ADVANTAGES AND DISADVANTAGES
OF PRIVATISATION IN INDIA
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 and disadvantages of privatization in this country.
I. INTRODUCTION
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.
ADVANTAGES OF PRIVATIZATION
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.
DISADVANTAGES OF
PRIVATIZATION
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.
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