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Friday, 22 July 2011

Why the government adopted the policy of privatization deregulation or what are the advantages or objectives of privatization policy


The government of Pakistan has decided to adopt the policy of privatization which has produced some encouraging results.

Meaning of Privatization :-
Privatization is described as a process for the transfer of state owned enterprises (Soes) to the private sector.

Objectives of Privatization :-
1. To improve efficiency.
2. To generate revenue.
3. To broad base ownership.
4. To develop capital markets.

The Govt. of Pakistan set up a privatization commission on Jan. 12, 1991 to implement the privatization policy. In the industrial sector 118 industries are to be privatized out of this 67 have been privatized. The buyer include 8 ex-owners, 9 employers group and 5 foreign firms. The 2nd phase of privatization had been started in July 1994. ABL and MCB has been transferred to private sector, NBP 10% shares offered for sale.
Following are the main causes of privatization :

1. Increase in Efficiency :-
The profit seeking behavior of new private sector managers will reduce the cost of production. When cost of production will be low it will attract the customers. The aggregate demand of various goods will increase and market will expand, experience shows that private entrepreneur is more efficient as compared to the Govt. Officer because his personal interest is involved.

2. Decrease in Govt. Burden :-
Now government has handed over the various industrial units to private sector and the loss which was beard by the Government, now such loss will be saved.

3. Increase in Production :-
Now private managers will manage the sick units with full devotion and personal efforts. So there will be an increase in production. Policy of privatization will promote competition, among the various producers. They will compete in quality, price and quantity, so consumer will enjoy the maximum benefits.

4. Increase in Saving and Investment :-
Secondary capital markets will expand due to privatization and in this way rate of saving and investment will rise.

Example :- Allied Bank of Pakistan after one year of privatization has increased the industrial financing up to 406%. There is 59% increase in the inflow of capital from other countries.

5. Sense of Ownership :-
After privatization the sense of ownership and confidence among the people has been developed. For example Allied Bank shares are purchased mostly by the employees. Now they are partners of the bank, so they have shown the positive attitude and profit amount has risen.

6. Economic Freedom :-
One of the objectives of adopting this policy is to provide greater freedom to the economy to respond to market prices and to allow the the economy to grow according to its full potential.

7. No Political Influence :-
After privatization of financial institutions loans will not be issued on political basis, a private manager will issue the loan keeping in view the interest of the institution. The borrower will also realize that there is no chance of right off so he will not misuse the credit.

8. Quick Decisions :-
When the personal interest of the managers will be involved in the profit of the institution they will not waste the time and quick decisions will be made.

For Example :- In case of recovery some times quick and bold steps are not taken by the executives of banks which becomes the cause of loss.

9. Better Services :-
After privatization customers will find better services from the various institutions. Because the private sector provides better incentives to those employees who perform their duties honestly and efficiently.

10. Increase in Foreign Investment :-
Privatization process has inspired confidence and trust among the foreign investors. The Japanese, Koreans and a couple of others are keenly interested in Pakistan for investment. So foreign investment will rise if consistency remains in our economic policies.

11. Increase in Economic Development :-
Privatization was only remedy to bring improvement in the state of affairs facing the country. Govt. officers were running the public sectors industries without much success. Because they had no interest in the promotion and development of these units. They were also not answerable to any body. So the public sector was almost received with huge losses to the government budget. On the other hand private sector managers are answerable to the investors. They will be removed if they failed to run the units efficiently. When industries will run efficiently their rate of production, employment and profit will rise which will lead to over all development.

12. Increase in Revenue :-
Aggregate revenue of the Govt. will also increase from the industries through taxes.
No doubt there are various advantages of privatization but it must not lead to monopolies and concentration of wealth and no room should be left to suspect for unfair ideals.

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