Should India that has a mixed economy go for privatization or continue with the current system, is a burning discussion topic in view of the various steps taken in different sectors. Whether the move will benefit the country or will not be feasible needs to be discussed.
B-schools in India have included this topic in their Group Discussion round. The key facts about the topic and important points of discussion which can be presented during GD round are shared below.
Key facts about Privatization of Economy
Generally speaking privatization is a way of altering the relationship between the state and the private sector to enhance the role of the private sector in the functioning of the national economy as a whole. Accordingly, privatization broadly means any process that reduces the state’s dominant role in directly owning and running the economic activities of a nation.
Many countries like China with state controlled economies have gone far enough to open the doors of economies to invite private players to achieve faster growth rate. The craze for privatization has risen manifold after the ideological defeat and disintegration of the state controlled economy of the socialist bloc.
In a country like India, Privatization in today’s concept is seen as a means of increasing output, improving quality, reducing unit costs, curbing public spending and raising cash to reduce public debt.
Privatization is the need of the Hour
- As the world economy tends to become one global village, privatization as a policy norm seems to override political compulsions as an instrument for achieving competitive efficiency and resource optimization.
- Privatization is beneficial for the growth and sustainability of the state-owned enterprises. Following the trend of privatization across the world, the Indian government in the 1990s also introduced privatization amid hue and cry from many of the political and social groups.
- To achieve an increase in the output of the country there is a need for privatization at a rapid scale which will help in improving quality of the products by reducing unit costs, curbing public spending and raising cash to reduce public debt.
- Privatisation always helps in keeping the consumer needs uppermost, it helps the governments pay their debts, it helps in increasing long-term jobs and promotes competitive efficiency and open market economy. In a rapidly rising economy like India there is a need for the government to realign its priorities in mobilizing the skills and resources of the private sector in the larger task of the development.
- Nowadays privatization is being seen as a solution towards the problems of public enterprises as these enterprises on being transferred from the public to the private hands will become less politicized which as a result will help in ceasing the administrative corruption. It will also help n increasing the tax revenues from profits and strengthening the public treasury. The advantages of privatization can be perceived from both microeconomic and macroeconomic impacts that privatization exerts.
- Indian economy has a tremendous potential for growth. The economy which used to rise at 3-4% of GDP had steadily registered rising growth to 9.7% after introduction of reforms.
- Privatization will give ample space for creative and innovative thinking as well as systematic and strategic planning to realize the full potential of economy
Not everything is good with privatization
- The concept of welfare state may get defeated with the Privatization of economy. Private sector would not care about the society as its main objective is to earn profits.
- Government or Public sector companies also keep doing social work simultaneously. In case privatization happens, it will result in fewer funds for society because private companies have no obligation to do social work.
- Privatization will also result in retrenchment of employees. In private sector enterprises there is emphasis on performance which indirectly results in work pressure and meeting deadlines or targets and individuals who have been doing work for years without much pressure find it difficult to adjust to new setting and many end up resigning from their service.
- Risk of short term gains is prominent in private companies. There are decisions to start ventures which result in short term benefits but may not be good for long term.