The transfer of a business, industry or service from the public to private ownership and control is termed privatization. The government will no longer be the owner of the entity or business. so stock of the company is no longer traded in the stock market and the public is restricted from holding stake in such a company.
Types of privatization:
Delegation: Here via a contract the government keeps the ownership and the responsibility of an enterprise. But the private company will deliver the product or service.
Divestment: The government will sell a majority stake of the enterprise .It keeps some ownership but will be a minority stakeholder in the enterprise.
Displacement: This will allow private parties to enter the market. And slowly the private company will displace the public enterprise by outperforming. causing the public enterprise to be displaced.
Disinvestment: Directly selling a portion or whole of a public enterprise to private parties.
Pros of privatization:
Private companies always have a better incentive than public companies. The employee income is related to the performance of the company.
In a public company, there is a lot of political interference. Where as this isn’t the case in a private company .
In public companies, the government can only think about the upcoming elections. So their goals may be short-term in the process of trying to gain Favours of the voting public. But a private company does not have such restrictions. They have long-term goals and ambitions and steer the company in the right direction.
Privatization will also increase competition in the market. Healthy competitiveness is always good for an economy.
In recent times ,the governments all over the world including India are trying to privatize the public sectors. The main motto was to increase the efficiency ,productivity ,customer satisfaction, reducing the government’s burden. The finance minister had expressed bold resolve towards aggressive privatization of central public sector enterprises (CPSEs) with disinvestment targets announced in the last two budgets—₹2.1 lakh crore in 2020–21 and ₹1.75 lakh crore in 2021–22.It is well known that our governments use the revenue to catch up the debt. The Indian government sold its flag ship air India to the tata group for a $2.4billon.
There has also been a trend in market ,The company which is going to be privatized gets a market hike .This is due to the anticipation of efficiency improvement. Does privatization serve the public interest .some part of the public are having the nightmares of near future. They are worried can they afford the goods, services due to Capitalistic ideas. Privatization may lead to massive unemployment. There are some examples from developing countries where, divested assets were acquired by foreigners, who diverted the majority of their profits outside the country. So, there may be scenarios where there are no real benefits to the economy. so the governments shouldn’t term privatization as a mere option and should develop more strategic alternatives instead.
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