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 nonprofit 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 countrys 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
railways

Atomic
energy

Chemical
fertilizers

Arms and
ammunition

Hazardous
chemicals

Benefits of privatization

1.
2.
3.
4.

Improved efficiency
Lack of political interference
Short term view
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

Theprivatecompanies dont 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