2017 Policy Case Competition
Privatization in India
General Background:
Privatization is the transfer of business, industry or service from public to private ownership and
control. India has a mixed economy and the concept of privatization has been utilized since
1991. This was due to noticeable issues within the public sector of the economy. All loss-making
units were sold to the private sector. Privatization was introduced with mainly the aim of
combatting the inefficiency of the public sector in addition to also focus the functions of public
sector in particularly important areas.
The government adopted many methods such as disinvestment, selling loss making assets to the
private sector and increased distribution of minority shares to private buyers. Of these few
methods, the method that was most effective in increasing private participation was
disinvestment. While the government still held 51% there was a huge transfer of minority
shareholding to the public. This increase in minority shareholding has had many positive effects
such as the government being able to use competitive tactics in publicly controlled enterprises.
Privatization in India has led to great improvements in important industries such as banking,
aviation insurance etc. The method of liberal reforms that was adopted enhanced the efficiency
and increased profits while simultaneously lowering entry barriers to open the doors for domestic
and foreign investment. But, due to the corruption, changing political situations and cheap labor
but less capital India has not been the primary choice for foreign investors. Regardless, the
economy has experienced over an 8% growth over the past 4 years after these reforms took place
and this goes to show how privatization is benefitting the Indian economy. With more liberal
reforms on the way, the economy predicts and inflow of foreign investment and internal
development.
Recently, Prime minister Modi has shown interest in raising $7 billion through the sale of 3 very
important state enterprises as well as the sale of 10% of Coal India to keep the country’s fiscal
deficit in check. The country is capitalizing on the recent market high and global investment to
reach its target of the sale of $10.5 billion worth of state controlled assets. Though there has
been criticism and threat of union action which could harm the economy in the short run the
successful attempts of the government to keep the deficit in check have been said to change the
outlook of major rating agencies on the Indian economy.
Advantages and Disadvantages of Privatization in India
Privatization in a Mixed economy like India’s can have various impacts on the economy. Some
of the positive impacts include beneficial structural changes in competitive industries as well as
aid in the revival of underperforming public sector enterprises. Furthermore, privatization in the
long run leads to reduced debts and deficits. Performance levels automatically increase in the
industry as well as leading to overall improvement in the infrastructure of the economy. In
addition, the private sector tends to provide better customer services and improve customer
satisfaction.
On the other hand, the private sector’s goal being simply profit maximization all other objectives
are neglected especially social objectives that the public sector would focus more on. Privately
controlled enterprises resort to corruption and illegal means to acquire information, documents
and close deals. Conflicts of interest amongst stakeholders and the management can come in the
way of reaching goals. In addition, inflation is a major side effect of privatization and this affects
the day to day life of a citizen. Lastly, there is an increase in employee turnover hence leading to
an increase in investment to hire, train and retain these employees in a privately controlled sector
of the economy.
What to Cover:
Address your policy proposal to senior government officials of India. As mentioned above, the
implementation of all these policies is of utmost importance therefore, you will need to address:
1.​ H
​ ow the government of India combat the disadvantages of Privatization (corruption etc.)?
2.​ H
​ ow can conflict of interest amongst stakeholders and the management be nullified?
3.​ ​How privately controlled sectors of the economy can maximize profits while still paying
attention to important social objectives?
4.​ T
​ o what extent should new policies be made liberal considering the disadvantages?
5.​ T
​ o what extent should environmental issues be considered a consequence of Privatization?
6.​ W
​
hat other sectors of the Indian economy should be privatized and why?
7.​ ​How effective and practical is Modi’s aim to sell $10.5 billion worth of state controlled
assets to the private sector?
Works Cited:
1.​ ​What is Privatization? How privatization has been implemented in India​? ​- Indian Economy N.p.,​ n.d Web. 9​th
Feb 2017
2.
“Financial Times.” ​India Steps up Privatization Programme. N.p., n.d Web. 10 Feb. 2017​.
3.
“T Kousadikar, Anan. “Advantages and Disadvantages of Privatization In India”.
Http://www.bipublication.​ N.p., n.d Web. 10 Feb. 2017