Introduction to privatisation
When a government owned company or establishment transfers its ownership, control or execution to the private sector, then the entity is said to be privatized. Either the company is completely handed over to the private party, or the government holds very little stake in the management of the company, thereby deregulating it.
Understanding Privatisation
A government decides to sell off the entity or some specific facilities of it to the private sector buyers due to the many merits of privatisation, that include: increased efficiency, zero direct political involvement, earning profit and investing in the company’s growth, company having market discipline and reliance of decision making on market mechanisms instead of continued interference. Privatisation is carried out by the governments via disinvestment, strategic sales, initial public offerings (IPO)s, buy outs etc. In another rare context, privatisation may also refer to a public company becoming private, or corporate companies being privatized. A publicly traded company may buy back its shares, pull itself back from the stock market in cases of poor performance and other reasons, and take back the mantle of being a private limited company.
Highlights of Privatisation
- Privatisation is also called outsourcing or franchising in some cases. When one branch or department of the PSU is given over to the private buyer to manage and assume complete responsibility, that is also an example of privatisation.
- Foreign firms may also participate in the privatisation process by holding a major stake in the government company.
- Governments may also form a PPP with a private company, or become a cooperative, but then dissolve it to become a Joint Stock Company, which accounts to a different kind of privatisation.
- Disinvestment is different from privatisation by way of selling the shares and liquidating the company to a private entity in disinvestment; whereas in privatisation, the ownership itself is entirely transferred to the private entity via disinvestment to privatize the company.
