Meaning and forms of Privatization

Meaning and forms of Privatization

Privatization is the incidence or process of transferring ownership of a business enterprise, agency or public service from the government to the private sector. Simply speaking, privatisation means permitting the private sector to set up industries which were previously reserved for the public sector. Under this policy many Public Sector Units (PSUs) were sold to private sector.

The main reason for privatisation was that PSUs were running in losses due to mismanagement and political interference. The managers could not work independently and the production capacity remained under-utilized. To increase competition and efficiency privatisation of PSUs was inevitable. Some examples of Public Sector Enterprises recently privatlised are as follows.

i. Bharat Aluminimum Co. Ltd., (BALCO)

ii. Hindustan Zinc Ltd (HZL)

iii. Indian Petrochemicals Corporation Ltd (IPCL)

iv. Maruthi Udyog Ltd (MUl)

v. Modern Food Industries Ltd (MFIL)

India Scooters Limited - The first ever company Privatized in India

Forms of Privatization

(a) Contraction(minimisation) of public sectors: The number of industries reserved for public sector was reduced from 17 (as per 1956 policy) to only 8 industries viz, Arms and Ammunition, Atomic Energy, Coal and Lignite, Mineral oils, Mining of ores, Mining of copper, lead, zinc etc., Minerals for atomic energyand Railways.

Currently only Atomic Energy, Defence and Railways are Government monopoly industries i.e., Public sector industries in the country.

(b) Sales of shares of public sectors to the private sector: Indian Govt. started selling shares of PSUs to public and financial institution. Now the private sector will acquire ownership of these PSU’s. The share of private sector has increased from 45 % to 55 % in the year 2011 and after.

(c) Memorandum of Understanding: MoU system was introduced in 1991to raise the productivity and performances of PSUs. It strengthens the relationship between PSUs and administrative departments. The main work of MoU is to judge the PSUs and level their performance.

(d) Disinvestment in PSUs: The Govt. has started the process of disinvestment in those PSUs which had been running into loss. It means that Govt. has been selling out these industries to private sector. So disinvestment is a system of privatizing government enterprises.