Write a short essay on Privatisation and India Economy Growth(At least 200 words)
Answers
Privatization, described as the transfer of state owned enterprises (SOEs) to the private owners, has become a common economic policy tool around the globe. The trend toward privatization is debatable issue. Indeed, the debate between the superiority of the private and public sectors has been going on for the past four to five decades. The discussion initially focused on how the size of public sector measured by the size of government consumption affected economic growth (Rubinson, 1977).
Findings of many studies demonstrated that privatization did not contribute to growth but helped to reduce income inequality, inflation contributed negatively to both economic growth and income equalization. On the other hand, several economists stated that Privatization, a method of reallocating assets and functions from the public sector to the private sector play vital role for economic growth. Recently, privatization has been adopted by many different political systems and has spread to every region of the world. The process of privatization can be successful way to bring about fundamental structural change by formalizing and establishing property rights, which directly creates strong individual incentives. A free market economy mainly depends on well-defined property rights in which people make individual decisions in their own interests. According to experts, privatization may improve efficiency, provide financial relief, boost wider ownership, and increase the availability of credit for the private sector.
Major causes of privatization are:
- To reduce the burden on Government
- To strengthen competition
- To improve Public finances
- To fund infrastructure growth
- Accountability to shareholders
- To reduce unnecessary interference
- More disciplined labour force.
The private sector have effective policies in solving the problem of externalities, through costless bargaining, driven by individual incentives. According to the Coase Theorem, individual parties will directly or indirectly take part in a cost-benefit analysis, which will eventually result in the most efficient solution (Mankiw, 2001).