Privatisation
Privatisation refers to the partial or full ownership and operation of the public sector enterprises by the private sector. It implies the withdrawal of government ownership from the public sector. It can be done in two ways:
- Outright sale of part of the equity of Public Sector Undertakings (PSUs) to private entrepreneurs (also known as Disinvestment), or
- Withdrawal of ownership and management of the public sector companies from the government to the private sector.
The need for privatisation was felt mainly because of the poor performance of the Public Sector Undertakings, PSUs. As a result, the consumers were facing a major loss, as they did not receive quality products, and other services, such as the delivery system were also very poor. With the introduction of the privatisation policy, this factor was eliminated as:
- Unlike PSUs, Privatisation promoted the diversification of production.
- Unlike PSUs, the Privatisation of enterprises generated higher profits.
- It also promoted customer superiority.
- Unlike PSUs, Privatisation provides high productivity.
- Unlike PSUs, Privatisation promoted growth and development by working in a competitive environment.
Impact of Liberalisation, Privatisation, and Globalisation
In the early 1990s, India faced a major crisis followed by a foreign exchange deficit, resulting in its economic downfall. To overcome the crisis, the government came up with adjustments to the economy by bringing new reforms. The reforms introduced were called ‘structural reforms’ and launched under the ‘New Economic Policy (NEP)’.
The New Economic Policy was introduced in 1991. There are three broad concepts of New Economic Policy: Liberalisation, Privatisation, and Globalisation, or the LPG Model. The LPG Model was introduced to replace the LQP Model, i.e., Licensing, Quotas, and Permits. The main aim of introducing the reforms was to attain a high rate of economic growth, reduce the rate of inflation, reduce the fiscal deficit, and overcome the BoP (Balance of Payment) crisis.
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