Privatization:
- The process of privatizing publicly owned enterprises and hence increasing the size of the private sector is called the policy of privatization.
- In India, the public sector enterprises are owned and managed by the state i.e. government. Hence, privatization means process of transferring ownership of economic enterprises from public sector to private sector either partially or fully.
Privatization can take place in the following ways:
- Through disinvestment
- Reducing the number of areas in which only public sector can invest and allow private sector to invest in those areas.
- By establishing public-private partnership businesses.
A detailed description for the process of privatization is discussed below:
Meaning and process of disinvestment in India:
(A) Disinvestment:
- The process wherein the state either reduces its share of investment in a public enterprise or withdraws its investment completely by selling its shares to the private sector is called disinvestment.
- In other words, the process by which the state ‘disinvests’ from public enterprises is called disinvestment.
(B) Process of disinvestment:
The process of disinvestment consists of following two aspects:
1. Complete disinvestment:
The act of selling all the shares of the state in a public enterprise to the private sector is called complete disinvestment.
2. Partial disinvestment:
- The act of selling some shares of the state in public enterprises to the private sector for example, 29% or 49% is called partial disinvestment.
- When the state transfers less than 51% shares to private sector it is called minor disinvestment.
However, if the state transfers more than 51% shares to private sector then it is called major disinvestment
1. Over and above owning public enterprises, the state also controlled certain areas of investment.
- Also, the private sector was not allowed to invest in certain areas of strategic importance and public utility. However after privatization in 1991, government opened most of these areas for the private sector.
- These areas included banking, education, communication, transportation, etc. Both private as well as foreign companies were allowed to invest in these areas then.
2. Presently, the state controls and does not allow private investment only in few specific areas like atomic energy, certain minerals related to atomic energy, railways and defence.
3. After independence there was a significant rise in the number of public sector enterprises under the central government. However, after 1991 they did not rise much.
- On March 31, 1951 there were only 5 public sector enterprises under central government. The number rise to 233 in 1990, 217 in 2010 and 300 in 2015.
- Even today, the process of disinvestment from old enterprises continues and simultaneously the state also establishes new enterprises.
