Posted by Anjali Kaur on Jun 12, 2020

What Is Privatization?

As we have discussed why the economic reforms were introduced in India and what these new policies include? Now is the best time to discuss its elements, we have discussed how liberalization was done in the Indian economy. The second element being privatization, we will learn; How it was done in India? But first, we will focus on its meaning and then will discuss how it was carried out. Okay, let’s learn.

Meaning of Privatization

Privatization means reducing ownership or management of government-owned enterprises or the removal of strict control over the private sector and giving it the freedom to take necessary decisions. Before 1991, the public sector was given greater priority and importance. After 1991, government companies got converted into private companies. It was done in the following ways:

  1. By Disinvestment: It means privatization of Public Sector Undertakings(PSUs) by selling off part of the equity of Public Sector Undertakings to the private sector.
    1. The main reason behind the sale was to improve the financial discipline and to promote modernization.
    2. It was believed that the private sector will improve the performance of Public Sector companies, and it will help in the inflow of Foreign Direct Investment.
  2. By withdrawing the government from ownership and management of public sector companies: The government has also made attempt to improve the efficiency of PSUs by giving them autonomy(freedom) in taking managerial decisions. Some PSUs have been granted special status as Navratnas and mini-ratnas.
    1. Navratnas stands for 9 PSUs chosen by the government, that were given greater managerial and operational freedom, in taking various decisions to run the company effectively and to increase their profitability. Navratnas includes; IOC,HPCL,ONGC,SAIL,Indian Petrochemical Corporation Limited, BHEL, NTPC, VSNL.
    2. Mini-ratnas status was given to 97 other profit-making enterprises. They had greater operational, financial, and managerial autonomy.

You can refer these presentations on economic reforms for better understanding:

Indian Economic reforms since 1991, Class XII, CBSE from Anjali Kaur Suri

Economic reforms since 1991: Class XII – Part-2 from Anjali Kaur Suri

Photo by Austin Distel on Unsplash

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