Privatization in India free essay sample

Ram Mohan Visiting Faculty, Finance and Accounting Area Indian Institute of Management Ahmedabad, India Abstract The proposed research is intended to survey the process of privatization in India and assess its impact on the Indian economy. The central issue we will address is the impact of privatization that has taken place so far on profitability and performance of PSUs. Going beyond this, we will attempt to understand what explains the impact of privatization on performance. Is it the use of market power by oligopolistic firms whose pricing power had been constrained under government ownership ? Is performance bought at the expense of labour through extensive layoffs so that what we see is essentially a transfer from workers to shareholders ? Or are we confusing the impact of privatization with the more generalised impact of deregulation in the economy, which in itself could spur efficiency ? The research output will comprise the following: 1. A survey of the literature on privatization, particularly with respect to less developed countries. We will write a custom essay sample on Privatization in India or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page 2. A review of the role of the public sector in the Indian economy, and the process of economic liberalization and privatization in India upto this point. 3. Impact of privatization on firm performance. 4. Explanation for the impact of privatization 5. Assessment of mechanisms of corporate governance in India. -2- I. Background: privatization in theory and practice A great wave of privatization has swept the world in the past two decades, embracing the industrial economies, the transition economies of East Europe and large parts of the less developed world, and it continues to roll on. It is interesting, however, that its basis in theory was somewhat shaky to start with. Moreover, a sizable enough body of empirical evidence, on which hypotheses about its impact could be tested, became available only several years down the road. So much of the initial impetus to privatization entailed a leap in faith, and, as happens all too often in the development of knowledge, attempts to explain its impact have followed on the heels of widespread existing practice. Privatization In india free essay sample Privatisation, also spelled privatization, may have several meanings. Primarily, it is the process of transferring ownership of a business, enterprise, agency, public service, or public property from the public sector (a government) to the private sector, either to a business that operates for a profit or to a nonprofit organization. It may also mean government outsourcing of services or functions to private firms, e. g. revenue collection, law enforcement, and prison management. Privatization has also been used to describe two unrelated transactions. The first is the buying of all outstanding shares of a publicly traded company by a single entity, making the company privately owned. This is often described as private equity. The second is a demutualization of a mutual organization or cooperative to form a joint-stock company ? Definition of Privatization 1) The transfer of ownership of property or businesses from a government to a privately owned entity. 2) The transition from a publicly traded and owned company to a company which is privately owned and no longer trades publicly on a stock exchange. We will write a custom essay sample on Privatization In india or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page When a publicly traded company becomes private, investors can no longer purchase a stake in that company. 3)The process in which a publicly-traded company is taken over by a few people is also called privatization. The stock of the company is no longer traded in the stock market and the general public is barred from holding stake in such a company. EXAMPLE: If an individual or organization purchases all the stock in a publicly-traded company, that effectively makes it private, so that process is sometimes described as privatization. However, in contrast to the primary understanding of privatization, the company in question is in the private sector to begin with and remains there. Features of Privatization Espousing market principles by public policy makers has evolved as one of the prominent characteristics of the contemporary public enterprise management which encompasses privatization as a primary facet. Privatization of State- owned enterprises has developed as a critical tool for economic policies pertaining to progress and development of developing countries. One of the prominent feature of privatization is the enhanced competitive characteristics it provides to the enterprises which prove to be fruitful for the business as well as the country. However, privatization contracts are greatly influenced by merger variables and even global issues and are structured on the basis of manipulation of the government and the private players along with the administering jurisdiction.