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PRIVATIZATION



PRIVATIZATION

“The transfer of public assets, operations or 

activities to private enterprise”.


MEANING

• Privatization is the process of transferring 
ownership of a business, enterprise, agency, 

public service or public property from the 

public sector to the private sector.

• The business that operates for a profit or non-
profit organization.


WHY PRIVATIZATION?

• To reduce government involvement in 
commercially viable activities 

• Increase efficiency in the delivery of programs and 
services 

• Provides competition in market place which 
transfers the lower price and greater choice for 
the consumers.


Variations in privatization

1. Private sector choice for the production of a 
services

Entire responsibility transferred from public to private

2. Public sector choice financing with private 
sector operations

joint activity of public & private

3. Deregulation of private firms
Govt. reduces or eliminates the regulatory imposed on 
private.


Methods of privatization

Main methods:

• Share issue privatization
» selling shares on the stock market.

• Asset sale privatization
» selling entire organization to a strategic investor by 

auction.

• Voucher privatization
» distributing ownership to all for free or at lower cost.


Sub methods:

• Contracting out:
» Production of service by private firm under a contract.

» Under this scenario, the private sector firm is paid 
directly by the government

Example:
collection of disposal waste

Other things include security services, data processing 
services


• Franchising:
» Government awarding a rights to perform services within 

a specific geographic area to a private firm

» The private firm generates revenue by collecting user 
fees

Example:

Cable television, gas etc..


• Open competition:
» many private firms are allowed to compete for customers 

within a governmental jurisdiction.

» It is not appropriate for some services as it most likely 
would not be efficient to have multiple suppliers of 
electricity, gas, or water service. 

Example:
 It  typically seen telephone and internet provider


Some of the examples of privatization

• Toll roads, bridges and airport:
A significant developments in public private 

partnerships is the lease of  toll roads, bridges, and 
tunnels by state and local governments to private 
contractors. 

these kinds of deals have previously occurred in Europe 
and Australia

Government could not do in 50 add years, privatization 
did in just 4-5 years.

The result is we have a great highways and airports.


• Ports:

Mundra port in gujarat has bacame a highly eficient
and well managed major port in 10 years

When compared to the kandla in mumbai working as 
port for more than 50 years.


Banking:

ICICI bank is the country’s largest private bank in 
second place after the SBI

SBI existing in more than 100 years on the other hand, 


Six industries which are not reserved for private sector

Cigarette
Atomic 

energy

Indian 

railways


Chemical 

fertilizers
Arms and 

ammunition
Hazardous 

chemicals


Benefits of privatization

1. Improved efficiency

2. Lack of political interference

3. Short term view

4. Increased competition


Improved efficiency

• Private company have a profit incentives to 
cut costs and be more efficient. 

• government run industry, managers do not 
usually share in any profits, however, a 
private firm is interested in making profit and 
so it is more likely to cut costs and be 
efficient. 

Example: 

British airways


Lack of political interference

• Government companies can be motivated by 
political pressures rather than sound 
economic and business sense.

Example:

a state enterprise may employ surplus 
workers which is inefficient. 


Short term view

• A government many think only in terms of 
next election. 

• they may be unwilling to invest in 
infrastructure improvements which will 
benefit the firm in the long term because they 
are more concerned about projects that give a 
benefit before the election.


Increased competition

• policies to allow more firms to enter the 
industry and increase the competitiveness of 
the market. 

• increase in competition that can be the 
greatest spur to improvements in efficiency

• For example, there is now more competition 
in telecoms and distribution of gas and 
electricity.


Disadvantages of privatization

• Investment in industries of comfort and 
luxurious products instead of necessary 
products and problem of optimum use of 
capacity


Disadvantages of privatization

• Aims at making profit which adversely 
affect the interest of the community


Disadvantages of privatization

• The private companies don’t like to have their 
branches in ruler cities. 

• Their services remain confined to cities where 
sufficient clients are available.

• Problem of unemployment 


THANK YOU

BY

HARIPRIYA.D

MBA