Advantages and Disadvantages of Privatisation

Meaning of Privatisation

The government has been solely responsible for developing the country. But it was found that the government’s investment in the public sector was inadequate. As a part of economic reforms, the Government of India announced a new Industry policy in July 1991 seeking to deregulate the industry with the objective of promoting the growth of a more competitive and efficient industrial economy. Nine areas in basic and core industries earlier reserved for the public sector were opened to the private sector. The new set of economic reforms aimed at giving greater role to the private sector in the nation-building process and a reduced role to the public sector.

The Transfer of a public enterprise, property or ownership from the government to the private sector is termed as privatization.

Today, the private sector by itself and also in joint partnership with the public sector has started playing a very important role in the development of the country.

Advantages of Privatisation

Increasing Competition

The entry of foreign firms in the industry has increased the competitiveness of the market for Indian firms, especially in service industries like telecommunications, Airlines, Banking, Insurance, Etc. which were earlier in the public sector.

More Demanding Customers

Today Customers are more demanding because they are well-informed. The increase of competition in the market gives the customers wider choice in purchasing the better quality of products and services.

Improved Efficiency

Due to the profit incentive. Private companies will ensure they improve their operational efficiency in order to reduce their costs and improve profits.

Necessity for Change

The market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.

Need for Developing Human Resources

The Market requires people with higher competence and greater commitment. Privatization helps to improve the human resources of the host country because when investor invest money it improves employees quality that makes human resources more systematic.

Lack of political interference

Privatization reduces the government’s political interference. Privatization helps to reduce interference of the government and give the power to the investors to do the best possible ways to improve the quality and quantity of work.

Disadvantages of Privatisation

Problem of Regulating Monopolies

The private sector can exploit their monopoly and ignore social costs. Privatization of certain state entities such as water and electricity authorities may just create single monopolies.

Public Interest

The industry which performs an important public service, e.g. health care, education, and public transport. In these industries, profit should not be the primary objective. For example, Scholars point out that the private sector in India has grown independently without any major regulation; InPrivate health sector, some private practitioners are not even registered doctors and are known as quacks.


The public does not have any control or oversight of private companies. Privatization has a bad side of accountability because Investors has full authority to do anything.

Concentration of wealth

Profits from successful enterprises end up in private, often foreign hands instead of being available for the common good.