1. Business Environment (CBA21) UNIT-4
Prepared by Dr.T.S.Kumar/AP/BBA Jawahar Science College, Block14,Neyveli. Page 1 of 2
PRIVATIZATION
Privatization: Privatization can refer to the act of transferring ownership of specified property
or business operations from a government organization to a privately owned entity, as well as
the transition of ownership from a publicly traded, or owned, company to a privately owned
company. Privatization is also the process in which the government function involves
transferring ownership of the associated business processes or facilities to a company within
the private sector.
Techniques for Privatisation
1. Public offering of shares – all or parts of the shares of public limited company are
offered for sale to the public;
2. Private sale of shares – all or part of the state- owned enterprise is sold to private
individual or a group of purchasers;
3. New private investment in a state-owned enterprise – private share issues are subsidised
by the private sector or the public;
4. Entry of the private sector into public sector – private groups allowed to get into areas
reserved for the public sector, such as the power and telecommunications sectors in
India;
5. Contracting out the services and utilities to private operators or contractors for operation
and maintenance, while retaining ownership with the government. Like water supply,
sewage treatment, etc.;
6. Sale of government or state enterprises‘ assets as private sale instead of shares;
7. Reorganisation or fragmentation of subsidiary units of a company;
8. Management/employee buy-out – in which the management or the employees acquire
the controlling interest in which shares are purchased on credit extended by the
government.
Privatisation in India: In 1991, the country experienced a balance of payments dilemma
following the Gulf War and the downfall of the erstwhile Soviet Union. The country had to
make a deposit of 47 tons of gold to the Bank of England and 20 tons to the Union Bank of
Switzerland. This was necessary under a recovery pact with the IMF or International Monetary
Fund. Furthermore, the International Monetary Fund necessitated India to assume a sequence
of systematic economic reorganisations. Consequently, the then Prime Minister of the country,
2. Business Environment (CBA21) UNIT-4
Prepared by Dr.T.S.Kumar/AP/BBA Jawahar Science College, Block14,Neyveli. Page 2 of 2
P V Narasimha Rao initiated ground breaking economic reforms famously known as LPG-
Liberalisation Privatisation and Globalisation.
Privatization in India has been carried out in several stages; such as, deregulation, de
reservation, privatisation and disinvestment. The fiscal crisis of 1991 was a result of the public
sector's inability to generate adequate returns on investment. The government's attitude also
changed markedly. The New Industrial Policy, 1991, advocated privatisation of public sector
enterprises. For purposes of privatisation, the government has adopted the route of
disinvestment which involves the sale of the public sector equity to the private sector and the
public at large.
