5 Marks Each

Question

What is privatization? State the factor which led to privatization and explain the favorable effects of privatization on the Indian economy.

Vidyadip · Accepted Answer

Privatization:
The transfer of control and management of public sector enterprise to private sector or say, the process of passing on the ownership and management of public sector unit to private firms is called privatization.Privatization in India:

When India became independent, its economic condition was very bad. To grow the economy rapidly it was important that large scale industries be set-up. However, the private sector was not ready to invest in heavy industries fearing lesser and slower returns against heavy investment.
So, the government decided to encourage public sector industries. Government had a vision that public sector would help in creating necessary infrastructure in the nation for other industries, trade and commerce.
With all these factors and visions, production of goods and services through public sector enterprises started in India. Government gave prime importance to public sector in its various five year plans.
After $1991,$ India decided that it will allow private companies to take over sick public sector companies as well as to venture into those industries which were till then only under public sector.
As a part of privatization, the structure of continuously loss making units was changed and few very sick units were closed.
Many public sectors offered equity shares to the general public and increased public private partnership.
When shares are sold to private enterprise, it is known as privatization. When public sector units offer its capital for the participation of general public, it is known as disinvestment. Government of India has started separate ministry ‘ for disinvestment.

Privatization was also done to increase the efficiency of industries and to achieve targets which the public sector was not able to.Reasons for inefficient public sector units include:

Bureaucracy
Obsolete technology
Rising corruption and bribery
Absence of accountability
Growing influence of labour unions
Political interference, etc.

Positive effects of privatization:

Rise in production efficiency
Absence of political interference
Improved quality goods and services
Systematic marketing
Use of modern technology
Hierarchical set-up for accountability
Creation of competitive environment
Advancement in research and development
Advancement in modernization and innovation
Maximum utilization of factors of production
Growth of infrastructural facilities

Apart from this, there are also several negative effects of privatization but still, government is promoting it.

Under privatization, the government has given a number of public sector units to private sector. The government owns $51 \%$ or more equity capital in these units and rest percentage is sold either to private sector or general public.
Thus, the period in between $1951$ to $1991$ was dominated by public sector but after $1991$ private sector marched ahead of public sector and is still dominating.

Answer

Need a full question paper?

Explore more

Similar questions

BUSINESS ENVIROMENT — OCM STD 12 Commerce — Question

Answer

Need a full question paper?

Explore more

Similar questions