Privatisation

1. BY
GADHA VISWAMBHARAN
HAFSATH
HARI KUMAR
NAJIYA
NEENU

2. DEFINITION
 Privatisation means transfer of ownership and
/management of an enterprise from the public sector to
private sector.
 It also means the withdrawal of the state from an industry
or sector, partially or fully.
 Another dimension of privatisation is opening up of an
industry that has been reserved for the public sector to
private sector.

3. CONDITIONS FOR PRIVATISATION
 Liberalization and deregulation of an economy is
prerequisite if the privatisation to take place.
 Capital markets should be sufficiently developed to be
able to absorb the disinvested public sector shares.

4. OBSTACLES TO PRIVATISATION
 Government want to sell least profitable enterprises
those the private sector is not willing to buy at prices
acceptable to government.
 Disinvestment tends to arouse opposition from
employees , politicians and bureaucrats.
 Relatively underdeveloped capital market makes it
difficulty for government to float shares.

5. CONDITIONS NECESSARY FOR THE
SUCCESS OF PRIVATISATION
 Commitment of political leadership.
 There must be a multiplicity of private suppliers for
the benefit of competition to follow.
 Freedom of entry to provide goods and services.
 Public services to be provided by the private sector
must be specific or should have a measurable
outcome.
 Consumers should be able to link the benefit they
received from a service to the cost they pay for.
 Privately provided services should be less susceptible
to fraud than government services.
 Equity is an important consideration in the delivery of
public services.

6. ARGUMENTS IN FAVOUR OF
PRIVATISATION
 Increases efficiency.
 Helps government to mop up funds.
 Specialisation.
 Helps government to concentrate on essential state
functions.
 Capital.
 Better management of enterprise.
 Encourage entrepreneurship.
 Accountability.
 Better performance.

7. ARGUMENTS AGAINST PRIVATISATION
 Discards noble objectives.
 Concentration of economic power.
 Performance.
 Driven by profit motive.
 Forgoing future streams of income for government.
 No guarantee of performance.
 Vested interest behind privatisation.
 Against national interest.
 Cannot be carried out effectively in developing
countries.

8. STAGES OF PRIVATISATION
As per Prof. S.K.Goyal privatisation in India has been
carried out in following stages:
1. Deregulation.
2. Dereservation.
3. Disinvestment
4. Privatisation.

9. 1.DEREGULATION
Deregulation means removal of government rules and
regulations that constrain the operation of market
forces.
In India deregulation would imply loosening of
statutes like the IDRA 1951,MRTP act 1969,FERA 1973.

10. 2.DERESERVATION
Deregulation implies opening up of sectors reserved
for only public sector to private sector.
Now only two areas(defence production and
railways ) are under public sector.

11. 3. DISINVESTMENT
Diposal of public sector units equity in the market or in
other words selling of a public investment to private
entreprenuer.
Methods of disinvestment are Issuance of Global Depository Reciepts.
 Cross-Holding:Selling part of government’s shares in one
PSU to another PSU.
 Warehousing: Government financial institutions buying
stake in selected PSU and holding them until a third pay
emerged.
 Retaining golden share: Retaining stake upto 26% in PSU.
 Strategic sale method: selling major portion of share to a
private party and also giving management control.

12. Examples:
 Bharat Aluminum Company Limited(BALCO)
 Modern Food Industries Limited
 Videsh Sanchar Nigam Limited(VSNL)
 Hindustan Zinc Limited
 Marathi Udyog Limited(MUL)
 Lagan Jute Machinery Limited
 Hotel Corporation Of India Limited (HCI)
 Paradeep Phosphates Limited(PPL)
 Grand Ashok, Delhi and Bangalore units of ITDC
Limited

13. PRIVATISATION
Selling majority of stake of public company to private
parties.
Ways of privatisation
 Divestiture
 Denationalization
 Contracting
 Franchising
 Liquidation

14. SINS AND PITFALLS OF PRIVATISATION
 Lack of proper strategy.
 Ambiguity of objectives.
 Connivance.
 Wrong timing.
 Lack of political consensus.
 Wrong labour strategies.
 Lack of political will.
 Poor financial strategies.
 Wrong environment.
 Prevalence of monopoly elements.
 Problem of cultural change.

15. THANK YOU