In India, Public Sector Undertaking (PSU) is a term used for a government-owned corporation where management control of the company rests with the Government; it can be Central Government or the State Governments. No private owners have a stake or a share in the corporation and hence they cannot take part in management and decision making of the corporation. Privatization means transferring the control of an enterprise from the government sector to the private sector.In India, the process of privatization started in the 1990s.
Earlier, when the process was slow, is was termed as disinvestment but later referred as privatization as it gained momentum. 5 Major Arguments in SUPPORT of PRIVATIZATION of PSU’s In India: 1) To promote increased efficiency: The need to promote efficiency in running commercial organizations has arguably been the dominant motivation. There is a sense that public ownership somehow leads to lower levels of efficiency than are possible under private ownership.It was observed that most of the employees in PSU were working below their potential and hence there was wastage of resources. There felt a need to change the bureaucratic style of working.
2) Stops loss-making PSUs from adding to government debt: A number of PSU prior to privatization had been incurring heavy losses. These industries were increasing the burden on the fiscal deficits of government. Thus privatization gave new owners a strong incentive to turn around failing PSUs into successful businesses.
) To reduce government interference in the economy and promote greater private initiative: Depoliticizes PSUs, remove governmental pressures for over-manning and the sub-optimal use of resources and reduces excessive control over business was a major step necessary. The government dictated the terms (like in power sector) in the PSU creating their monopolies. Hence new market players were restricted from entering the market 4) To promote wider share ownership and the development of the capital market: There was huge potential for growth in capital market as the economy had sufficient liquidity and the black-money in economy.But government was not able to create a platform for such market. Privatization gave new businesses access to investment capital that government cannot provide and create an environment for an efficient capital market with wide reach and acceptability. 5) Expands an enterprise and an industry Expansion and diversifying the current PSUs was essential to reduce increasing unemployment and maintaining economic growth.
In the long run, create more jobs thereby reducing the unemployment levels and generating wealth for the country thereby enabling to attain and sustain target growth rate.