What Is Privatization?
Privatization occurs when a government-owned business, operation, or property becomes owned by a non-government party of Private party. Privatization also describes Corporate Privatization in which the transition of a company being publicly traded becomes private Tarde.
The Indian Engineering sector is of strategic importance to the economy owing to its intense integration with other industry segments. The sector has been de-licensed to enjoy 100% FDI and aims to boost the manufacturing sector. The government has also reduced the exercise duties on factory gate tax, capital goods, consumer durables and vehicles.
· The government of India is planning to create a mega consultancy firmby merging 6 Engineering consulting Public Sector Units (PSUs) that can take up projects across sectors and compete with likes of Bechtel of the US and domestic majors like Larsen & Toubro.
· Steps have been taken to encourage companies, for instance, EIL fulfilled the criteria set by the Department Of Public Enterprises, Government of India. It will give state owned firm more financial and operational autonomy.
· The government of India has withdrawn excise duty exemption granted to goods manufactured and supplied to the Defence Ministry by state owned defence firms. These will also increase participation of Foreign Original Equipment Manufacturers.
· The government of India and World Bank signed a US $201.50Million IDA credit agreement for Third Technical Education Quality Improvement Programme, aiming for improving efficiency and quality of engineering education across several focus states.
Privatisation Of RAILWAYS:
Ministry of Railways has taken the step towards privatisation of railways by inviting Request for Qualifications (RFQ) to private players for operation of passenger train services. Under this operation at least 151 modern trains will be introduced and 109 pairs of routes will be planned out that has been grouped into 12 clusters to cover the majority of the network.Train sets have to be bought and maintained by private operators only. The project will bring investment of about Rs. 30,000 crore in private sector.
The railways have said that 70 per cent of the private trains will be manufactured in India which will be designed for a maximum speed of 160 Km/hr.
Originally it was planned to start in April, 2023 but due to COVID-19 it got delayed and now From March 2024, private companies will be allowed to run passenger services on one of the largest network of railways. Privatisation of Railways will play a key role in the government’s ‘Make in India’ initiative and its goal to attract investment in the country.
Privatisation Of AIRWAYS:
In June 2017, the Government of India approved the privatization of Air India. In March 2018, Expression of Interest was issued in order to sell 76% stake of Air India along with Air India Express. The eligibility criteria were set according to which bidder's net worth must be more than 5000 Crores. And also the new owner had to accept the debt of Rs. 33,392 Crores. The efforts of government received no result as no buyer showed interest in buying the debt laden airline.
This time In 2020, The government is giving 100% stake in Air India along with Air India Express and a 50% stake in AISATS. The government has absorbed 2/3rd of its debt leaving at approx Rs. 23,300 crore that has to be paid by the new buyer. The eligibility criteria for the bidder has been also lowered and set to Rs. 3,500 crore.
Estimates suggest that AI is making a daily loss of over Rs 30-35 crore during the pandemic due to virtual grounding of the airline, which is more than Rs 20-26 crore in December 2019. At least 6 Airlines, including Hinduja Group, Germany’s Lufthansa, the UAE’s Etihad Airways, Singapore Airlines and the Tata Group may get privatised as the government has expedited the process to sell state-owned airline Air India.
Air India is India’s first Airline, but Air India is not surviving with the growing competition because of factors like increased oil price, corrupt officials and wrong decisions. In such a situation, the government is only left with the option of privatising the airline.
Privatisation Of BANKS:
Earlier In 2017, five associate banks and Bhartiya Mahila Bank were merged into State Bank of India. In 2018, Bank of Baroda was merged with Vijaya Bank and Dena Bank. The government also allowed Life Insurance Corporation of India to take over 51 percent equity in IDBI Bank Ltd., which indirectly privatised it.
Now In 2020, The government may privatise four PSU banks by the end of this year. The government has drawn a list of four PSU banks that include, Punjab & Sind Bank, Bank of Maharashtra, UCO Bank and IDBI Bank, which directly or indirectly holds majority stakes. The Prime Minister of India, Narendra Modi had also written a letter to the Ministry of Finance to accelerate the process of privatisation, In order to raise funds and improve the financial health of the state-owned banks. The government aimed to keep stakes in only five Private Banks (PSUs) and privatise the rest.
There is privatisation of some of the public sector banks (PSBs) and has been talk of privatising Industrial Development Bank of India (IDBI Bank) in financial year 2020–21. Disinvestment target for the year is of Rs 2.1 trillion, whereas Rs 90 billion was to come from stake sale in Life Insurance Corporation of India (LIC) and the privatisation of IDBI Bank.
In March 2020, the Union Cabinet had approved the merger of 10 public sector banks into four, paving the way for the largest consolidation among state-owned lenders. Indian Bank was merged with Allahabad Bank, Punjab National Bank took over the Oriental Bank of Commerce and the United Bank; Canara Bank took over Syndicate Bank; Union Bank of India took over Andhra Bank and Corporation Bank.
Privatisation's Future BENEFITS:
· Improved Efficiency: The key reason for privatisation is that there is a profit incentive for private firms to lower costs and to be more competitive. If you work for industry managers run by a government, they typically do not share in any income. A private business, however, is interested in making a profit, and so it is more likely to reduce costs and be successful. Businesses such as BT and British Airways have shown levels of increased performance and higher profitability since privatisation.
· Lack of Political Interference: Governments are argued to be bad economic managers. Political stresses, rather than rational economic and business sense, empower them. A state enterprise, for example, can hire surplus staff, which is inefficient. Because of the bad publicity involved in job losses, the government could be reluctant to get rid of the jobs. Therefore, so many employees are always hired by state-owned companies, growing inefficiency.
· Short Term Visualise: Many think of a government only with respect to the next election. Therefore, since they are more worried with initiatives that offer a profit before the election, they might not be able to invest in infrastructure improvements that will benefit the company in the long run. Public sector investments are easier to slash than frontline programmes like healthcare.
· Shareholders: It is claimed that a private corporation has shareholder pressure to perform effectively. The company could be subject to a takeover if the company were inefficient. A state-owned corporation doesn't have this burden, so being inefficient is easier for them.
· Increased Competition: privatisation of state-owned monopolies also takes place alongside deregulation, i.e. policies that encourage more companies to join the sector and increase market competitiveness. It is this rise in rivalry that could be the biggest catalyst for productivity improvements.
· Natural Monopoly: When the most productive number of companies in a market is one, a natural monopoly exists. Tap water has very high fixed costs, for instance. There is also no space for several companies to have competition. In this situation, therefore, privatisation would merely establish a private monopoly that might attempt to set higher rates that would manipulate customers. Thus, instead of a private monopoly that can manipulate the customer, it is easier to have a public monopoly.
· Public Interest: There are many sectors, such as health care, education and public transport, which perform a significant public service. The profit motive in these sectors should not be the primary goal of companies and the business. For example, in the case of health care, privatisation of health care is feared to mean that profit rather than patient care is given a higher priority.
· On Future Dividends, The Government Loses Out: Many of the UK's privatised businesses are very profitable. This means that, instead of going to rich shareholders, the government loses out on their dividends.
· The Challenge of Controlling Private Monopolies: Privatisation Produces Private Monopolies such as water companies and railway companies. These need to be controlled in order to avoid monopoly power abuse. Therefore, government oversight, similar to state ownership, is still required.
· Industry Fragmentation: Rail privatisation in the United Kingdom has led to the division of the rail network into infrastructure and train operating companies. It contributed to places where it was unclear who was responsible.
The provided services are compromised which should be basically promoted for the caring of people, but privatization leads to cutting of such services and ultimately making profit on individual level. In a privatized sector, profit must be paid to shareholders, not reinvested in better services. The interest rates are usually higher for these private companies than the government one. There is no democratic accountability between social lads or with public in private organization, we can't deny in being favour with them, all the contracts delivered public services are agreed between the private companies and government having no sincere transparency .
Public services are meant for everyone's need, so being a part of community everyone should be able to rejuvenate the benefit of services but privatization often walk in hand with people with pockets full of money to pay more and opt out of services leaving no options for that part of society which can not pay a huge amount for the services. This leads to division in services as well as society. Public services are natural monopolies, when each and everyone around us uses the particular service it’s too difficult for us to not to use it, this phenomenon usually cuts off the competition resulting into natural monopoly.
We can conclude that the privatization of public functionary can be not as much effective as it is depicted to us. There are major flaws followed by the private organization which are inappropriate in many ways to public welfare activities as well as organisational growth in many terms.
Author - Kiran Israni
2nd Year student of BACL, Nagpur.
Content Writer at Legaleagle Law Forum