Obstacles to Privatisation

1. Problems in Regulating Monopolies

Privatisation leads to the creation of private Monopolies, such as water and rail companies. These monopolies should be regulated to prevent the misuse of monopoly power. Therefore, government regulation is still needed, similar to the regulation under state ownership.

2. Public Interests

There are many industries that perform important public services like education, health care, and public transport. For these types of industries and firms profit earning should not be the primary objective. For example, in the case of health care privatisation, it is feared that more importance would be given to profit earning instead of patients’ health.

3. Natural Monopoly

A natural monopoly occurs when there is only one most efficiently working firm in the industry. For example, the tap water industry has a very high fixed cost. Therefore, there is no scope for competition between various firms. Therefore, privatisation in this case would create a private monopoly that might exploit consumers by charging high prices. Therefore, it’s always better to have a public monopoly instead of a private monopoly.

4. Loss of Potential Dividend

Many of the privatised companies in India are quite profitable, which means the government missed out on their dividends and their profits would be used for personal benefits instead of common goods.

Privatisation refers to transferring ownership of services and assets from the public sector to the private sector. The assets owned by the public sector can be sold to the private sector or the restrictions on competition between public & privately held companies may be eliminated. The main reason behind privatisation is to increase the efficiency of the private sector without the interruption of government. In other words, privatisation states that enterprises owned by the private sector are highly valued and maintained in a better way.

According to Priest, The transfer of ownership, property or business from the government to the private sector is termed privatisation. The government ceases to be the owner of the entity or business.

Disinvestment

The process of selling and liquidating assets by the government, generally, state and central enterprises, projects, and various other fixed assets is known as Disinvestment. The government undertakes this process to raise money for fulfilling specific needs or to lower the fiscal burden on the exchequer. In various cases, disinvestment is carried out to privatize assets; however, all disinvestment is not Privatisation. Various benefits of disinvestment are:

• It allows the government and even companies to reduce their debt.
• It is beneficial for the long-term growth of the country.
• It promotes the development of a strong capital market in the country by providing a larger share of PSU ownership in the open market.

Objectives of Disinvestment in India

Disinvestment is done: 

• To help public sector enterprises to upgrade their technology and become more competitive.
• To reduce the financial burden on the government.
• To depoliticize essential services.
• To promote a larger share of ownership.
• To improve public finances.
• To retain & rationalize their workforce.
• To make the market more discipline and competitive.
• To initiate diversification & expansion programs.