Types of privatisation of the economy, Microeconomics

Privatisation in the narrow sense can take several forms:

a) Total Denationalisation: This implies complete transfer of ownership of apublic enterprise to private hands. Some examples of total denationalisationare: Allwyn Nissan - a public sector concern of Andhra Pradesh was handedover to Mahindra; Mangalore Chemical and Fertilisers - a public sectorundertaking of Karnataka was handed over to UB Group and Maharashtrascooters was handed over to Bajaj Auto (India).

b) Joint Venture: This implies partial induction of private ownership from25 to 50 per cent or even more in a public sector enterprise, dependingupon the nature of the enterprise and state policy in this regard. Three kindsof proposals have been put forward:

i) 26 per cent ownership by the private sector (banks, mutual funds,corporations, or individuals) and workers also to be included to theextent of 5 per cent equity to be transferred to them. However, in thissituation, veto power remains with the public sector against the privatesector.

ii) Government retains 51 per cent equity and sells 49 per cent equity tothe private sector. Although the basic character of the enterprise remainsunaltered and it continues to be a public sector unit, it introduces a bigshare for the private sector.

iii) 74 per cent of the equity is transferred to the private sector and theGovernment retains 26 per cent with the added provision ofGovernment veto power and minority control over major corporatedecisions.

These three variants of privatisation indicate different degrees of ownershipby the private sector in the joint venture. The basic aim of the transfer ofownership is that it will enable the joint venture to improve productivity ofassets and convert them into profitable concerns. However, there are seriousdoubts whether the first variant will be able to achieve the desired results,because the Government continues its domination with 74 per centownership and thus, the private sector only plays a subordinate role. Thisvariant may help to acquire to some extent resources from the private sector,but whether it will change the character of enterprise and bring aboutoperational efficiency is seriously doubted by the critics.

Posted Date: 11/15/2012 2:19:58 AM | Location : United States

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