HPAS/Allied Mains 2022 Answer Writing Challenge Day 206: Model Answer

Question: What are the objectives of Privatisation? Also discuss the ways of Privatisation in India. (8 marks/120 words)

Answer:

Privatization refers to transfer of ownership, management and control of the public sector company to the private sector. For example, Privatization of Bharat Aluminium Company in 2006.

Objectives of privatization

• To increase the inflow of foreign direct investment to India.
• It improves the financial strength of the company.
• To improve the efficiency of Public Sector Undertaking by giving them power to make decision.
• To promote market dynamism, where markets follow integral economic values of demand and supply.

Ways of Privatisation

Government companies are transformed into private companies in two ways.

Transfer of ownership

Government companies can be converted into private companies in the following two ways:

• By the withdrawal of the government from the ownership and management of public sector companies
• By the outright sale of public sector companies.

Disinvestment

• Disinvestment, or divestment, refers to the process of dilution of a government’s stake in a PSU.

However, there are six methods of privatization.

1. Transfer of ownership

Firstly, under this method, the public sector transfers the ownership, management and control of the to the private sector.

2. Disinvestment

Secondly, it is the process of withdrawing government investment from the PSUs and sell it to the public.

3. Public auction

Further, this method facilitates sale of share of public company or long-term assets to raise highest amount for government owned property.

4. Sales of shares

Additionally, this method facilitates sale of shares of PSUs through stock exchanges.

5. Direct negotiations

Moreover, under this method, the government directly deal with specific private bodies for the privation of PSUs.

6. Lease with a right to purchase:

In this method, there is a set of rules and criteria for the company to be possessed and used by a private company. Later, the private company chooses to convert whether the property should be converted from leased to ownership after knowing the sum to be paid.

Conclusion: As long as privatization is done in a manner that leads to competition and not just the transfer of a public sector monopoly to a private sector monopoly, privatization will be effective.