Is Privatization good for the Indian Economy?

Privatization of Indian Economy

Prior to 1991, India had a conventional economy that was close to the remaining world. But in 1991, the Indian government reshaped its ideology and recognized the necessity of privatization for the Indian economy. For the first time, “Privatization” was introduced in India on 24 July 1991 as a result of some significant economic reforms. Like any other government policy, there are two groups in India on this issue. In one place, the government’s policies are welcomed, while in another, some people ask if is privatization good for India.

In its simplest form, privatization is the migration of the public sector into the private sector. A broad definition of privatization includes all other policies, such as outsourcing, which means that activities organized or financed by the public sector can be handled by private companies.

Objectives of Privatization In India:

India adopted the policy of privatization in 1991 with the aim of attracting more foreign direct investment (FDI). Basically, the government wants to give the private sector a level of freedom in India that has never existed before. The increased inflow of the FDI helps the Indian economy in overall development.

The government of India wants to boost efficiency in Public Sector Undertakings (also known as PSUs). It is more efficient for PSUs to make decisions on their own when they are given independence. In certain cases, companies were given special Navratna and Miniratna classifications. The privatization of the economy allows the economy to be free from government control. Market progression takes place organically because there are no government regulations dictating it. In the absence of government intervention, the market becomes more dynamic and follows fundamental economic values such as supply and demand.

Pros of Privatization:

  • Privatization enables Foreign Direct Investment (FDI) in India. Now foreign companies are interested in establishing their business in India and this will boost the Indian economy and create jobs.
  • The private sector is profit-oriented it works more towards earning profits rather than influencing people. The government of India runs many loss-making firms and the privatization of these entities reduces the burden on the government. This indicates that privatization is good for India.
  • It is the privatization process that has led to a massive increase in investments. Stock exchanges enable the owner and investor to gain confidence in their own companies. As a result, it will have a great economic impact as well.
  • Privatization will decrease the overall demand for government resources. Government can use these resources in the development of society.
  • After the political involvement is reduced, people begin working for the advancement of the public sector. Additionally, because the major decision-making is transferred, the company has more freedom and efficiency to grow the economy.
  • Privatization aids accountability in the companies. In the private sector, everyone has their own responsibilities and they are answerable for their jobs. 
  • Profit-driven private companies tend to do well in the competitive market since they work to make profits. Customer satisfaction is their primary concern. As a government company does not face competition, this motivation does not exist.

Cons of Privatization of Indian Economy

  • One of the major concerns of privatizations is transparency. The private sector working has less transparency in comparison to government entities. Private authorities can manipulate the policies according to their requirements. Private firms can create a monopoly in the market and run the market according to their needs.
  • Too much privatization can be harmful, especially in a country like India where most of the population relies on government policies. 
  • Privatization of the departments like defense, education, finance, health, and administration is not possible. 
  • Privatization of government bodies can cause job loss for many employees. And there is a possibility of less pay scale in private firms because the amount of competition is insane in India. 
  • Most of the private sector is profit-driven and they do not pay any attention to the betterment of society. For example, In India there are many schemes are running for unprivileged people by the government. But private companies will not run these schemes constantly.

Should the Indian Economy be privatized?

Indian economy is a combination of both public and private sectors. Privatization has its own benefits which indicate why privatization is vital for the Indian economy. But privatization is good for the Indian economy at a certain level. Too much privatization of the economy can cause some serious issues. If most of the government bodies will privatize then the chances of monopoly in the market by some big player can increase. The private sector gives more emphasis to profit instead of the betterment of society. For example, if the government privatized the educational sector then there is the chance of a fee hike that stops many children from education.

Privatization can be a game-changer for the Indian economy if it executes in the best way. But going for a major privatized economy or a major government-running economy is not a good option. Privatization with a certain level of decision-making authority from the Indian government can be beneficial because it drives the private entities to work for society’s development with their productive working methods. The combination of both prohibited the domination of a single player in the market and create opportunities for others also.