Privatization – A Symbol Of Harbinger Or A Policy Of Retrograde


Privatization is a broader concept and its meaning is different in different countries. Privatization refers to the inducing of private sector participation in the management and ownership of public sector enterprise. In a narrow sense privatization implies induction of private ownership in state owned enterprise. It is the process of transferring ownership of a business enterprise from the public sector to the private sector which originally operates for profit.


The privatization has been considered as the global trend which started in the 1980’s to reform the loss making and inefficient public sector enterprise. In countries with many state owned enterprises privatisation is necessary for the transfer of enterprise ownership in whole or in part from state to private hands. This process is always known as denationalization and destatization.

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One of the main reasons for the need of privatization is to have the esteemed increase in efficiency that can result from private ownership and business practices. The increased efficiency is thought to come from the greater importance that the private firms make on profit maximization.


India is a mixed economy with both private sector and public sector performing various activities in accordance with regulations. But the public sector was affected by inefficiencies and incompetence in a non sustainable manner by the year 1991. The new industrial policy contained several reforms measures for the public sector. Some of them were like selling of loss making units to the private sector, inviting private participation in public sector entrepreneur and strategic sale.  In India the concept of privatization was in a unique form of accordance with the priorities of our mixed economy and as well as considering operational aspects of Public sector department in India. Privatization in country was launched mainly to enhance the efficiency of the public sector enterprise as well as to concentrate the operation of Public sector in priority areas.


The private sectors have effective policies in solving the problem of externalities through costless bargaining driven by individual incentives. When comparing with the public sector the private sector responds to the incentives in the market. On the other hand the public sector often has non- economic goals. Also the public sector is not highly driven to maximise the production and allocate resources effectively causing the government to run high cost, low income enterprises. Privatization directly shifts the focus from political goals to the economic goals which lead to the development of the market economy. Privatization has always positive impact on a country’s economic situation. One of the most noticeable feature of the privatization is the improved competitive characteristic as it provides to the enterprises who prove to be fruitful for the business as well of the country. Nevertheless, privatization contracts are generally and greatly influenced by merger variables and even global issues and are structured on the basis of manipulation of the government and the private actors along with the administering jurisdiction.


  1. As the world economy tends to be global, privatization as a policy norm seems to override political compulsions as an instrument for achieving competitive efficiency and resource optimization.
  2. Privatization is beneficial for the growth and sustainability of the state owned enterprises.
  3. To achieve an increase in the output of the country there is a need of the hour of privatization at a rapid scale which will help in improving the quality of products by reducing unit costs, curbing public spending and raising cash to reduce public debt.
  4. Privatization always help in keeping the consumer needs uppermost as it helps the government to pay their debts, it also helps in increasing long term jobs and promote competitive efficiency and open market economy. In a rapidly rising economy there is a need for the government to realign the priorities in mobilizing the skill and resources of the private sector in the larger task of the government development programme.
  5. Privatization is being to be seen as a solution towards the problem of public enterprises as these enterprises on being transferred from public to the private hands will become less politicized which as a result will help in ceasing the administration corruption. It will also help in increasing the tax revenues from profits and strengthening the public treasury. The advantages of privatization can be perceived in both microeconomics and macroeconomic impact that privatization exerts.
  6. Indian economy has tremendous growth. The economy has used to rise 3-4% of Gross Domestic Product to the growth up to 9.7%.
  7. Privatization has given ample space for creativity and innovative thinking as well as systematic and strategic planning to realise the full potential of the economy development.


  1. The concept of welfare state may be defeated with the privatization of the economy. Private sector would not care about the society as its main objective is to earn profit.
  2. Government and public sector companies work out for the social cause but in the case of the private sector they have no obligations towards to do social work.
  3. Privatization will result in the retrenchment of the employees. In private sector enterprise there is emphasis on performance which indirectly results in work pressure and meeting deadline and individuals who have been working for years may end up with the resignation of his job.
  4. Risk of short term gains is prominent in private sector. There are decisions to start ventures which result in short term benefits not in long term benefits.

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Privatization may positively affect a nation’s monetary policy. Privatization shall not be ought to be utilized to fund new government uses and pay off the future obligations. Rather privatization should empower the nation to play a part of their current obligations in the way of decreasing loan fees and raising the level of venture. By decreasing the measure of general society part the legislatures lessen to add up to the consumption and start gathering the charges on every one of the organizations that are presently privatized. Thus, one of the recognisable elements is the enhanced aggressive qualities it gives to the venture which end of being productive for the business and in addition the nation strives on the path of the development.

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Pranav Kaushal

Pranav Kumar Kaushal, Content Writter, Law Corner, Student B.A., LLB 7th Semester, School of Law, Bahra University, Shimla, Himachal Pradesh.

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