InternationalJournalofAdvancedSystemandSocialEngineeringResearch

ISSN22786031,
Vol3,Issue1,2013,pp1822
http://www.bipublication.com

ADVANTAGESANDDISADVANTAGESOFPRIVATISATIONININDIA
AnantKousadikarandTrivenderKumarSingh*
*JatanSwaroopPostGraduateCollege,Kayasthwada,Sikandrabad(U.P.),Distt:Bulandshar
[Received05/12/2012,Published17/01/2013]

ABSTRACT
Privatizationingenerictermsreferstotheprocessoftransferofownership,canbeofbothpermanentorlongtermleasein
nature,ofaonceuponatimestateownedorpublicownedpropertytoindividualsorgroupsthatintendtoutilizeitfor
privatebenefitsandruntheentitywiththeaimofprofitmaximization.Inotherwords,itisaroutefrompublicorstate
ownershiptoprivateplayersoragroup.Fromtheotherpointofview,itisastrategythatprovidesadvantagestoafewat
thepriceofmany.However,thisisalwayssubjectedtothecircumstancesinvolved.Inthispaper,theaimistounderstand
themajoradvantagesanddisadvantagesofprivatizationinthiscountry.
IndexTerms:Privatisation,advantages,Publicadministration.

I.INTRODUCTION
Privatization is a managerial approach that has
attracted the interest of many categories of people
academicians, politicians, government employees,
playersoftheprivatesector,andpubliconthewhole.
Aspertheopinionbythesubjectexperts,privatization
canbeadvantageousintermsofthehigherflexibility
and scope of innovation it offers along with cost
savings, many a times. However, other specialists
defiantly debate that privatization has an adverse
impactontheemployeemoraleandgenerate fearof
dislocationortermination.Morelikelyitalsoaddson
to the apprehensions pertainingto accountabilityand
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
attachedtotheconcernedpolicy[20].

In India, privatization
hasbeenacceptedwitha
lotofresistanceandhas
been dormant initially
during the inception
period of economic
liberalization in the
country [8]. The article
intends to analyze the
present status of
privatizationinIndiaand
summarize

its
advantages

and
disadvantagesincontext
with the Indian
Economy.
II.PRIMARY
FEATURESOF

as a critical tool for

Espousingmarketprinciplesbypublicpolicymakers economic policies
hasevolvedasoneoftheprominentcharacteristicsof pertaining to progress
thecontemporarypublicenterprisemanagementwhich and development of
encompasses privatization as a primary facet.developingcountries.
PrivatizationofStateownedenterpriseshasdeveloped One of the prominent
PRIVATIZATION

featureofprivatizationis
the

enhanced
competitive
characteristics

it
provides to the
enterprises which prove
tobefruitfulforthe

ADVANTAGESANDDISADVANTAGESOFPRIVATISATIONININDIA

businessaswellasthecountry.However,
privatizationcontractsaregreatlyinfluencedby
mergervariablesandevenglobalissuesandare
structuredonthebasisofmanipulationofthe
governmentandtheprivateplayersalongwiththe
administeringjurisdiction[19].PerottiandGuney
(1993)citedinAlZuhair[2],havesupported
privatizationasavitalsourcetoenhanceeconomic
enticements,magnetizebettermanagerialskillsof
theprivatesector,extendtheshareownership,
lowerthepublicborrowingsinordertosustain
sustainableservices.Shirley(1988)citedinAl
Zuhair[2],viewprivatizationasanattemptto
enhancemarketpotencies.Privatizationisan
essentiallyeffectivetoolforrestructuringand
reformingthepublicsectorenterprisesrunning
withoutsignificantaimandmissionasprivate
sectorisperceivedtobefundamentallymoreself
motivated,prolificandreliableforsuperiorquality
ofproductsandservices.Privatizationcanbeof
threeprominenttypes:
Delegation:Governmentkeepsholdof
responsibilityandprivateenterprisehandles
fullyorpartlythedeliveryofproductand
services.
Divestment:Governmentsurrendersthe
responsibility.
Displacement:
The private
enterprise
expandsandgraduallydisplacesthe
governmententity[15].
III.PRIVATIZATIONININDIA:ANOVERVIEW
PrivatizationinIndiaisstillataminimalistlevel.
Privatization byway
ofsaleofpublicsector
enterprisesisalmostnegligiblewhiledivestmentis
alsoexistentbywayofsellingofaportionof
sharesofthe31publicsectorenterprises.
Privatizationgottremendousboostbythe
introductionofneweconomicpolicyin1991that
alloweddelicensing,relaxingentryrestrictionsand
equityfunding[4].Thisheightenedthecompetition
intheindustriesthatweremonopolizedbythe
publicsectorearlier.Stateownedenterpriseswere
lackingthe finesse that private
enterprises

Anant Kousadikar and Trivender Kumar Singh

employedasthecompetitiveedge.Deregulationin
IndiawasfacilitatedbylawsliketheIndustries
(Development&Regulation)Act,1951(IDRA),
Monopolies&RestrictiveTradePracticesAct,
1969,(MRTPA),ForeignExchangeregulationAct,
1973(FERA),CapitalIssuesControlandtechnical
scrutinybytheDirectorateGeneralofTechnical
Development(DGTD)(Goyal,n.d.).Post
independence,theIndiangovernmentadopted
socialisticeconomicstrategies.Itwasin1980s,that
RajivGandhiinitiatedeconomicrestructuring.
WiththehelpofIMF,Indiangovernment
commencedasequentialeconomicreorganization.
P.V.NarasimhaRaobroughtintherevolutionary
economicdevelopmentswiththehelpofDr.
ManmohanSingh.Theresultsofthesereformscan
beassessedstatisticallybycomparingthetotal
overseasinvestmentintermsofportfolio
investment,FDIandinvestmentsfromforeign
equitycapitalmarkets.In19951996,itwas$5.3
billionascomparedto$132millionin19911992.
Thehighlightsofthereformsincludingeradicating
licenserajforallexcept18criticalsectorsfor
licensing;temperingthecontrolonindustries;
ForeignTechnologyAgreements;FDI&FII;
amendmentofMRTPAct,1969;Deregulation;
RegulationofInflation;Taxrestructuring;
encouragingoverseasbusinessrelations[11].Few
examplesofprivatizationinIndiaareLaganJute
MachineryCompanyLimited,ModernFood
IndustriesLimited,BALCO,HotelCorporationof
IndiaLimited,HindustanZincLimited,Paradeep
PhosphatesLimited,BSNLetc.
IV.GOVERNMENTOPPOSITIONTOCOMPLETE
PRIVATIZATION
Inthe1990s,thebudgetingprocessadoptedby
Indiangovernment,fiscaldeficits,andnegative
balanceofpaymentsboostedthegovernments
desireandnecessitytoextractandreleasethe
massiveinvestmentsmadeinthestateowned
enterprisesandthisledtoprivatizationinIndia.
ThispavedwayforForeignDirectInvestmentsand
liberalizationofbusinesspracticesandprotocolsas

19

ADVANTAGESANDDISADVANTAGESOFPRIVATISATIONININDIA

banking,
roadways,
well [10]. However, insurance,civil
being a socialistic aviation,postage
economy,

the andtelegraph
government has not servicesetc.
ever favored complete Mostly,bothstate
privatization for the ownedenterprises
very basic reason that andprivatelyrun
private players shall enterprisesco
enter into the existinthese
strategically important sectors.
industriesandshalluse Governmentuses
them for their own theshieldof
benefits and profit socialinterestsof
maximization[13].
theemployeesof
Expertsareoftheview thePSUsto
thatIndiangovernment camouflagethe
wronglypositioned
interestofthe
theirdisinvestment
bureaucratsand
strategybydangling politicians.
betweentheprinciples However,
andaccommodating intensified
approaches.Thoughall competitionof
politicalparties
thedelicensed
acknowledgedthe
andliberalized
doctrineofprivatization sectorshave
butalladoptedan
surelymadethe
escapistattitude
lethargicstate
towardscomplete
ownedenterprises
privatizationforsafe topulluptheir
guardingtheirvote
socksand
banks.Theyemployed sheddingthe
tacticsofvideshiand complacencyof
swadeshi,and
monopolytoface
strategieslikegettinga thecompetition
strategicpartneror
[14].
enlargetheequitybase
throughandinitial
V.ADVANTAGES
publicofferbefore
OF
divesting[10].Indian PRIVATIZATION
governmenthasbeen
Privatization
conservativein
indeed

is
allowingpartial
beneficial for the
privatizationofstrategic
growth and
sectorslikepower
sustainability of
supply,telecom,

the stateowned
enterprises. The
advantages of
privatization can
be perceived
from

both
microeconomic
and
macroeconomic
impacts that
privatization
exerts.

1. Microecon

omic
advantages
:

2 State owned
enterprises
usually are
outdone by the
private
enterprises
competitively.
When compared
the latter show
better results in
termsofrevenues
and efficiency
and productivity.
Hence,

the performance
benchmarks of
privatizationcan
providethenecessary the industry in
general[6,3].
impetustothe
underperformingPSUs 4 Can initially
have

an
[16].
undesirable
1 Privatization brings
about radical structuralimpact on the
changes providingemployees but
momentum in thegradually in the
competitive sectorslong term, shall
prove beneficial
[16].
for the growth
2 Privatization leads to
and prosperity of
adoption of the global
the employees
best practices along
[6,3].
with management and
motivation of the best 5 Privatized
human talent to fosterenterprises
sustainable competitiveprovidebetterand
prompt services
advantage

and
to the customers
improvised
and help in
management

of
improving the
resources.
overall
B.Macroeconomic
infrastructure of
advantages:
thecountry.
1 Privatization has aVI.
positive impact on theDISADVANTAGES
financial health of theOF
sector which wasPRIVATIZATION
previously

statePrivatization in
dominated by way ofspite of the
reducing the deficits
numerous
anddebts[6,3].
benefits

it
2 Thenettransfertotheprovides to the
StateownedEnterprisesstate owned
is lowered throughenterprises, there
privatization[6,3].
is the other side
3 Helps in escalating

toitaswell.Here
aretheprominent
disadvantages of
privatization:

1 Private sector
focuses more on
profit
maximizationand
less on social
objectives unlike
public sector that
initiates socially
viable
adjustments in
case

of
emergencies and
criticalities[9,1].

2 Thereislackof
transparency in
privatesectorand
stakeholders do
not get the
complete
informationabout
the functionality
of the enterprise
[9,1].
3 Privatization
has provided the
unnecessary
support to the
corruption and
illegitimate ways
of
accomplishments
of licenses and
businessdeals

Anant Kousadikar and Trivender Kumar Singh

ADVANTAGESANDDISADVANTAGESOFPRIVATISATIONININDIA

burden of this
inflation affects
amongst

the thecommonman.
governmentandprivate VII.FUTURE
bidders. Lobbying and PROSPECTSFOR
briberyarethecommon INDIA
issues tarnishing the Indian economy
practical applicability
is a dynamic
ofprivatization[1].
economy that is
1 Privatization loses showing
themissionwithwhich tremendous
the enterprise was potential of
established and profit growth.
maximization agenda Globalization,
encourages
liberalization and
malpractices like privatization are
production of lower the key strategic
quality
products, mandates for
elevating the hidden economic
indirect costs, price policies. Market
escalationetc.[9].
oriented reforms
2 Privatization resultsare sustainable
in high employeeand are gaining
turnover and a lot ofacceptance with
investment is requiredresistance to
to train the lesserprivatization
qualifiedstaffandevengoing down due
making the existingto the benefits
manpower of PSUlike enhanced
abreast with the latestefficiency
businesspractices[9]. through target
3 There can be a oriented
conflict of interest management and
amongst stakeholders disposition of
andthemanagementof public funds into
the buyer private social

and
company and initial physical
resistancetochangecan infrastructure of
hamper

the
the country.
performance of the
Privatization has
enterprise[1].
shown great
4 Privatization
outcomes in the
escalatespriceinflation development of
ingeneralasprivatized sectors like
enterprisesdonotenjoy banking,
government subsidies
insurance,
after the deal and the

telecom, power,
civil aviation etc.
However, the
lobbying in
domestic circuits
wasenfeebledby
the surprising
reversal of the
Indian economy
in present time.
Indian economy
registered an
averagegrowthof
8.5percentinthe
past four years
anditisevidence
enough

to
highlight the
potential of
privatization and
its need and
likelihoods of
privatization[12].
However, it is
disheartening to
acknowledgethat

generation of the
India is not a verystate owned
alluring destination forenterprises.Many
foreign investors.sectors wherein
Bureaucracy, redentry barriers
tapism,

politicalwere too high

hiccups, corruption arewereloosenedup
also

prominentto welcome
hindrances in theinvestments from
development of Indiaboth domestic as

as
that offers ample ofwell
skilledandcheaplaborinternational
and inadequate capital.investors. Sectors
In spite of all thethat showed
hurdles,itisaviabletotremendous
expect higher rate ofsuccess after
returns as compared toprivatization are
capital

intensiveinsurance,
industrialized countries.banking, civil
With more liberalaviation,telecom,

etc.
reforms in the making,power
future of privatizationHowever,
seemstobebrightandacomplete
salubrious flow ofprivatization is
foreign investment andstill a farfetched
even development ofdream.Inmostof
domesticprivateplayersthe liberalized
to take charge of thesectors,
struggling PSUs andgovernment
turnthemaround[17]. control is still
evident and there
VIII.CONCLUSION
is more of
Over the time, Indian
delegation or
policy makers have
joint ventures
shed their inhibitions
between public
about privatization and
andprivatesector
have formulated liberal
arefunctionallike
reforms to divest the
Maruti Suzuki
hugecapitalinvestment
etc.
in PSUs and enhance
theefficiencyandprofit
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