Privatization and its Impact on growth and development of Indian Economy | MBA through PGCET in Bangalore

Posted by Prof. Susmitha TP On 19/11/2021 07:28:02

All over the world, even in capitalist countries of today, it was common to see the government keeping most of the resources in its hands and erecting the infrastructure for the benefit of the population. It has been observed in all such countries that eventually public sector companies become stagnant and loss making ventures because of lack of competition and many other issues. This is the stage when the government sells its stake in public enterprises and makes government companies private. This is what is referred to as privatization.

In India, there is a need for privatization of companies to enhance economic status. Though the PSUs have contributed a lot to develop the industrial base of the country, they continue to suffer from a number of inadequacies. While there are several reasons why the Government of India is actually interested in the privatisation of industries, few main motives are to fill the government’s treasury by collecting money, to reduce its responsibility of running a company and to promote Indian entrepreneurs to take over. MBA through PGCET in Bangalore

There are many examples of privatization of companies in India such as LJMC, VSNL, HZL,HCL, BALCO, Air India and recently Finance Minister Nirmala Sitharaman had announced to sell stakes in several government companies. An RTI reply has revealed that the Centre is all set for disinvestment in 26 Public Sector Undertakings. According to a reply by the Finance Ministry, the move to sell stakes in PSUs has already been approved by the Union Cabinet.

Privatisation  led to the inflow of Foreign Direct Investment in the country. Because India has a wide market and a broad consumer base, foreign products are wanted by more and more consumers today. With more and more companies being privatised, people from all over the world come to invest their money in these companies. The regular supply of funds has increased with the coming up of the privatisation of the companies. This is because private companies do not require any permission in order to decide the financial status of the economy.

When privatisation happened in the country, this financial burden of the government was significantly reduced. Private sector companies do not spend a huge amount of money on the non-development sectors, unlike the government sector companies. By earning more, the private companies helped the government in paying the taxes as well. With systematic and structured management, private sector companies are known to satisfy the never-ending wants of the consumers. Hence diversification of products takes place. Buyers are given ample options to choose from in the market. Private companies are more focussed on increasing their managerial efficiencies so that they meet their goals in time or at times before the deadline. This allows them to avoid any unnecessary formalities.

In short,  Privatization is overriding process to enhance productivity and competitiveness, as well as attracting foreign direct investment and has a positive impact on Indian economy because;

  • It frees the resources for a more productive utilisation.
  • Private owners are always oriented towards making profits and get rid of sacred cows and hitches in conventional bureaucratic management.
  • Since the system becomes more transparent all fundamental corruption are minimised.
  • Gets rid of employment inconsistencies and Lessen the government's financial and administrative load.
  • Permit the private sector to contribute to economic development.


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