Attempts of Privatization in Indian Economy

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Post-independence India adopted a very conservative economy that was practically shut to the outside world. But, with the passage of time Indian leaders and economists recognized the need to merge with the global economy. So in 1991, India went through some major reforms, of which the privatization is a prominent one. 

Privatization is the process of shifting the control of certain industries from public sector to private sector partly or completely. It was first world nations that came up with the concept of privatization with the aim of improving the condition of services offered by certain industries besides lowering the burden of Government. However, developing nations such as India also took a cue from these countries and privatized various sectors. 

Many studies have demonstrated that privatization did not contribute to growth but helped to reduce income inequality, inflation contributed negatively to both economic growth and income equalization. Moreover, privatization is a method of reallocating assets and functions from the public sector to private sector. Recently, privatization has been adopted by various political systems and has spread to every region of  the world. 

Major causes of privatization are to - Strengthen competition, Improve public finances, Fund infrastructure growth, Accountability to shareholders, Reduce burden on the Govt, Reduce unnecessary interference, More disciplined labor force. Privatization should not be used to finance new government expenditure and pay off future debts. Instead, privatization enable countries to pay a portion of their existing debt, thus reducing interest rates and raising the level of investment. By reducing the size of public sector, Govt. reduces total expenditure and starts collecting taxes on the businesses now privatized. This process can help bring an end to a vicious circle of over-borrowing and continuous increase of national debt. 

Nations around the world have adopted different methods of privatizing state assets depending upon the country's economy and the economic principles of the political party in charge. Privatization can be categorized into three parts - 

1. Delegation: Govt. keeps hold of responsibility and private enterprise handles          fully or partly delivery of products and services.

2. Divestment : Government surrenders the responsibility.

3. Displacement: Private enterprise expands and gradually displaces the                      Government entity. 

The advantages of privatization can be apparent from both microeconomic and macroeconomic impacts that privatization exerts. In India, there is a need of privatization of companies to enhance economic status. Though the PSUs have contributed a lot to develop the industrial base of the country, they continue to suffer from a number of inadequacies like: incurring and reporting losses on a continual basis, multiplicity of authorities to whom PSUs are accountable, delay in implementation and cost escalation of projects, lower labor productivity, bad industrial relations.

Privatization is a process to enhance productivity and competitiveness, as well as foreign direct investment. it frees the resources for a more productive utilization. The system becomes more transparent all fundamental corruption minimized and owners have a free reign and incentive for profit maximization so they tend to get rid of all free loaders and vices that are inherent in Government functions.



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