Privatization is very important aspect of a developing economy as it improves the efficiency and profitability of Public Sector Enterprises.

1. PRIVATIZATION
Presented by- Shashi Pratap
Singh

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.
“It is a process that reduces the involvement of the state or the public
sector in the nation’s economic activities”.
(Prof. D.R. Pendse)

3. OBJECTIVES
 To enhance the efficiency of PSU’s
 To curtail the revenue deficits
 To strengthen industrial development of economy
 To help raise competition and make optimum use of resources
 To help reduce economic burden of government
 To improve public finances
 To fund infrastructure growth
 To make more disciplined labour force
 To help make them more accountable to shareholders

4. ADVANTAGES
 It can provide necessary push to underperforming PSUs.
 It brings out fundamental structural changes providing momentum
in the competitive sectors.
 It leads to implementation of global best practices along with
management and motivation of best human talent.
 It helps in escalating the performance benchmark of the industry in
general.
 It provide better and quick services to the clients.
 It help in improving overall infrastructure of the country.

5. DISADVANTAGES
 It mainly focuses more on profit maximization and less on social objectives.
 There is a lack of clearness in private sector and stakeholders as do not get
the complete information about the functionality.
 It intensifies price inflation in general as they do not get government
subsidies.
 There can be conflict of interest among stakeholders and the management of
the buyer private company.
 Initial resistance to change can impede the performance of the enterprise.
 Privatization loses the mission with which the enterprise was established.
 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.

6. Types
Delegation Divestment Displacement

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.

8. Methods
Initial Public
Offering (IPO)
Strategic sale
Sale to
Foreigners
Management-
Employment
Buyout

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.

10. STAGES OF PRIVATIZATION IN INDIA
Deregulation Dereservation Disinvestment

11. DEREGULATION
The process of deregulation was initiated in the mid-1970’s as a follow up
of the recommendations of a series of committees .
In 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.
The 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.
IPS 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
IPS 1991 announced a number of important steps with regard to the
public sector.
The 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.
Schedule 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.
Following 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
Divestment of government-held equity to:
• strategic/joint venture partners through open bidding or negotiated settlement;
• financial institutions (foreign, public sector and mutual funds); or
• general public;
Promotion of joint ventures for further expansion or through transfer of
certain existing units/operations;
Entering into management contracts with private professional groups or
entrepreneurs;
Nomination of private individuals on Board of Directors of PSEs even
when their equity is insignificant; and/or
Contractualization of operations.