2. MEANING
In simple term, it means to change from public to private ownership
or control or transfer of assets and service functions from public to
private hands.
âIt is a process that reduces the involvement of the state or the public
sector in the nationâs economic activitiesâ.
(Prof. D.R. Pendse)
3. OBJECTIVES
īŧ To enhance the efficiency of PSUâs
īŧ To curtail the revenue deficits
īŧ To strengthen industrial development of economy
īŧ To help raise competition and make optimum use of resources
īŧ To help reduce economic burden of government
īŧ To improve public finances
īŧ To fund infrastructure growth
īŧ To make more disciplined labour force
īŧ To help make them more accountable to shareholders
4. ADVANTAGES
ī It can provide necessary push to underperforming PSUs.
ī It brings out fundamental structural changes providing momentum
in the competitive sectors.
ī It leads to implementation of global best practices along with
management and motivation of best human talent.
ī It helps in escalating the performance benchmark of the industry in
general.
ī It provide better and quick services to the clients.
ī It help in improving overall infrastructure of the country.
5. DISADVANTAGES
ī It mainly focuses more on profit maximization and less on social objectives.
ī There is a lack of clearness in private sector and stakeholders as do not get
the complete information about the functionality.
ī It intensifies price inflation in general as they do not get government
subsidies.
ī There can be conflict of interest among stakeholders and the management of
the buyer private company.
ī Initial resistance to change can impede the performance of the enterprise.
ī Privatization loses the mission with which the enterprise was established.
ī It has provided the unnecessary support to the corruption and unlawful ways
of accomplishments of licenses and business deals amongst the government
and private bidders.
7. 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.
9. Initial Public Offering-
Under this method, the
shares of public sector
undertakings (PSUs) are
sold to the retail
investors and
institutions. The
government may, in
some cases, sell shares
of a PSU in international
market also.
Strategic sale- In this
method, the government
sells its share in the PSU
to a strategic partner.
As a result, the
management passes
over to the buyer.
Sale to Foreigner- This
is a variant of the
strategic sales method
where the buyer is not a
domestic company but a
foreign company. In
small countries, the
amount of domestic
private capital is often
limited. Therefore the
government sells its
stakes to a foreign
company.
Management-
Employment Buyout- In
this route to
privatisation,
managements and
employees themselves
buy major stakes in
their firms. This method
has been; widely used in
Croatia, Poland,
Romania, and Slovenia.
11. DEREGULATION
īThe process of deregulation was initiated in the mid-1970âs as a follow up
of the recommendations of a series of committees .
īIn 1985 and 1986 major relaxations were allowed through broad banding,
partial delicensing, re-endorsement of capacities, enlargement of the list of
industries open for MRTPA/FERA companies, exempting MRTPA companies
from the obligation of seeking approval under the MRTP Act.
īThe statement on IPR, 1991and other measures announced during the year
marked acceleration of the trends towards deregulation and an enlarged
scope for large private Indian and foreign capital.
īIPS 1991 virtually abandoned the industrial licensing system under the IDRA,
removed restrictions on large industrial houses under the MRTP Act and
dispensed with the general ceiling of 40 per cent on foreign equity under
FERA.
12. DERESERVATION
īąIPS 1991 announced a number of important steps with regard to the
public sector.
īąThe areas reserved for the public sector under Schedule A to the
Industrial Policy Resolution, 1956 were reduced, initially from
seventeen to eight, and later to four.
īąSchedule B in which public sector was to play the lead role was
entirely dispensed with to enable greater private sector participation
and to provide competition to the PSEs.
īąFollowing the dereservation of public sector reserved areas, a number
of local and foreign companies received approvals for entry into the
energy and telecommunication sectors.
13. DISINVESTMENT
īDivestment of government-held equity to:
âĸ strategic/joint venture partners through open bidding or negotiated settlement;
âĸ financial institutions (foreign, public sector and mutual funds); or
âĸ general public;
īPromotion of joint ventures for further expansion or through transfer of
certain existing units/operations;
īEntering into management contracts with private professional groups or
entrepreneurs;
īNomination of private individuals on Board of Directors of PSEs even
when their equity is insignificant; and/or
īContractualization of operations.
Editor's Notes
The Monopolies and Restrictive Trade Practices Act, (MRTPA) was enacted in 1969. The Foreign Exchange Regulation Act, 1973 (FERA) sought to limit the level of foreign equity in Indian companies at 40 per cent. Industries Development & Regulation Act, 1951 (IDRA),