Paragraph on Privatisation (501 Words)

Paragraph on Privatisation!

Privatisation generally means the transfer of ownership and/or management of an enterprise from the public sector to the private sector.


It also means the withdrawal of the State from an industry or sector, partially or fully. Privatisation, as an economic policy has been gathering momentum throughout the world since 1980.

More than 8,500 States owned enterprises have been privatised in over 80 countries of the world, during the period 1980-1992. This trend is gathering ground even in socialist and communist countries to make the economy market oriented.

The fundamental reason for the reversal of policy from nationalisation to privatization is the growing disappointment with the functioning of the public sector undertakings and State owned enterprises. Since 1970, the trend has been reversed and privatization gathered ground by selling State owned enterprises. The privatization also introduced in England, Argentina, Brazil, Germany, France, Italy, Japan, Mexico, Spain, and Bangladesh. The other countries like India have deregulated or liberalized the industrial sector in various grounds.

The performance of public enterprises or State owned enterprises was far from satisfactory in several countries including India. Consequently, the burden of carrying the State owned enterprises had to be borne by the public through government budgets and also increase in external debt. The heavy financial burden imposed on the public due to the failures of State owned enterprises and the growing public discontent about their inefficiency, indifference, irresponsibility and corruption made the governments over the issue and think in terms of privatization.


Prof. Samuel has pointed three important factors, which were the results of unbridled state expansion of economic activities. They are:

1. Economic inefficiency in the production activities of the public sector, with high cost of production, inability to innovate, and costly delays in delivery of the goods produced,

2. Ineffectiveness in the provision of goods and services and failure to meet the intended objectives and also diversion of benefits to elite group of citizens, and

3. Rapid and unreasonable expansion of the bureaucracy, causing severe strain in the public budget and also labour relations, leading to gross inefficiency and retardation of economic growth.

All these have led many governments to undertake programmes of public sector reforms to revitalize the economy by curbing public expenditure and revitalize the industrial structure by shifting their activities to private sector.

Ways of Privatisation:

Privatization has been undertaken in a number of both developed and developing countries, and has taken one or more of the following forms:

1. Divestiture, i.e., the sale of equity in full or part of public sector units to private companies and individuals.

2. Denationalization of the nationalized enterprises and their sale to the original or new owners.

3. Franchising of public sector services to designated private sector units.

4. Licensing of technology of public sector units to private enterprises on annual royalty linked to output. ,

5. Privatization of management in which the government retains ownership but management is entrusted to private hands through lease or management contracts.

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