Is privatization of public sectors good or bad?

India comprises a mixed economy with the prevalence of both private and public sectors in wide range of fields like banking, education, health care, transport, manufacturing etc. Some are of the view that privatization could gear up the economic growth while other find that the privatization could bring more problems like unemployment taking the economic backward due to its inherent issues. Privatization could be defined as the process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector. It is also known as denationalization. It is a situation where the government decides to transfer the control of a public owned resource to private sector either partially or completely. The history of privatization goes back to the Ancient Greece, when governments contracted out almost everything to the private sector in which private entities and companies performed the majority of services including tax collection, army supplies, construction.


The proponents of privatization believe that private market factors can deliver goods or services more effectually due to free market competition. One promising reason that people want to privatize is to alleviate corruption. A monopolized function is prone to corruption and decisions are primarily designed for political reasons, personal gain of the decision maker, other than on a economic note. Privatization works on growth and performance. Corruption takes its place in both sectors but it can be effectively reduced by privatization. Private companies take immediate action on those who take bribe, so they are much motivated to work and focusses less interest on corruption.

It is beneficial for the growth and sustainability of the state owned enterprises. It is obliging in keeping the consumer needs uppermost, it helps in increasing long term jobs and promotes competitive efficiency and open market economy. Managers of publicly owned companies are required to be more accountable to the broader community and to political stakeholder, this can reduce their ability to directly and specifically serve the needs of their customers while the managers of privately owned companies are accountable to their owners/shareholders and to the customer and can only exist and thrive where needs are met. Private corporations typically profit more if they serve the needs of the clients well. Corporations of different sizes may target diverse market niches in order to satisfy the demand. If you work for a government run industry managers do not usually share in any profits, however a private firm is interested in making a profit, so it is likely to cut costs and be efficient. Public sectors may be unwilling to invest in infrastructure improvements which will benefit the firm in the long term because they are more concerned about projects that offer a benefit before the election.


There are also many reasons that accounts for the drawbacks of privatization. The opponents of this term believe that there are many industries which perform an important public service, eg. health care, education and public transport. The profit motive cannot be the primary objective of firms in the long run because in the case of health care, it is feared privatizing health care would mean a greater priority is given to profit rather than quality care to be given to the patients. Privatization would create a private monopoly which might seek to set higher prices which exploit consumers therefore it is better to have a public monopoly. Private companies often face a conflict between profitability and service levels. To please shareholders they may seem to increase short term profits and avoid investing in long term projects, while initial benefits to the consumer may occur, the industry may not be induced to keep prices low unless government controls are exerted. Privatization may limit access to certain industries for people who cannot afford them and the public has little control over a private industry. Public sectors could make education affordable for a wide range of people but when it becomes privatized the cost of education could increase tremendously.

It encompasses a variety of of techniques for shifting functions. Privatization could bring up a lot of problems as well pose some advantages, but if we are really considering privatization, there should a formulation of better maps and ideas to get rid of the challenges.