PRIVATISATION

PRIVATIZATION

Definition: Privatisation means the transfer of ownership, management and control of public sector enterprises to the entrepreneurs in the private sector.

Privatization implies the greater role of the private sector in the economic activities of the country. Over the years, the Indian Government has diluted its stake in several public enterprises, including IPCL, IBP, Maruti Udyog, etc.

Privatization can be done in two ways:

• Transfer of ownership and management of public sector companies from the government to the Private Sector;
• Privatization of the public sector undertakings (PSU) by selling off part of the equity of PSUs to the public. This process is known as disinvestment.

The purpose of privatization was mainly to improve financial discipline and facilitate modernization. It was also believed that private capital and managerial capabilities will help in improving the performance of the PSU’s.

Disinvestment refers to the immediate or direct sale or liquidation of assets of publicly owned enterprises to the private sector. The government adopts the disinvestment process primarily to minimize the financial burden, or to raise money for specific needs. Although in some cases, disinvestment is done to privatize the assets, not all disinvestment involves complete privatization. Following are a few advantages of the disinvestment process: 

• It enables the company or government to minimize the fiscal burden on the depository.
• It enhances the long-term growth of the company.
• It encourages private ownership of the company.
• The process of disinvestment and promoting competition in the market.