Privatisation

Introduction

Privatisation refers to the transfer of a function, activity or an organisation from public to private sector. It indicates the emergence of a new culture in the economy in which decision-making is based on guiding principles of marketisation, competition and efficiency. The two broad objectives of privatisation in India were:

    Improving the government’s financial position

    Improving the performance of government enterprises

The policy of privatisation has both been appreciated and criticized. The arguments in favour of privatization are:

    It helps to increase the managerial efficiency.

    It will impart greater flexibility in the decision-making process.

    It helps to create a competitive environment.

    It helps in infusing commercial spirit in the functioning of an enterprise

The arguments against privatization are:

    Private sector works for profit maximisation and not for the purpose of social welfare.

    It leads to monopolistic exploitation by the large private owner.

    It may give rise to corrupt practices, like bribery.

    It generates the fear of retrenchment and consequent unemployment.

The main features of the policy of privatisation in India are:

    Policy of dereservation

    Policy towards sick public sector undertakings

    Policy for navratnas and miniratnas

    Memorandum of understanding (MOU)

    Voluntary retirement scheme (VRS)

    Disinvestment policy

The two main methods adopted by the government for disinvestment are:

    Minority Sales: In this method, equity is offered to investors through domestic public issue.

    Strategic Sales: In this method, the government sells a major portion of its stake (51% & above) to a strategic buyer together with the management control.

The measures needed for effective implementation of disinvestment policy are:

    The programme of disinvestment needs to be transparent so as to avoid any possibility of sale of public sector enterprises at lower prices.

    The funds raised through the disinvestment policy should be used to reduce public debt and to restructure the other public sector enterprises.

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  • Q1

    Consider the following statements and identify the Wrong one.

    Marks:1
    Answer:

    The implementation of the policy of privatisation has closed the doors for corruption.

    Explanation:

    The implementation of the policy of privatisation has open the doors for corruption. There is a possibility of undervaluation of assets of the public sector units to favour the private sector. In many cases privatisation is identified with ‘briberisation’.

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  • Q2

    BALCO stands for ____________.

    Marks:1
    Answer:

    Bharat Aluminium Company Ltd.

    Explanation:

    BALCO stands for Bharat Aluminium Company. It was a cash-rich public sector company which was sold to Sterlite group in 2001 because of being heavily undervalued.

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  • Q3

    Among the following points identify the one that supports Privatisation

    Marks:1
    Answer:

    Improvement of Marginal Efficiency

    Explanation:

    Improvement of Marginal Efficiency: Privatisation is supported as a means of improving marginal efficiency. It removes the marginal inefficiency of public sector enterprises that arises due to political intervention.

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  • Q4

    UK became champion of privatisation under the leadership of __________.

    Marks:1
    Answer:

    Mrs Margaret Thatcher

    Explanation:

    UK became champion of privatisation under the leadership of Mrs Margaret Thatcher. It sets the motion of privatisation of state-run enterprises by transferring British Airways to private sector.

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  • Q5

    Transfer of ownership reflects policy of _________.

    Marks:1
    Answer:

    privatisation

    Explanation:

    Privatisation policy leads to transfer of ownership of public sector enterprises from government to private sector.

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