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Will Privatization do any good to India?

Privatization, a strategy used by the Indian Government to reform the economy refers to the transfer of business or ownership from the government sector to the private sector. It incorporates three features:

1) Ownership of all public sectors transferred to private owners.

2) The state has limited control over public companies.

3) Efficiency of Public organizations that were into loss to be increased by this measure.

In 1991, under the leadership of our former Finance Minister Dr. Manmohan Singh, some major policy reforms were done in the economic ideologies which are now called liberalization of the Indian Economy and the LPG reforms. The objective behind this privatization was to: -

1. To uprise from the fiscal crunch which was turning out to be a major problem and increase the revenue.

2. To increase the efficiency and profitability of the public sector.

Where many countries around the globe including India are going through major economic issues due to pandemic, Modi Government in India has used privatization as one of the strategies to overcome these crises, under which 18 sectors are considered as strategic sectors and will undergo privatization.


Any policy can withstand the cons of it if and only its pillars are strong. Some of the pillars that form privatization are: -

1) The government will keep the ownership of an enterprise via a contract but all the daily activities and the services related to the product will be monitored by private companies.

2) Major stakes of enterprise will be sold by the government to private companies.

3) Slowly and steadily private companies will enter the market and displace the public sector via deregulation. In deregulation, the private sector will see the public sector as a competitor and ultimately outperform it and hence displacing it.

Is Privatization a boon or a bane?

Though after all the calculations did by the government, the common question arises is that will this policy turn out to be in favor of the country or will be a mistake done by the government.

As it is rightly said that every coin has two sides and every action has an equal and opposite reaction, it is clearly understood that this policy will also have some loopholes. But the concern is that are these loopholes big enough to prove this policy a bane or they are some small pits which can be filled by other supporting policies and hence turn this policy to be a boon.

Let’s start by evaluating the upside of privatization.

1) Efficiency: The major thought that supports the idea of privatization is efficiency. Private companies definitely have a huge profit which helps them to cut the cost and hence become more efficient than the government-industry.

2) Inhibition of Political Interference: Unlike the government sector, the private sector does not face any political pressure. Where the private sector functions independently and hires labor that would be beneficial for their firm, government run industries hire labor just to put an impression of high employment and hence landing into unskilled labor.

3) No long-term decision: The majority of the government sector takes decisions that would benefit them in the next elections and not what is required for the public.

4) Shares: It is another supporting pillar for better efficiency. Private sectors having pressure from shareholders work efficiently to complete projects on time and with perfection.

Now let’s have a look at the other side of the coin, the disadvantages of privatization.

1) Monopoly: A situation of natural monopoly will occur if one private firm holds all the power, in such kind of situations there may be hype in prices which would exploit consumers.

2) Interest of the Public: There are some sectors like health care, education, and public transport in which public interest must be kept over profit. Privatizing these sectors may not be in the favour of the public.

3) Partitioning of industries: Sometimes privatization may lead to fragmentation of the service providers according to the area and in such cases, some areas may be left unattended because of unclear fragmentation.

Now as all the dimensions of privatization are evaluated, on the basis of them, it is observed that privatization has severe advantages over disadvantages which are pits and not big holes. Also, Privatization’s impact varies from industry to industry and the method of regulation, where it is a boon for the railway industry it may be a bane for the healthcare sector depending upon the policies applied.

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