Privatisation

What is Privatisation?

Privatisation is the transfer of property or company ownership from the central or State government to the private sector. The company’s right lies with an individual or a group of individuals. The privatisation process occurs when a government-owned business or company is transferred to a private party. Additionally, it also describes that the change of a company from being a publicly-traded company to being owned by an individual or group of individuals. You will learn more about this topic in this article.

Measures of Privatisation

Under the policy of privatisation, there are three main kinds of measures taken which are,

1. Ownership: This means that the rights of the public sector enterprises will be given to the private owners. The process of transfers of ownership can be partial or complete.
2. Operational: This measure aims at improving the organisation’s efficiency through the process of commercialisation. With the help of privatisation, there is an improvement in the decision-making process, provision of incentives for increasing the efficiency of the workers and the reduction of governmental control over the organisation.
3. Organisational: This means limiting the control of the State in the public companies. After the company’s transfer to private hands, the power of the State is limited.

Privatisation in India

The country was facing an economic crisis as there was a depletion in India’s foreign exchange reserves. At this time, the process of privatisation in India was introduced. This policy is aimed at helping the growth of the economy. In India, privatisation was achieved using three main ways:

1. Disinvestment: This policy was to directly sell a public enterprise to an individual or a group of people. Disinvestment allowed for private participation in industries. Third, capital expenditure reductions can facilitate the reallocation of resources to more productive areas.
2. Divestment: This is the policy of selling subsidiary assets, investments, or company divisions to private individuals. The government will be a minority stakeholder in the company.
3. Displacement: This policy aimed to reduce the deregulation in the companies in India. Private individuals will be allowed to enter and invest in the market. It sought to replace public enterprises with private enterprises.
4. Delegation: This is when the government will keep the enterprise’s ownership and the enterprise’s responsibility. However, the daily activities are handled by another company. Additionally, the State will remain an active participant in the enterprise.

Importance of Privatisation

Privatisation is an essential part of economic changes which happen in the country. Here are some of the crucial factors about privatisation:

1. It improves efficiency: The privatisation of an enterprise will enhance its efficiency. Its efficiency will improve for two main reasons, to reduce costs and improve the costs of the enterprise.
2. There is a necessity for change: The changes in the market make it necessary to bring in the difference in the company’s management. Enterprises need to make a change in their way of functioning.
3. Decreased political interference: Privatisation helps in reducing the government’s influence in the functioning of an enterprise. When it helps reduce the effect of the government, it gives power to the investors to do the best possible work. The investors can improve the quality and the quantity of the work of the enterprise.
4. Increase in competition: There is an increase in the competition in the market as more and more firms have joined the call. It has led to the rise in the economy’s service sector, like telecommunications.

Conclusion

There are many private limited companies you might have seen around you. A private party didn’t always own these companies. Before privatisation in India, these were government-owned. The privatisation process in India created a significant change in the country, as you would have learned from the privatisation article.