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What Happens In Coma?

Privatization of India's Government Sector

Our finance minister has declared that next year before March, Air India and Bharat Petroleum will be sold off. In fact, a strong push has been noticed on the part of the government to privatize all the public sector companies.

Is privatization a good thing? By looking at both the merits and the demerits and let us find out when privatization is good and when privatization is bad. Indulging in privatization or not is often related to political ideology. The right-wing economists worldwide, in general, favor privatization and the left-wing economists, in general, are against it. Now, if anything gets classified into left-wing or right-wing so clearly, then there's no simple answer to that Both sides have their own arguments for favoring it or being against it Let is look at it from a neutral point of view. Think about it: there's a private company and there's a public one. What are the differences between the two? The purpose of a private company is to earn profits. Where does that profit go? To the shareholders of that company. Who are these shareholders? In general, the owners of that company. The profit that a private company earns, goes to the shareholders of that company. Where does the profit of a public company go? It goes to the government. 

The government can use it for the citizens of the country The main purpose of a public company is not to earn profit but to impart welfare for the public. Now that earning money serves as a better motivation for people to work, it is believed that private companies in general, are more efficient. Their employees work more effectively and work harder because the benefit of money is discernible. In order to remain profitable, the company, in general, takes a lot of decisions that a public company would never do. And since the public benefit is not such a great motivation for the employees, It is believed that public companies are lazy and their employees do not work well. Their customer service is not that great, especially in India.

The ones in favor of privatization maintain that this is a free market economy That is, anyone can come up, create their own company and compete with the rest of the companies If one sector has been privatized, for example, Airlines have been privatized, So anyone can come up and create their own airlines and this would enhance competition. An increase in competition would mean that all the companies would try and offer better customer services, ensure lower prices for the customers, and at the same time, make a profit too. So everyone benefits here. This is a basic argument behind privatization.

The customers get better services due to more competition the company is making profits and the economy too, is getting benefited. What are the reasons for the people against privatization? Their argument is that the profit being earned is ending up in the hands of a few people, the public isn't benefited. The second point is: If profit remains the sole motive behind any service, then it can destroy an entire industry. The best example of this is the American school system. All the schools have been privatized in America In general, going by the logic of privatization, everyone should have benefited and the prices should have fallen. All children should have been imparted better education. What happened was that private schools increased their costs drastically due to which it became unaffordable for the economically weaker children.

All the private schools started to do the same because making profits was the main motive. The rich got a lot of options to study but studies became unaffordable for the middle and the poor class. If a common man wants to study in the American Universities, then they have to take loans worth lakhs, the ones who are not able to secure a scholarship. So the entire education industry has been destroyed in a way The third reason is that if foreign companies get the opportunity to indulge in privatization in your country. This would mean all the profits earned by the company would be siphoned off abroad. The fourth reason is that even though we are told that competition is created in a free market that anyone would be allowed to set up their own company.

In reality, what happens is that monopolies begin to get formed. For, example, a new telephone company sets up its business, which bribed our politicians and coerced them into making laws that would put the rest of the telephone companies at a huge disadvantage and only one company makes profits Gradually, that company becomes a monopoly, that is, there is no competition against it. Becoming a monopoly would mean that whatever prices the company decided upon, the customers would be forced to pay that because they would have no other option. All the profit that this company would earn would go into a few hands.

It is due to this reason that in most developed countries, the government makes better laws that encourage competition and prevent the formation of monopolies. How is this done? Price caps can be set Often what the governments do is to set an upper limit, for example, on medicines So even a private company cannot set prices higher than that, which would harm the consumers. Secondly, the government could promote more companies to come into that industry so that competition is created. Looking at all these benefits and drawbacks, I'd like to tell you when it is alright to indulge in privatization and when we should not indulge in privatization? 

There is a simple rule: wherever there are higher chances of monopoly, we should not indulge in privatization there. For example, consider ONGC and Bharat Petroleum Oil gas and petroleum industry is an industry in which it is next to impossible for us and the common men to enter and compete It is next to impossible that one of us would create an oil and gas company and be able to buy oil fields This can be done by already established huge businessmen Secondly, oil, gas, and petroleum are natural resources which are the property of the entire country. To sell them would mean selling a part of the country in away. You're giving an opportunity to others to make a profit off of the resources of pour country On top of that, Bharat Petroleum is a company that is in profit- it isn't incurring losses So it does not make sense to sell it off So there are very high chances... Selling off such a public sector company would mean the country could incur losses in the long term and a monopoly can possibly be created Secondly, whenever profit motive can destroy an entire industry, we should not indulge in privatization there.

The best example of this is the healthcare system If privatization is done in the healthcare, then the companies there would increase the cost of medicines, the hospitals would also increase their prices because they would be interested in profit minting as earning profits would be their main motive. The poor would not be helped in such a case as they would have no money to pay the hospitals. Another good example of this is the defense sector. If there is a weapons manufacturing company that produces weapons, and it wants to make a profit, then it would always want wars to rage and violence to ensue, worldwide, somewhere or the other so that there would be demand for its weapons. Hence it would be a very dangerous proposition to privatize the defense sector. My third point is: wherever it is difficult to make rules and regulations, we should avoid privatization in such areas. I have a shining example of this: the railway sector.

In railways, there are numerous examples worldwide where privatization in railways has remained successful and also where privatization in railways has turned out to be a huge failure. When the railways were privatized in the UK, then the railway tracks were sold to a different company trains were sold off to a different company and were involved in the maintenance of the tracks. All the departments had different companies, which led to a huge blunder If newer tracks were to be laid down in railways, then there was the requirement of approval from each company and approval was not granted in any sense.

The costs kept rising, the ticket prices kept soaring, but the private companies were still incurring losses So finally, in the end, the UK taxpayers had to subsidize the private companies to keep the railway system running. Even today it remains a huge blunder in the UK On the other hand, the privatization of railways turned out to be a successful example in Japan. What Japan did was to divide its railway system into 6 different regions and then sold it to different private companies Now that they had a huge region to manage, they were able to manage it more efficiently. And the Japanese government made strong regulations to ensure minimal prices of tickets and benefits for the end to end consumers. And this became a successful example. 

So my next point is this: If privatization is to be done in any sector, then make sure that strong regulations can be made in that sector. Another example of this is present in Delhi, where the electricity bills of people are minimized because the government has maintained pressure upon the electricity companies to forbid them from raising the cost of electricity beyond a certain limit. My last point is that if corruption is rampant somewhere, then indulging in privatization or not is no solution. It would make no difference. Because if corruption is happening, then it can happen with both privatized as well as public sector companies. The public sector employees are accused of not doing their work properly. They take it for granted that their salary will be credited and hence do not work well there is corruption- they take bribes while they work. Bribes are also taken during customer service or it is extremely delayed The same thing ensues in private companies too. 

A common employee is not corrupt in private companies but their top bosses might be corrupt. They might bribe the politicians to create a monopoly for themselves. So corruption can happen both ways. Don't ever treat corruption as the reason behind privatization or not.