Privatization – Concept, Nature & Objectives

Privatisation is one of the most debated aspects of economic reforms.

1. Meaning / Definition

Privatisation is the transfer of ownership, management or control of public sector enterprises to private sector, or allowing greater role for private sector in economic activities previously reserved for government.

Forms include sale of government equity, management contracts, leasing, etc.

2. Objectives / Features

Objectives

1. Improve Efficiency and Profitability through private management.
2. Reduce Fiscal Burden of loss‑making PSEs.
3. Encourage Private Investment and Competition.
4. Broaden Ownership Base through public shareholding.

Features

• Involves change in role of state from producer to regulator.
• Can be partial or full.
• Linked closely with liberalisation and globalisation.

3. Advantages / Disadvantages

Advantages (Merits)

• Private firms usually have strong profit and efficiency incentives.
• Can bring modern technology and management practices.
• Reduces need for budget support to sick PSEs.

Disadvantages (Demerits)

• Risk of job losses and reduced social security.
• Possibility of private monopolies in key sectors.
• Profit motive may reduce focus on social objectives.

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4. Recent Developments / Indian Context

• Post‑1991, India has adopted selective privatisation through strategic disinvestment and public offers.
• Sectors like telecom, civil aviation, power distribution etc. opened to private players.
• Government retains presence in strategic sectors, while encouraging private participation elsewhere.

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5. Quick Revision Points

• Privatisation = shift of ownership/management from public to private sector.
• Objectives: efficiency, fiscal relief, competition, wider ownership.
• Must be combined with strong regulation and social safeguards.

6. Quiz Time 🎯

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