3.4  PRIVATISATION

Privatisation, as a concept dating back to Adam Smith in 1762, involves the shift of functions, activities, or organizations from the public sector to the private sector. This signifies a cultural shift towards marketization, competition, and efficiency in economic decision-making.

The primary objectives of privatisation are twofold. Firstly, it aims to enhance government financial composition by raising funds through the sale of enterprises or their assets and making enterprises generate internal resources from capital markets. Secondly, it seeks to improve enterprise performance by increasing efficiency, setting performance objectives, enhancing responsiveness to consumer needs, providing relief from public sector financial constraints, and allowing for greater managerial autonomy.

In favor of privatisation, proponents argue that it introduces efficiency and profitability to public sector undertakings (PSUs), reduces budgetary deficits caused by loss-making PSUs, revitalizes sick units burdening the public sector, promotes globalization and competitiveness in the international market, incorporates modern production techniques, and instills accountability and responsibility in PSUs.

However, there are counterarguments against privatisation. Critics contend that it fosters the growth of monopoly power in large business houses, leading to greater income and wealth inequalities. They argue that private enterprises may not be interested in acquiring shares of ailing PSUs, prioritize profit motives over social welfare, and avoid projects with long completion times and low profitability, such as water supply, salt production, and education for the poor. Additionally, the private sector tends to shy away from risky projects.

Privatisation measures include disinvestment, which involves the sale of government equity holdings in PSUs to private investors. This can be achieved through minority sales or strategic sales where the government offloads over 51% in a strategic sale. The government has also implemented special policies for Maharatnas and Navratnas‚ÄĒprestigious and profit-making PSUs, respectively. Maharatna PSUs include companies like Bharat Heavy Electricals Limited and Oil and Natural Gas Corporation Limited, while Navratna companies, such as Bharat Petroleum Corporation Limited and Power Grid Corporation of India Limited, receive financial and operational autonomy. The granting of Maharatna and Navratna status has led to improved performance, with some degree of privatization achieved through disinvestment. Additionally, 62 other profit-making enterprises, known as mini ratnas, have received greater autonomy from the government.

Objective Type Questions

1.What is the primary objective of privatisation in terms of government finances?

A. Reducing efficiency

B. Raising funds through the sale of enterprises

C. Increasing public sector financial constraints

D. Promoting income and wealth inequalities

Answer: B. Raising funds through the sale of enterprises

2. What is a common argument in favor of privatisation regarding public sector undertakings (PSUs)?

A. Introducing inefficiency and losses

B. Increasing budgetary deficits

C. Promoting accountability and responsibility

D. Avoiding modern production techniques

Answer: C. Promoting accountability and responsibility

3. What is a potential downside mentioned by critics against privatisation?

A. Fostering growth of monopoly power

B. Improving income and wealth distribution

C. Encouraging private sector interest in ailing PSUs

D. Prioritizing social welfare over profit motives

Answer: A. Fostering growth of monopoly power

4. What is disinvestment in the context of privatisation?

A. Government buying shares of private enterprises

B. Sale of government equity holdings in PSUs to private investors

C. Increasing public sector financial constraints

D. Promoting globalization and competitiveness

Answer: B. Sale of government equity holdings in PSUs to private investors

5. What distinguishes Maharatnas and Navratnas in the context of privatisation policies?

A. They are loss-making PSUs

B. They receive no financial autonomy

C. Maharatnas are prestigious and profit-making, while Navratnas are not

D. Both are excluded from any form of disinvestment

Answer: C. Maharatnas are prestigious and profit-making, while Navratnas are not

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