Meaning and Definition of Privatization

Privatization has spread all over the world as a reaction against inefficient working of the state hold enterprises. The term “Privatization” can notes a wide range of ideas. We therefore try to understand the meaning of the term.


In a narrow sense,privatisation means introduction of private ownership in state hold enterprises. In a border sense the term means,besides private ownership the introduction of private management and control in the public sector enterprises. Barbara Lee and John Nellis define the concept in this manner:”Privatisation is the general process of involving the private sector in the ownership or operation of a state owned enterprise. Thus the term refers to private purchase of all or part of a company. It covers “contracting” out and the privatisation of management through management contracts,leases,or franchise arrangements”.

Privatization covers a sets of measures

i) Ownership Measures

These measures include transfer of ownership of public enterprises fully or partly. It may include denationalization.

ii) Organisational measures

These measures limit state control. The state may limits its control at the holding company level leaving subsidiaries autonamy in decision making. Alternately a public enterprise may be leased out to a private bidder for a specified period of time. Or the company may be reconstructed. Finally operational measures may be introduced to move towards privatization;they include commercialization of public enterprises and granted autonamy to public enterprises in decision making privatization also means disinvestment in public sector enterprises.

Privatization in India

India is a mixed economy with both the private sector and the public sector performing various activities in accordance with regulations. But the public sector was affected by inefficiencies and incompetence in a non-sustainable manner by 1991. The New Industrial Policy of 1991 contained several reform measures for the public sector. Some of them are selling of loss making units to the private sector, inviting private participation in PSEs, and strategic sale. Some of these reform measures included privatization in a low degree.

In India, hence privatisation was in a unique form in accordance with the priorities of our mixed economy and as well as by considering operational aspects of the PSUs. Privatization in the country was launched mainly to enhance the efficiency of the public sector enterprises as well as to concentrate the operation of the public sector in priority areas.