Meaning of Privatisation
It means a transfer of ownership, management, and control of public sector enterprises to the private sector.
Privatisation can suggest several things, including migrating something from the public sector into the private sector. It is also seldom 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 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 part of the equity of PSEs to the public is known as disinvestment.
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.
Ways of Privatisation:
Government companies are transformed into private companies in 2 ways,
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.
- 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.
However, there are six methods of Privatisation:
- The public sale of shares
- Public auction
- Public tender
- Direct negotiations
- Transfer of control of State or municipally controlled enterprises
- Lease with a right to purchase
|Multiple Choice Question:|
|Q.1 Privatisation of the public sector undertakings by selling off part of the equity of PSUs to the private sector is known as_____________.|
b. Origin of private sector
d. None of the above
|Q.2- Which of the following is the aim of Privatisation?|
|a. Providing strong momentum to the inflow of FDI
b. Improving the efficiency of PSU’s
c. Both (a) and (b)
d. None of the above
|Q.3- ______________ means transfer of ownership, management and control of public sector enterprises to the private sector.|
d. None of the above
|1-a, 2-c , 3-b|
|Important Topics in Economics:|
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Frequently Asked Questions on Privatisation
What is privatisation example?
Example: 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. However, in 2012, the government privatized liquor sales. After privatisation, private businesses could sell liquor to the general public.
What are the pros of privatisation?
The pros of privatisation are
1. Improved performance and customer experience.
2. Political does not interfere.
3. Short term outlook.
4. Encourage shareholders to invest because of return.
5. Increased competition.
6. The government will increase revenue from the sale.
What are the characteristics of privatisation?
The two characteristics of privatisation are,
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:
1. Providing strong momentum to the inflow of FDI
2. Improving the efficiency of public sector undertaking (PSU’s)
Why privatisation is important?
For any economy, privatisation is important, as it creates jobs and builds a healthy competition in the market. Privatisation works for maximizing profit by improving customer services and goods and services standard.