MANOJ KUMAR .U
SIVAPRASAD .P . V
Public sector enterprises Objectives, organization Pricing policy Private sector Privatizations movement Reason for privatization Obstacles of privatization Ways of privatization-disinvestment Advantages/disadvantages Conclusion
A public enterprise is an organization which is i) Owned by public authorities including central state or local authorities to an extent of 50% or more ii)It is established for achievement of a defined set of public purpose,which may be multidimensional
1. To help in rapid growth and industrialization and create necessary infrastructure for economic development. 2. Promote redistribution of income & wealth 3.Create employment opportunities 4.Promote regional balance development 5. Promote import substitution save and earn foreign exchange for country. 6. Basic Infrastructure (STC, Railways, SAIL)
Organization of Public Sector
•Ministry ( Railway, Finance etc) •Departmental Undertaking (Defense, Post & Telegraph, Defense production unit)
•Statutory Corporation( LIC, AIR India, IFC,RBI,ONGC, etc..) •Central Board (Bhakra Nangal, Hira Kund ,Nagarjun Sagar dam) •Government Companies ( Ashok Hotels, ITI, HMT Hindustan shipyard etc)
Administrative Price : Price fixed by Government
No profit –No loss Price ( DVC, Hindustan antibiotics, Hindustan Insecticides) Cost Plus Price – ITI, HAL, Bharat electronic Competitive Price
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Privatization: Transfer of ownership and control of an
existing public sector enterprise Privatization may be full or partial. It may be selective i.e.. Some function are transformed to the private sector, which other are retained in public sector.
Increase in competition .
The Privatization movement
The move towards privatization has gained momentum since 70’s. The following are usually mentioned reasons 1 The emergence of conservative government in principal industrial countries 2 The emergence of multinational entities 3 Technological changes
The Privatization movement contd.
4 Emergence of local capital market and entrepreneurship 5 Dissatisfaction with performance of public sector
Reason for Indian Privatization
1. Crippling Budget deficit
2. Spectacular growth by economies of Korea, Taiwan, Malaysia in private sector 3. Galloping cost of government intervention in trade and industry & procedural difficulty 4. Collapse of USSR& communist government in eastern Europe
5. Changes in China 6. Emergence of professional management
7. IMF & World Bank extended arm to capitalism
9.Lack of demand in economy 10.Integration of world trade
11. Developed local capital market and Financing Institution
•To Strengthen Competition •To improve public finance •To fund Infrastructure Growth •Accountability of share holders •To reduce unnecessary interference •More disciplined Labor force
The main reason for increased efficiency gain as a result of privatization are attributed to (i)Less political interference in decision making (i)Staff remuneration is more closely linked to productivity and profitability (ii)Firm are exposed to financial market discipline as opposed to government support (iii)Firm’s cost reducing effort are higher under competitive private ownership
Advantages of public sector organizations
Govt . Control in sensitive areas More employment Effective decision making Public accountability Access to all More employee satisfaction-better life work balance Recognition and honor Job security
Disadvantages of public sector organizations
Inefficiency results due to the size of the organization
lack of incentive for employees
Losses must be met by the taxpayer Political interference Less customer satisfaction High cost of...