Mittal Shruti; International Journal of Advance Research and Development

(Volume3, Issue7)
Available online at: www.ijarnd.com

Positive impact of privatization on Indian economy

Shruti Mittal
Student, Indore Institute of Law, Indore, Madhya Pradesh

ABSTRACT
Privatization in generic terms refers to the process of transfer of ownership, can be of both permanent or long-term lease in
nature, of a once upon a time state-owned or public owned property to individuals or groups that intend to utilize it for private
benefits and run the entity with the aim of profit maximization. In other words, it is a route from public or state ownership to
private players or a group. From the other point of view, it is a strategy that provides advantages to a few at the price of many.
However, this is always subjected to the circumstances involved. In this paper, the aim is to understand the major advantages
of privatization in this country.

Keywords— Privatization, Indian economy, Impact

1. INTRODUCTION [1]
Privatization is an administrative approach that has pulled in light of a legitimate concern for some classes of individual’s
academicians, lawmakers, government workers, players of the private part, and open all in all. According to the sentiment of the
subject specialists, privatization can be invaluable as far as the higher adaptability and extent of advancement it offers alongside
cost investment funds, numerous a times. In any case, different experts disobediently banter about that privatization adversely
affects the worker confidence and create dread of separation or end. More probable it likewise includes to the anxieties relating to
responsibility and quality. Specialists both supporter and reprimand privatization making it pretty much a provocative choice that
requires a persevering investigation by the leaders in the appraisal of advantages and disadvantages joined to the concerted
strategy. In India, privatization has been acknowledged with a considerable measure of obstruction and has been lethargic at first
amid the initiation time of monetary advancement in the nation. The article plans to dissect the present status of privatization in
India and condense its focal points and burdens in setting with the Indian Economy.

Privatization [2] is a fluffy idea. It covers an extensive variety of thoughts, projects, and strategies. In the wide feeling of the term,
privatization is moving back from the state in the lives and exercises of native and fortifying the part of business sectors. In the
tight sense, privatization is exchange of possession from the general population to the private segment, or exchange of control
over resources or exercises as on account of privatization through renting, where proprietorship is held, leaving the administration
of benefits and movement to private gatherings. It might be noticed that privatization changes the part of the state, and not really
lessens it. The observing and control of the privatized framework talked about later, is a mind-boggling and troublesome
employment. The state likewise has the grave obligation of guaranteeing that an important rivalry wins in the privatized areas of
the economy, and the powerless segments of the general public are not unduly antagonistically influenced. In India, because of
functional reasons, the administration has reliably utilized the word 'disinvestment', notwithstanding when it implied privatization.
Organizations set up for the intention are entitled Disinvestment Commission and Department of Disinvestment.

2. RESEARCH METHOD
The research method I have used is completely doctrinal in which I have examined the whole judicial activism and I am going to
explain every point in a much-prescribed manner. This research method is completely original and does not in any way intents to
plagiarise.

3. LITERATURE REVIEW
Data has been collected from books, articles, magazines, blogs, and online sources.

4. MAJOR CAUSES OF PRIVATIZATION

Major causes of privatization are as following:
- To reduce the burden on Government
- To strengthen competition
- To improve Public finances
- To fund infrastructure growth
- Accountability to shareholders
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 Mittal Shruti; International Journal of Advance Research and Development
- To reduce unnecessary interference
- More disciplined labor force.

The private sector has effective policies in solving the problem of externalities, through costless bargaining, driven by individual
incentives. According to the Coase Theorem, individual parties will directly or indirectly take part in a cost-benefit analysis,
which will eventually result in the most efficient solution (Mankiw, 2001).

When compared with the public sector, the private sector responds to incentives in the market. On the other hand, the public sector
often has non-economic goals. The public sector is not highly driven to maximize production and allocate resources effectively,
causing the government to run high cost, low-income enterprises. Privatization directly shifts the focus from political goals to
economic goals, which leads to the development of the market economy (Poole, 1996). The downscaling aspect of privatization is
an important one since bad government policies and government corruption can play a large, negative role in economic growth
(Easterly, 2001). Through privatizing, the role of the government in the economy is condensed, thus there is less chance for the
government to negatively impact the economy (Poole, 1996). [3]

Privatization may have a positive impact on a country's economic situation. Privatization should not be used to finance new
government expenditures and pay off future debts. Instead, privatization enables countries to pay a portion of their existing debt,
thus reducing interest rates and raising the level of investment. By reducing the size of the public sector, the government reduces
total expenditure and begins collecting taxes on all the businesses that are now privatized. This process can help bring an end to a
vicious cycle of over-borrowing and continuous increase of the national debt (Poole, 1996).

Nations around the world have adopted different methods of privatizing state assets depending on the initial conditions of the
country's economy and the economic principles of the political party in charge.

The major method of privatization is the sale of state-owned enterprises to private investors. The state would simply decide which
institutions should be privatized and through the use of the market mechanism, private investors are able to buy shares of each
organization. The advantage of this method of privatization is that it creates badly needed revenues for the state while putting
privatized firms in the hands of investors who have the incentives and the means of investing and reformation.

Another method of privatization is called voucher privatization. The government universally distributes vouchers to its eligible
citizens, which can be sold to other investors or exchanged for shares in other institutions being privatized. Although this method
does not create profits for the state, it does privatize state-owned firms in a short period of time.

Next method of privation is called internal privatization, also known as "employee or management buyout". State-owned
enterprises are sold to managers (for an extremely low price) who are already familiar with the particular firm and its structure,
but there are minimal revenues created for the state. This method creates some incentives but the incentives are much stronger
when firms are sold to strategic investors. Furthermore, new owners often do not have the resources to invest and restructure,
which is badly needed in a large percentage of state-owned firms in underdeveloped countries (Stirbock, 2001).

One of the noticeable features of privatization is the improved competitive characteristics it provides to the enterprises which
prove to be fruitful for the business as well as the country. Nonetheless, privatization contracts are greatly influenced by merger
variables and even global issues and are structured on the basis of manipulation of the government and the private actors along
with the administering jurisdiction. [4]

5. ECONOMIC GROWTH AND PRIVATIZATION IN INDIA

Indian economy is a major and quickly developing economy – both as far as the offer in the worldwide populace and additionally
as far as its creation structure and size. India dwells in excess of one billion populace now and it makes one-6th of the total
populace. As far financial advance is concerned, now India positions among a couple of quickest developing economies in the
world. We would first be able to take a gander at the example of monetary development in India since 1951. The example of
financial development in India has been very inquisitive and its understanding will help us in taking the story forward.
Development example of the Indian economy has been since the 1950s when India began taking its own particular autonomous
financial choices in the wake of getting freedom from the British run in 1947. We can find that the development example of the
Indian economy has not been exceptionally smooth. It has been exceptionally uneven as can be seen that there is plainly a gap
between a significant lot of the financial development in India where 1980-81 appears to have turned into a genuine defining
moment as before that there has been more uneven and moderate monetary execution. In any case, since 1980-81 there has been
an upward pattern with better execution quantitatively and additionally subjectively. It can be seen for national salary and
additionally for the per capita wage. [5]

Private ventures can take quick choices, make opportune speculations, draw in the best ability, and so on. These things can
guarantee an opportune enlistment of new innovation, enhance aggressiveness, a wide decision/better cost/esteem/benefit for the
shopper and so forth. So once the effectiveness and speed of the procedures increment, Economy will blast, However,
Governments need to guarantee that:

•There is sufficient rivalry in the market

•There is no cartelization or restraining infrastructure
•Proper Regulatory instrument
•Incentivize innovation advancement, generally, individuals search for just here and now benefit expansion.
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 Mittal Shruti; International Journal of Advance Research and Development
6. POSITIVE IMPACT
Privatization may positively affect a nation's monetary circumstance. Privatization ought not to be utilized to fund new
government uses and pay off future obligations. Rather, privatization empowers nations to pay a part of their current obligation, in
this way decreasing loan fees and raising the level of the venture. By decreasing the measure of general society part, the
legislature lessens add up to consumption and starts gathering charges on every one of the organizations that are presently
privatized. This procedure can help convey a conclusion to an endless loop of over-acquiring and ceaseless increment of the
national obligation.

One of the recognizable element of privatization is the enhanced aggressive qualities it gives to the ventures which end up being
productive for the business and in addition the nation. In any case, privatization contracts are incredibly affected by merger factors
and even worldwide issues and are organized based on control of the legislature and the private on-screen characters alongside the
regulating ward.

6.1 Privatization can be arranged in three sections

- Delegation: Government keeps hold of obligation and private undertaking handles completely or somewhat the conveyance of
item and administrations.
- Divestment: Government surrenders the obligation.
- Displacement: The private venture extends and continuously dislodges the administration element.

Privatization surely is useful for the advance and maintainability of the state-claimed endeavors. The upsides of privatization can
be evident from both microeconomic and macroeconomic effects that privatization applies.

6.2 Microeconomic focal points

- The state claimed undertakings, for the most part, are beaten by the private endeavors intensely. At the point when looked at
the last mentioned, it demonstrates better outcomes as far as benefits and effectiveness and profitability. In this manner,
privatization can give the vital push to the failure to meet expectations PSUs.
- Privatization realizes major auxiliary changes giving force in the aggressive areas.
- Privatization prompts usage of the worldwide accepted procedures alongside administration and inspiration of the best human
ability to encourage feasible upper hand and ad-libbed administration of assets.

7. MACROECONOMIC PREFERENCES
Privatization positively affects the monetary development of the division which was beforehand state commanded by a method for
diminishing the shortages and obligations.
- The net exchange to the State possessed Enterprises is brought down through privatization.
- It helps in raising the execution benchmarks of the business when all is said in done.
- It can at first undesirably affect the workers yet continuously in the long haul, will demonstrate profitable for the development
and thriving of the representatives.
- Privatized endeavours give better and speedy administrations to the customers and help in enhancing the general framework of
the nation. [6]

8. PRIVATIZATION IS THE NEED OF THE HOUR

 As the world economy has a tendency to wind up one town, privatization as an approach standard seems to abrogate political
impulses as an instrument for accomplishing focused effectiveness and asset upgrade.
 Privatization is gainful for the development and maintainability of the state-possessed undertakings. Following the pattern of
privatization over the world, the Indian government in the 1990s likewise presented privatization in the midst of clamor from
a large number of the political and social gatherings.
 To achieve a development in the yield of the country there is a prerequisite for privatization at a quick scale which will help
in improving nature of the things by decreasing unit costs, checking open spending and fund-raising to reduce open
commitment.
 Privatization reliably helps in keeping the purchaser needs most astounding, it empowers the assemblies to pay their
commitments, it helps in growing whole deal vocations and advances centered capability and open market economy. In a
rapidly rising economy like India, there is a prerequisite for the council to realign its needs in enacting the aptitudes and
resources of the private territory in the greater endeavor of the change.
 Nowadays privatization is being seen as an answer towards the issues of open ventures as these undertakings on being traded
from the all-inclusive community to the private hands will end up being less politicized which in this manner will help in
halting the administrative degradation. It will in like manner help n extending the obligation livelihoods from benefits and
fortifying general society treasury. The upsides of privatization can be seen from both small-scale monetary and
macroeconomic impacts that privatization applies.
 Indian economy has a huge potential for development. The economy which used to ascend at 3-4% of GDP had consistently
enlisted rising development to 9.7% after the presentation of changes.
 Privatization will give adequate space for imaginative and creative reasoning and also orderly and vital intending to
understand the maximum capacity of the economy [7].

9. CONCLUSION [8]
Privatization may positively affect a nation's monetary circumstance. Privatization ought not to be utilized to fund new
government uses and pay off future obligations. Rather, privatization empowers nations to pay a part of their current obligation, in
© 2018, www.IJARND.com All Rights Reserved Page | 112
 Mittal Shruti; International Journal of Advance Research and Development
this way decreasing loan fees and raising the level of the venture. By decreasing the measure of general society part, the
legislature lessens add up to consumption and starts gathering charges on every one of the organizations that are presently
privatized. This procedure can help convey a conclusion to an endless loop of over-acquiring and ceaseless increment of the
national obligation.

One of the recognizable element of privatization is the enhanced aggressive qualities it gives to the ventures which end up being
productive for the business and in addition the nation. In any case, privatization contracts are incredibly affected by merger factors
and even worldwide issues and are organized based on control of the legislature and the private on-screen characters alongside the
regulating ward.

10. REFERENCES
[1] www.bipublication.com
[2] shodhganga.inflibnet.ac.in
[3] int.search.tb.ask.com
[4] www.civilserviceindia.com
[5] www.scribd.com
[6] SUPRA NOTE 1
[7] theenglishmania.in
[8] www.preservearticles.com

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