Privatization In Developing Countires.

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PRIVATIZATION IN DEVELOPING COUNTIRES

DIMPLE PATEL

DECEMBER 2002

Privatization in Developing Countries

Privatization has different definitions; some scholars define privatization as “ the concept, which covers the transfer from the public to the private sector of the ownership and/or control of productive assets, their allocation and pricing, and the entitlement to the residual profit flows generated by them.” (Abu Shair).  Researchers identify five definitions of privatization; “the partial sale of state assets, which does not imply attenuation of state control; change in ownership and control; private ownership without any constraints on entry into the industry; changes only in patterns of control rather than ownership, and finally both ownership and key decision-making remain with the state while production.” (Abu Shair).  Basically privatization is to transfer public enterprises to private enterprises and less governmental interference.  There can be many different definitions of privatization.  It can be said that privatization should aid in the task of resolving problems of poverty and sustainable development.  It should decrease the poverty rate and benefit the poor.  

There are about 240 public enterprises in India, and this makes up for almost 15 percent of India’s GDP.   It has been argued that the privatization of public enterprises can lead to an increase in product efficiency.  With having private ownership it can encourage competition and can be profit maximizing As the productivity for newly privatized firms grow, and selling these public enterprises increases the Government revenue, which then helps the national debt.  Privatization leads to less political and bureaucratic inference in the economy and in industrial management.  The creation of central privatization agency can increase the pace of privatization.  There also have been some problems with privatizing different types of firms.  The main purpose of privatization is to raise the productivity and performance of the firm and economy.   Also the purpose is to raise funds, there is a threat that the government might but a restriction on competition.  Also, authorities might raise an abundant amount of funds by refusing to remove barriers to entry at the expense of the social welfare of the public.  For example, privatizing India’s petroleum sector might increase a good amount of revenue for the government because it will transfer a state monopoly to the private sector.  Authorities might be lenient at first by opening competition first then gradually privatizing them.

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        Market structure is an impact as well with privatization on the economy.  Even though the public enterprise is well regulated and managed, privatizing firms can lead to higher yields as well.  It may be possible as well that setting the public monopoly by private monopoly will also raise productive efficiency because of the reduced governmental and political involvement.  Privatizing public enterprises in a competitive market can be valuable.  As mentioned earlier “India’s central government is a majority shareholder in 240 public enterprises, 27 banks, and 2 large insurance companies.”  “ Only some of these enterprises generate profits.” (Dinavo).

        India ...

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