However, there are six methods of privatisation.

  • Public sale of shares
  • Public auction
  • Public tender
  • Direct negotiations
  • Transfer of control of enterprises that were controlled by the state or by municipalities
  • Lease with a right to purchase
Q 1. Privatisation of the public sector undertakings by selling off parts of the equity of PSUs to the private sector is known as _____________.
a. privatisation

b. origin of private sector

c. disinvestment

d. None of the above

Q 2. Which of the following is the aim of privatisation?
a. Providing a strong momentum to the inflow of FDI

b. Improving the efficiency of PSUs

c. Both (a) and (b)

d. None of the above

Q 3. ______________ means the transfer of ownership, management, and control of public sector enterprises to the private sector.
a. Liberalisation

b. Privatisation

c. Globalisation

d. None of the above

 

Answer Key
1-a, 2-c , 3-b

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Frequently Asked Questions on Privatisation

What is an example of privatisation?

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. However, in 2012, the government privatised liquor sales. After the privatisation, private businesses could sell liquor to the general public.

What are the pros of privatisation?

The pros of privatisation are as follows:

  1. Improved performance and customer experience
  2. Politics does not interfere
  3. Short-term outlook
  4. Encouragement for shareholders to invest because of returns
  5. Increased competition
  6. The government will increase the revenue from the sale.

What are the characteristics of privatisation?

The characteristics of privatisation are as follows:

  1. It limits government participation in economic activities and safeguards the private sector.
  2. It establishes economic democracy and allows private sectors to operate in economic activities freely.

What is the main aim of Privatisation?

The main aim of privatisation is as follows:

  1. Providing a strong momentum to the inflow of FDI
  2. Improving the efficiency of public sector undertakings (PSUs)

Why is privatisation important?

For any economy, privatisation is important because it creates jobs and builds a healthy competition in the market. Privatisation works for maximising profit by improving the standards of customer services and goods.

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