Fresh from the freedom of British rule, most of the British colonies had their governments playing a crucial role in the socio-economic development of the country. The government of any British colony was in suspicion of losing the country to the hands of bankruptcy, total chaos. Under protective measures, subsidies and many different organization’s favouring policies, countries (colonies before) started flourishing. There was a transfer from meta stable state to the more stable state. However, soon it was realized that public offerings and companies were very low on its efficiency front, definitely because there was no competition and hence fear to them. But this was not in the public interest. So arose the need of privatization, which is also referred to as Liberalisation and Globalisation.
A great wave of privatization has swept the world in the past few decades. It has engulfed industrial economies, transitional economies and economies of less developed world. And it is still rolling on. The initial impetus to the privatization was driven by the governments only because of the certain objectives that had to be attained, such as increased efficiency, raising revenues for the states, reduce government interference in the economy and motivating private initiative, providing wider share ownership and development of the capital market, etc. it was quite evident that under public enterprises, these aims were not achievable.
It caused pre-emption of the government revenues through subsidies and recapitalization and uncompetitive industries in the economy. Another reason was under public sector, nobody feared bankruptcy. The policy of “soft budget” made it possible for the mangers to be bailed out of public funds. The prime motto is to maximize profits, so there were inefficient techniques and methodologies followed. So there was a drift from a socialist to a capitalist economy.
India required an economic liberalization. It set off in 1991 after India faced balance of payment crisis and she had to sell 67 tonnes of gold to the International Monetary Fund (IMF) as a part of bailout deal. The opening of doors for liberalization and privatization meant a great deal of change then and in coming times. The neo-liberal policies encouraged international trade and investment, deregulation, initiation of privatization, tax reforms and inflation controlling measures. The main agenda of the government was to achieve high economic growth and industrialization of the nation so as to see development all around.
As discussed earlier, public sector economies had less market discipline. This caused huge losses to the government because of the bailout procedures. This became more evident after Japan and East and West Germany faced tremendous losses in their PSUs such that there was a negative bidding to sell out those firms to the private firms. And it did prove fruitful. In countries like India, privatization came with a big bang. The telecom and airlines industries are notifying examples. Though the foreign competition can be seen in a muted fashion, it is worth considering. This results in private buyer to produce more GDP for the country.
Presently when India is booming there is no sector where the license-permit raj hinders the company from entering into the country. Every kind of business is being created and flourishing in India. For example, when Suzuki operates in India, it has to follow the FDI rules and regulations but doesn’t have to ask the government to open up an office at some location across India. Such is the giving of Privatisation!
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