ADVANTAGES AND DISADVANTAGES OF PRIVATISATION IN INDIA

ADVANTAGES AND DISADVANTAGES OF PRIVATISATION IN INDIA

ABSTRACT

Privatization in generic terms refers to the process of transfer of ownership, can be of both permanent or long term lease in nature, of a once upon a time state-owned or public owned property to individuals or groups that intend to utilize it for private benefits and run the entity with the aim of profit maximization. In other words, it is a route from public or state ownership to private players or a group. From the other point of view, it is a strategy that provides advantages to a few at the price of many. However, this is always subjected to the circumstances involved. In this paper, the aim is to understand the major advantages and disadvantages of privatization in this country.

I. INTRODUCTION

Privatization is a managerial approach that has

attracted the interest of many categories of people-

academicians, politicians, government employees,

players of the private sector, and public on the

whole. As per the opinion by the subject experts,

privatization can be advantageous in terms of the

higher flexibility and scope of innovation it offers

along with cost savings, many a times. However,

other specialists defiantly debate that privatization

has an adverse impact on the employee morale and

generate fear of dislocation or termination. More

likely it also adds on to the apprehensions

pertaining to accountability and quality. Experts

both advocate and criticize privatization making it

more or less a provocative decision that calls for a

diligent scrutiny by the decision makers in

assessment of pros and cons attached to the

concerned policy 

In India, privatization has been accepted with a lot

of resistance and has been dormant initially during

the inception period of economic liberalization in

the country [8]. The article intends to analyze the

present status of privatization in India and

summarize its advantages and disadvantages in

context with the Indian Economy.

ADVANTAGES OF PRIVATIZATION

Privatization indeed is beneficial for the growth

and sustainability of the state-owned enterprises.

The advantages of privatization can be perceived

from both microeconomic and macroeconomic

impacts that privatization exerts.

A. Microeconomic advantages:

• State owned enterprises usually are outdone by

the private enterprises competitively. When

compared the latter show better results in terms of

revenues and efficiency and productivity. Hence,

privatization can provide the necessary impetus to

the underperforming PSUs .

• Privatization brings about radical structural

changes providing momentum in the competitive

sectors .

• Privatization leads to adoption of the global best

practices along with management and motivation of

the best human talent to foster sustainable

competitive advantage and improvised management

of resources.

B. Macroeconomic advantages:

• Privatization has a positive impact on the

financial health of the sector which was previously

state dominated by way of reducing the deficits and

debts .

• The net transfer to the State owned Enterprises is

lowered through privatization .

• Helps in escalating the performance benchmarks

of the industry in general .

• Can initially have an undesirable impact on the

employees but gradually in the long term, shall

prove beneficial for the growth and prosperity of

the employees .

• Privatized enterprises provide better and prompt

services to the customers and help in improving the

overall infrastructure of the country.

DISADVANTAGES OF PRIVATIZATION

Privatization in spite of the numerous benefits it

provides to the state owned enterprises, there is the

other side to it as well. Here are the prominent

disadvantages of privatization:

• Private sector focuses more on profit

maximization and less on social objectives unlike

public sector that initiates socially viable

adjustments in case of emergencies and criticalities .

• There is lack of transparency in private sector

and stakeholders do not get the complete

information about the functionality of the

enterprise .

• Privatization has provided the unnecessary

support to the corruption and illegitimate ways of

accomplishments of licenses and business deals

amongst the government and private bidders.

Lobbying and bribery are the common issues

tarnishing the practical applicability of

privatization .

• Privatization loses the mission with which the

enterprise was established and profit maximization

agenda encourages malpractices like production of

lower quality products, elevating the hidden

indirect costs, price escalation etc. .

• Privatization results in high employee turnover

and a lot of investment is required to train the

lesser-qualified staff and even making the existing

manpower of PSU abreast with the latest business

practices .

• There can be a conflict of interest amongst

stakeholders and the management of the buyer

private company and initial resistance to change

can hamper the performance of the enterprise .

• Privatization escalates price inflation in general

as privatized enterprises do not enjoy government

subsidies after the deal and the burden of this

inflation affects the common man.