Definition

Privatization occurs when a government-owned business, operation, or property becomes

owned by a private, non-government party. Note that privatization also describes the
transition of a company from being publicly traded to becoming privately held. This is
referred to as corporate privatization. Privatization describes the process by which a piece of
property or business goes from being owned by the government to being privately owned. It
generally helps governments save money and increase efficiency, where private companies
can move goods quicker and more efficiently. Critics of privatization suggest that basic
services, such as education, and those sectors which can face a challenge of monopoly
should not be subjected to market forces.
Privatization of specific government operations happens in a number of ways, though
generally, the government transfers ownership of specific facilities or business processes to
a private, for-profit company. Privatization generally helps governments save money and
increase efficiency.
In general, two main sectors compose an economy: the public sector and the private sector.
Government agencies generally run operations and industries within the public sector. In the
U.S., the public sector includes the U.S. Postal Service, public schools and universities, the
police and firefighter departments, the national park service, and the national security and
defense services. Enterprises not run by the government comprise the private sector. Private
companies include the majority of firms in the consumer discretionary, consumer staples,
finance, information technology, industrial, real estate, materials, and healthcare sectors.

Public-to-Private Privatization vs. Corporate Privatization

Corporate privatization, on the other hand, allows a company to manage its business or
restructure its operations without the strict regulatory or shareholders' oversight imposed on
publicly listed companies. This often appeals to companies if the leadership wants to make
structural changes that would negatively impact shareholders. Corporate privatization
sometimes takes place after a merger or following a tender offer to purchase a company’s
shares. In order to be considered privately owned, a company cannot get financing through
public trading via a stock exchange. Dell Inc. is an example of a company that transitioned
from being publicly traded to privately held. In 2013, with approval from its shareholders,
Dell offered shareholders a fixed amount per share, plus a specified dividend as a way to
buy back its stock and delist. Once the company paid off its existing shareholders, it ceased
any public trading and removed its shares from the NASDAQ Stock Exchange, completing
the transition to being privately held.

Objectives of Privatization

Improved efficiency

State-run companies are predominantly influenced by political intentions rather than

economic well-being. It hinders the efficiency of public sector companies and prevents
growth. Privatization deters government influence and aids economic growth. As private
bodies do not have a political agenda, they focus more on spurring growth and efficiency
within an organization for a greater generation of revenues.
Increased Competition

State-run companies enjoy a monopoly and remain undisturbed by competition in the

market. Privatization, accompanied by deregulation of the market, allows the private sector to
engage more actively and encourages competition. The competition will, in turn, accelerate
overall industrial and economic growth and protect the market against monopolistic
sluggishness.

Promotes Market Dynamism:

Privatization liberates the economy from state control. Without government regulations
dictating market progression, the market operates organically. Due to a lack of government
interference, the market becomes more dynamic and follows integral economic values of
demand and supply. Consumer response to a more dynamic and organically run market is
greater and generates higher revenues.

Revenue from the Sale of a Company

A primary objective of privatization is a one-time revenue generation for the government.

Several governments have previously resorted to privatization when facing a fiscal crisis.

Impact

India has a mixed economy in which both Private and Public Sectors exist especially in the areas
of Banking, Telecom, Road Transport, Education, Healthcare, Manufacturing, Education among
others. Many Business analysts and experts on Economy are of the view that privatization could
speed up economic growth with the increase in competition while number of them find that the
privatization could bring more problems like unemployment taking the economy backwards due
to its inherent issues. Reigniting this age-old debate, on February 24, Prime Minister Narendra
Modi said, “Government has no business to be in business”.
So, should India opt for privatization or continue with the current system, is a burning discussion
topic in view of the various steps taken in different sectors. Whether the move will benefit the
country or will not be feasible needs to be discussed. Given the importance of this topic, B-
schools have included this topic in their Group Discussion and Extempore rounds. The key facts
about the topic and important points of discussion which can be presented during GD round are
shared below.

“When public sector enterprises were started in the country, the time was different and the needs
of the country were also different. The policy that was right for 50-60 years ago, there is always
room for improvement. Today when we are doing these reforms, our biggest goal is to use public
money properly.

There are many public sector enterprises that are making losses. Many of these have to be
supported by taxpayer’s money. In a way, which is the right of the poor, it is the right of the
youth filled with aspiration, that money has to be used in the work of these enterprises and due to
this the economy also has a lot of burden. Public Sector Enterprises do not have to run only
because they have been running for so many years, they have been someone's pet project. Public
Sector Enterprises are fulfilling the needs of a particular sector, are connected with a strategic
importance, then I can understand the need and also understand its need.
It is the responsibility of the government to give full support to the enterprises of the country, to
the businesses, but the government itself should run the enterprises, to remain its owner, in
today's era it is neither necessary nor has it been possible. That's why I say - Government has
no business to be in business. The government's focus should be on projects related to the
welfare and development of the people. More and more government's power, resources and
capacity should be used for welfare work. At the same time, when the government starts
doing business, there is a lot of damage.

There are many restrictions before the government in the decision process. The government lacks
the courage to take commercial decisions. Everyone is afraid of all kinds of charges and court.
And because of this, there is a thought that what is going on let it go, I have a lot of limited time.
Whoever comes after me will see. Therefore, it does not take a decision as it moves.

Business cannot happen with such thinking; you also know well. Another aspect of this is that
when the government starts doing business, the scope of its resources is reduced. The government
does not have a shortage of excellent officers, but their training would have been mainly to run
the governance systems, follow the policy-making rules, to emphasize the work of public welfare,
to formulate the policies required for them and in these things. And their mastery is also there.
Because for a long time in life, they have come forward while doing this type of work among
people. This work is very important in such a big country.

But when the government starts doing business, it has to be removed from these tasks and to take
such promising officers to this side. In a way, we do injustice to his talent, injustice to that public
sector enterprise. As a result there is loss of that person, loss of that enterprise. And so it hurts the
country in many ways in a way. Our government's effort is to improve the standard of living of
the people, besides reducing the government's unnecessary interference in people's lives. That is,
there should be no lack of government or influence of government in life.

Today the country has a lot of underutilized and un-utilized assets under the control of the
government. With this thinking, we have announced the National Asset Monetisation Pipeline.
We have targeted to monetize around 100 such assets like oil, gas, port, airport, power. Of these,
investment opportunities of 2.5 trillion rupees are expected. And I will also say that this process
will continue. The mantra that the government is moving forward with is Monetise and
Modernize.

Adverse Impact

 No Welfare State: The concept of welfare state may get defeated with the Privatization
of economy. Private sector would not care about the society as its main objective is to
earn profits.
 Less Social Development: Government or Public sector companies also keep doing
social work simultaneously. In case privatization happens, it will result in fewer funds for
society because private companies have no obligation to do social work.
 Unemployment: Privatization will also result in retrenchment of employees. In private
sector enterprises there is emphasis on performance which indirectly results in work
pressure and meeting deadlines or targets and individuals who have been doing work for
years without much pressure find it difficult to adjust to new setting and many end up
resigning from their service.
 Long Term Risk: Risk of short-term gains is prominent in private companies. There are
decisions to start ventures which result in short term benefits but may not be good for
long term.