PRIVATIZATION

“The transfer of public assets, operations or

activities to private enterprise”.
 MEANING

• Privatization is the process of transferring

ownership of a business, enterprise, agency,
public service or public property from the
public sector to the private sector.
• The business that operates for a profit or non-
profit organization.
 WHY PRIVATIZATION?

• To reduce government involvement in

commercially viable activities
• Increase efficiency in the delivery of programs and
services
• Provides competition in market place which
transfers the lower price and greater choice for
the consumers.
 Variations in privatization

1. Private sector choice for the production of a

services
Entire responsibility transferred from public to private

2. Public sector choice financing with private

sector operations
joint activity of public & private

3. Deregulation of private firms

Govt. reduces or eliminates the regulatory imposed on
private.
 Methods of privatization

Main methods:
• Share issue privatization
» selling shares on the stock market.

• Asset sale privatization

» selling entire organization to a strategic investor by
auction.

• Voucher privatization
» distributing ownership to all for free or at lower cost.
Sub methods:
• Contracting out:
» Production of service by private firm under a contract.
» Under this scenario, the private sector firm is paid
directly by the government

Example:
collection of disposal waste
Other things include security services, data processing
services
• Franchising:
» Government awarding a rights to perform services within
a specific geographic area to a private firm
» The private firm generates revenue by collecting user
fees

Example:

Cable television, gas etc..

• Open competition:
» many private firms are allowed to compete for customers
within a governmental jurisdiction.
» It is not appropriate for some services as it most likely
would not be efficient to have multiple suppliers of
electricity, gas, or water service.

Example:
 It typically seen telephone and internet provider
 Some of the examples of privatization

• Toll roads, bridges and airport:

A significant developments in public private
partnerships is the lease of toll roads, bridges, and
tunnels by state and local governments to private
contractors.
these kinds of deals have previously occurred in Europe
and Australia
Government could not do in 50 add years, privatization
did in just 4-5 years.
The result is we have a great highways and airports.
• Ports:

Mundra port in gujarat has bacame a highly eficient

and well managed major port in 10 years
When compared to the kandla in mumbai working as
port for more than 50 years.
Banking:

ICICI bank is the country’s largest private bank in

second place after the SBI
SBI existing in more than 100 years on the other hand,
 Six industries which are not reserved for private sector

Cigarette
Indian Atomic
railways energy
Chemical
Arms and
fertilizers Hazardous
ammunition
chemicals
 Benefits of privatization

1. Improved efficiency
2. Lack of political interference
3. Short term view
4. Increased competition
 Improved efficiency

• Private company have a profit incentives to

cut costs and be more efficient.
• government run industry, managers do not
usually share in any profits, however, a
private firm is interested in making profit and
so it is more likely to cut costs and be
efficient.
Example:
British airways
 Lack of political interference

• Government companies can be motivated by

political pressures rather than sound
economic and business sense.
Example:
a state enterprise may employ surplus
workers which is inefficient.
 Short term view

• A government many think only in terms of

next election.
• they may be unwilling to invest in
infrastructure improvements which will
benefit the firm in the long term because they
are more concerned about projects that give a
benefit before the election.
 Increased competition

• policies to allow more firms to enter the

industry and increase the competitiveness of
the market.
• increase in competition that can be the
greatest spur to improvements in efficiency
• For example, there is now more competition
in telecoms and distribution of gas and
electricity.
 Disadvantages of privatization

• Investment in industries of comfort and

luxurious products instead of necessary
products and problem of optimum use of
capacity
 Disadvantages of privatization

• Aims at making profit which adversely

affect the interest of the community
 Disadvantages of privatization

• The private companies don’t like to have their

branches in ruler cities.
• Their services remain confined to cities where
sufficient clients are available.
• Problem of unemployment
THANK YOU

BY
HARIPRIYA.D
MBA