Privatization of Public Enterprises & its Implications on Economic Policy and Development

 Since 1951, Central Public Sector Undertakings (CPSUs) have played an important part in India's economic growth and development. Over the years investment in CPSUs has increased tremendously*. They impose a financial strain on GDP while suffering losses. The 1991 industrial strategy signaled a turn toward disinvestment, resulting in more privatization. The COVID-19 crisis sparked a focus on privatization for economic recovery. However, there are fears that excessive privatization may lead to market monopolization.

Introduction:

Government agencies in India combat corruption and the expansion of the private sector shows that privatization could help to minimize it. Private firms vigorously battle corruption, which promotes GDP growth. However, privatization has both benefits and drawbacks. Transparency, fair asset appraisal, and effective regulatory frameworks are critical to success.

The financial and Economic impacts of privatization:

Privatization increases efficiency, innovation, and cost savings, all of which contribute to macroeconomic capitalization. It reduces corruption, improves service, and encourages public participation. However, concerns about local monopolies, capital outflows, and rising inequality continue.

Global privatization revenues (1988-2016), in billions of US dollars

Privatization has varying effects on budgets, with some countries saving proceeds rather than spending them immediately. Long-term favorable effects on revenue and deficits have been documented in several circumstances. Data show that growth and employment are beneficial, particularly in competitive industries. Privatization is associated with economic growth, although fears about employment losses remain. The following figure demonstrates the pre and post-privatization performances of five companies.

Pre and Post-performance of different companies
Data Source: Economic Survey, 2019-2020, chapter-9
echap09_vol1.pdf (indiabudget.gov.in)

World Bank and IMF Involvement:

Privatization activities are led by the World Bank, with the IMF emphasizing procedural and objective conditions. Procedures with major fiscal and macroeconomic implications receive special attention.

Alternative meanings of privatization:

Privatization refers to the transfer of assets from public to private hands, which can include deregulation, franchising, outsourcing, or the sale of state-owned enterprises to private investors.

Conclusion:

Privatization, while pursued for certain reasons, may have unforeseen consequences. Success in reducing corruption and serving the public requires careful implementation, taking into account both good and negative consequences. When managed properly, increased market competition and efficiency have the potential to be beneficial.

# R code for plot and library used: rgl, plot3D, plot3Drgl magick

plot3d(Net_Worth,Net_Profit,Gross_Revenue,col=cols,type = "s",size=5,)

legend3d("right", legend = paste( c(Name[1:5])), pch = 16, col = data$col[1:5], cex=2, inset=c(0.02))

text3d(Net_Worth,Net_Profit,Gross_Revenue,data$type, add = TRUE, colkey = FALSE, cex = 2,col=9, size=1)

play3d(spin3d(axis = c(0, 0, 1), rpm = 4), duration = 100)

BY

Riya Arora, M.A. Economics (2022-24), School of Behavioural and Social Science (SBSS), Manav Rachna International Institute of Research and Studies (MRIIRS), Faridabad, Haryana. riya2001arora@gmail.com

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