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DETAILED REPORT ON PRIVATISATION AND DISINVESTMENT

BY:
RADHIKA, RASHMI, REENA RIDDHIMA & SHWETHA,

INTRODUCTION TO PRIVATISATION

The word privatisation has been receiving much attention in business, government and academic circles on a global platform. This phenomenon of privatisation can be linked to a revolution or boon. Privatisation techniques have already been tried in countries like Great Britain, China, United States, Turkey, Brazil, Mexico, & Japan. In our country to a beginning towards privatisation has been made with the sale of upto 20% of the equity capital of 30 plus select public sector units (psu’s), first to mutual funds and financial institutions and later to the investing public. HISTORY

THE history of privatisation is very short-just 10-15 years old to be precise. The real disinvestment started only in 1980’s, the word privatisation first made its appearance in late 80’s. The credit for inventing the word goes to Peter.F.Drucker, which used the term first in his famous book, the age of discontinuity in 1969. Ten years later, Margaret Thatcher became prime minister of Great Britain and it was she who gave practical shape to privatisation. Later country after country fell in line with the Great Britain in move toward privatisation.

RATIONALE OF PRIVATISATION
According to supporters of privatisation, the rationale for privatisation and disinvestment is as follows: * PERFORMANCE. State-run industries tend to be bureaucratic. a political government may only be motivated to improve a function when its poor performance becomes politically sensitive, and such an improvement can be reversed easily by another regime. * INCREASED EFFICIENCY. Private companies and firms have a greater incentive to produce more goods and services for the sake of reaching a customer base and hence increasing profits. a public organization would not be as productive due to the lack of financing allocated by the entire government's budget that must consider other areas of the economy. * SPECIALIZATION. A private business has the ability to focus all relevant human and financial resources onto specific functions. a state-owned firm does not have the necessary resources to specialize its goods and services as a result of the general products provided to the greatest number of people in the population. * IMPROVEMENTS. Conversely, the government may put off improvements due to political sensitivity and special interests—even in cases of companies that are run well and better serve their customers' needs. * CORRUPTION. A state-monopolized function is prone to corruption; decisions are made primarily for political reasons, personal gain of the decision-maker (i.e. "graft"), rather than economic ones. corruption (or principal-agent issues) in a state-run corporation affects the ongoing asset stream and company performance, whereas any corruption that may occur during the privatization process is a one-time event and does not affect ongoing cash flow or performance of the company. * ACCOUNTABILITY. Managers of privately owned companies are accountable to their owners/shareholders and to the consumer and can only exist and thrive where needs are met. Managers OF PUBLICLY OWNED companies are required to be more accountable to the broader community and to political "stakeholders". This can reduce their ability to directly and specifically serve the needs of their customers, and can bias investment decisions away from otherwise profitable areas. * CIVIL-LIBERTY CONCERNS. A company controlled by the state may have access to information or assets which may be used against dissidents or any individuals who disagree with their policies. * GOALS. A political government tends to run an industry or company for political goals rather than economic ones. * CAPITAL. Privately held companies can sometimes more easily raise investment capital in the financial markets when such local markets exist and are suitably...
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