Sunday, 29 December 2013


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 and disadvantages of privatization in this country.
Privatization is a managerial approach that has
attracted the interest of many categories of people-
academicians, politicians, government employees,
players of the private sector, and public on the
whole. As per the opinion by the subject experts,
privatization can be advantageous in terms of the
higher flexibility and scope of innovation it offers
along with cost savings, many a times. However,
other specialists defiantly debate that privatization
has an adverse impact on the employee morale and
generate fear of dislocation or termination. More
likely it also adds on to the apprehensions
pertaining to accountability and quality. Experts
both advocate and criticize privatization making it
more or less a provocative decision that calls for a
diligent scrutiny by the decision makers in
assessment of pros and cons attached to the
concerned policy 
In India, privatization has been accepted with a lot
of resistance and has been dormant initially during
the inception period of economic liberalization in
the country [8]. The article intends to analyze the
present status of privatization in India and
summarize its advantages and disadvantages in
context with the Indian Economy.

Privatization indeed is beneficial for the growth
and sustainability of the state-owned enterprises.
The advantages of privatization can be perceived
from both microeconomic and macroeconomic
impacts that privatization exerts.
A. Microeconomic advantages:
• State owned enterprises usually are outdone by
the private enterprises competitively. When
compared the latter show better results in terms of
revenues and efficiency and productivity. Hence,
privatization can provide the necessary impetus to
the underperforming PSUs .
• Privatization brings about radical structural
changes providing momentum in the competitive
sectors .
• Privatization leads to adoption of the global best
practices along with management and motivation of
the best human talent to foster sustainable
competitive advantage and improvised management
of resources.
B. Macroeconomic advantages:
• Privatization has a positive impact on the
financial health of the sector which was previously
state dominated by way of reducing the deficits and
debts .
• The net transfer to the State owned Enterprises is
lowered through privatization .
• Helps in escalating the performance benchmarks
of the industry in general .
• Can initially have an undesirable impact on the
employees but gradually in the long term, shall
prove beneficial for the growth and prosperity of
the employees .
• Privatized enterprises provide better and prompt
services to the customers and help in improving the
overall infrastructure of the country.
Privatization in spite of the numerous benefits it
provides to the state owned enterprises, there is the
other side to it as well. Here are the prominent
disadvantages of privatization:
• Private sector focuses more on profit
maximization and less on social objectives unlike
public sector that initiates socially viable
adjustments in case of emergencies and criticalities .
• There is lack of transparency in private sector
and stakeholders do not get the complete
information about the functionality of the
enterprise .
• Privatization has provided the unnecessary
support to the corruption and illegitimate ways of
accomplishments of licenses and business deals
amongst the government and private bidders.
Lobbying and bribery are the common issues
tarnishing the practical applicability of
privatization .
• Privatization loses the mission with which the
enterprise was established and profit maximization
agenda encourages malpractices like production of
lower quality products, elevating the hidden
indirect costs, price escalation etc. .
• Privatization results in high employee turnover
and a lot of investment is required to train the
lesser-qualified staff and even making the existing
manpower of PSU abreast with the latest business
practices .
• There can be a conflict of interest amongst
stakeholders and the management of the buyer
private company and initial resistance to change
can hamper the performance of the enterprise .
• Privatization escalates price inflation in general
as privatized enterprises do not enjoy government
subsidies after the deal and the burden of this

inflation affects the common man.