What is privatisation

It means shedding up of ownership of Govt owned enterprises

In easy language, it means selling of Govt owned PSE (Public Sector Enterprises)

It is done in 2 ways:

1 Withdrawal of Ownership and management of PSE

2 Total Sale of PSE

 

Change in Indias Industrial Policy from 1991 - Teachoo.JPG

Privatization-Meaning and Example - Teachoo.JPG

Privatisation Method 2 - Teachoo.JPG

What is Disinvestment?

It means Sale of Part of Equity of PSE to public by government

Example

Suppose, Govt owns 100% shares of State bank of India

It sells 10% shares to public in stock market

Now, Govt owns Partial Equity to Public

 

Disinvestment-Meaning and Example - Teachoo.JPG

What was the reason for Privatisation/Disinvestment?

 

1 Improve Financial Discipline

(Since funds of public will be involved, PSE have to use it judiciously)

 

2 Facilitate Modernisation of PSE

Managerial Capability of Private Sector can be used to improve performance of PSU

 

3 Strong Impetus to FDI (Promote FDI in India)

FDI is Foreign Direct Investment

When govt sells its shares, it will be purchased by foreign investors

Hence, Foreign funds will enter India

 

4 Help in Meeting Budgetary Deficit

Govt sometimes Sell loss making PSU to generate funds

Govt used these funds to meet Budgetary Deficit

(Excess of Expenditure over Income in budget is called Budgetary Deficit)

PROBLEMS WITH PSU -Teachoo.JPG

 

Why Government Declared some PSE as Navratnas?

The word 'Navratna' means 9 Jewels

Word is derived from Court of King Vikramaditya who was an eminent persons in art, literature and knowledge

 

Govt declared some PSE as Maharatna,Navratna and Miniratna

Reason

These companies were given greater autonomy (independence) in management and operations

These companies were given freedom to take decisions independently and increase their profits

This lead to better performance

TYPE OF RATNA EXAMPLES
MAHARATNA SAIL
  Steel Authority of India Limited
   
NAVRATNA MTNL
  Mahanagar Telephone Nigam Limited
   
MINIRATNA BSNL
  Bharat Sanchar Nigam Limited

 

NCERT Questions

Q9

Those public sector undertakings which are making profits should be privatised.

Do you agree with this view?

Why?

View Answer

 

Q12

Do you think the navaratna policy of the government helps in improving the performance of public sector

undertakings in India?

How?

View Answer

 

MCQ Other Books

Q1

In the following questions, select the correct answers:

_____ refers to the disposal of equity of public sector units in the market.

A Liberalisation

B Globalisation

C Disinvestment

D Privatisation

View Answer

 

Q2

____ refers to the transfer of ownership, management and control of PSUs to the entrepreneurs in the private

sector

A Liberalisation

B Privatisation

C Globalisation

D None of these

View Answer

 

Q3

Which of the following statements is not true about problems in public sector in India?

A Lack of technical efficiency

B Discriminating policy of organisation

C Lack of incentives

D Adequate control of parliament

View Answer

 

Q4

Assertion (A): Every year government fixes a target for disinvestment of Public Sector Enterprises (PSEs).

Reason (R): Disinvestment is an excellent tool for discarding the loss incurring Public Sector Enterprises (PSEs).

[CBSE SQP 2021] U

A Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).

B Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).

C Assertion (A) is true, but Reason (R) is false.

D Assertion (A) is false, but Reason (R) is true.

View Answer
  1. Class 12 NCERT
  2. Indian Economic Development

Transcript

Change in India’s Industrial Policy from 1991 During 1950-1990 Govt followed the Policy of Investment in PSU (Govt set up Factories and Industries called Public Sector Undertaking) Nationalization (Purchase of business by Govt from Private Sector) Purchased by govt Tata Airlines Air India (Govt Purchased Tata Airlines From TATA and named it Air India) From 1991 Govt followed the Policy of Disinvestment Money Received from Sale Govt PSU (Sale of Shares of Public Sector Enterprises by Govt to Public is called Disinvestment) Privatization (Transfer of business from Public to Private Sector is called Privatization) Air India Sold by govt Tata Airlines (Govt sold Air India to Tata) Privatization-Meaning and Example Example 1 Purchased by TCS (Tata Consultancy Service ) (A govt IT Company) (A Private Sector Company) Example 2 Modern Foods (A govt Company making bread) Purchased by HUL (Hindustan Unilever) (A Private Sector Company) What is Privatization? It means shedding up of ownership of Govt owned enterprises (Transfer of business from Public to Private Sector) Privatisation Method 2 (Increasing Autonomy of PSU) During 1950-1990 No Autonomy with PSU PSU couldn’t take decisions without asking govt Take Permission PSU GOVT Received Permission Lot of time taken by Govt make decisions From 1991 Greater Autonomy given to PSU Certain PSU Declared - Navratna, Maharatna, Miniratna PSU Given freedom to take decisions independently and increase profits TYPE OF RATNA MAHARATNA NAVRATNA MINIRATNA SAIL Steel Authority of India Limited MTNL Mahanagar Telephone Nigam Limited BSNL Bharat Sanchar Nigam Limited Disinvestment-Meaning and Example What is Disinvestment? (Sale of Shares of Public Sector Enterprises by Govt to Public) Indian Railway Catering and Tourism Corporation EARLIER IRCTC Not listed on Stock Market 100% Shares Owned by Govt of India NOW IRCTC Listed on Stock Market 67% Shares Owned by Govt of India 33% Owned by Public and Other Investors This means Govt of India Sold 33% shares to Public This is called Disinvestment PROBLEMS WITH PSU During 1950 - 1990 A number of PSU Established Problems with PSU Inefficient Management PSU Funds not used judiciously Outdated Methods of Doing Business Losses Suffered by Govt Very High Govt Investment So Budgetary Deficit faced by govt WHY PSU PRIVATISED From 1991 Govt did Privatisation/ Disinvestment Reasons for Privatization/ Disinvestment Use capability of private Sector in Managing Enterprises To Improve Financial Discipline Facilitate Modernisation of PSU Sale of PSU Help in Meeting Budgetary Deficit Get funds Available for Development work Strong Impetus to FDI (Promote FDI in India)

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CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 10 years. He also provides Accounts Tax GST Training in Delhi and Pune.