Privatization in the Government Sector

Property ownership has been a substantial issue in India for extensive time. During the British rule, there were numerous varieties of settlements such as the Mahalwari system, the Ryotwari system and the Zamindari system. These settlements were introduced to collect land revenues and to declare ownership. However, post the implementation of the Constitution, these settlements almost came to an end because of the implementation of Article 23, 38, and 39 under the Indian Constitution. These Articles allow states to make their own Zamindari Abolition Acts, cancel Begar (constrained work) and redistribute land and network assets, for example, lakes, ponds, and backwoods. After independence, political leaders made a strategy to undertake most of the unregistered properties under state ownership, to ensure social justice. Additionally, the State built countless government entitled bodies such as electricity boards, railways, banks and PSU’s. The making of these bodies increased job opportunities for Indians, but due to the gradual privatization of these bodies, vacancies in the public sector decreased.


In simple terms, privatization means transferring ownership and control from public to private hands. When a publicly-traded company transfers its control to limited people, it leads to the commencement of privatization. It diminishes job security, no pensions, less career building chances, increased nepotism and favouritism. Additionally, it leads to low employment rates and affects pay results at large. In contrast, it shows positive results in productivity and quality. Often, foreign ownership shows positive results, with the effects of domestic market creation being greater in countries with a competitive business environment. Common economic forms of private trade imply that new private owners increase productivity and reduce costs which can lead to job losses and lower wages for employees. At a given level of productivity, an increase in the productivity of workers means less work. However, a reduction in costs leads to an increase in demand and if new private owners enter new markets, the company's sales and output grow. This measure of the effect of private property owners will often increase the workload, thus operating in a manner contrary to the production effect.

Effect of privatization on employment and wages

Whether or not privatization has had impacts on an economy is still unsure, however, there are instances that show us about the negative impacts it has had. Few examples of them are as follows:

  • That is in stark contrast to the broad literature regarding stock trading and the strong performance and well-known fear of stockbrokers. A study states that the US public sector workers are opposed to the inclusion of businesses under their control because they expect it to lead to lower wages and job losses. Unions often complain about organized stock exchanges; examples from France include, France Telecom and Gaz de France. Further smaller studies on the effects of individual performance and earnings are flawed due to the small sample size, short-term sequence, and the difficulty of defining a comparison group of firms. Data limitations not only reduce the typical results but also prevent the use of potentially discriminatory methods in the patent process. The first systematic study on the effects of personal and job ownership, for example, analyzes 14 British public-owned companies, four of which were privately held, and others were regulated by law.

  • Studies use data from 1983 and 1988 to estimate employment results for 62 Bangladeshi mills, part of which were privately owned.

  • A survey of 170 private companies in Mexico had only one year of information after a private trade for analysis.

  • Some studies increase sample sizes by using data for individual employees, but data sets also contain several independent firm conditions. For example, a study using a five-year staff record of employees of one of the largest Swiss telecommunications companies shows that private practice led to a general decline in wages and an increase in wage inequality after the introduction of an independent pay scale.

  • Two other 300 private tutors in Portugal earn decent salaries and poor employment outcomes. Following the employment of individuals in 339 private companies in Sweden, another study provides evidence that the use of shares does not affect wages and leads to increased incidence and unemployment.

While all of these studies provide useful data, the small amount of self-efficacy under this often limits their overall performance. Perhaps, the overall results from previous studies on stock sales, employment and payments are inaccessible, finding both negative and positive results estimated for employees.

Recent research using large samples from firms provides compelling evidence on employment and the effects of stock trading results. For countries like Hungary, Romania, Russia, and Ukraine, the available information includes almost all of the manufacturing firms inherited from the central system, both those that have been owned by the owners and those who remain under state ownership. Time series data dates back to the communist era and the post-communist era when firms were under state control. The four countries use a variety of stock options and transformation experiences amongst the transition economy, with Hungary, considered as one of the most successful, and Russia and Ukraine among the least successful. For each company in each country, comparative annual data is available based on employment and wages. Identity details allow for the distinction between foreign and domestic ownership forms and consideration in the exact year in which the change of ownership occurred. Additionally, data from Hungary, Romania, Russia, and Ukraine enables the formation of comparative groups of state-owned enterprises operating in the same industries as private ones, while long-term series allows for the use of economic strategies designed to deal with labour market analysis.

Privatization of Railways

The latest ‘masterstroke’ of the Modi government is on the privatization of Indian Railways. On July 1, 2020, the Department of Railways announced that 151 trains with 109 pairs of trains would be used in the private sector in which private companies will plant 30,000 crores. Only the driver and security guard will be employed by the train, with all other employees being from private companies. Such companies are free to buy trains from the source of their choice. If so, what will happen to the railway manufacturing plants? Government officials claimed that the operation of private trains will commence from April 2023. Last year, the government decided that Indian Railways would move all seven of its production facilities and workshops such as ICF Perambur, RCF Kapurthala, Modern Coach Factory, Raebareli into a company called Indian Railways Roll Stocking Company. All production units were working well, but despite that, the government wanted to convert these production units into PSUs for sale. One of the key issues raised by the government regarding secrecy was that during the financial year 2018-19, 8.85 crore passengers were on the waiting list and Indian Railways was only able to offer 16% of those passengers. As a result, private players were allowed to use railways. But what is the truth? Trains raised 5.35 crore seats; of those 70 per cent are AC coaches and the remaining 30% are dormant coaches.

On July 17, 2019, Railway Minister Piyush Goyal had a gathering with the Railway Coach Manufacturers and revealed that Railways required 2,150 train sets. The Integral Coach Factory, Perambur, has been fabricating Train-18 Coaches for Rs 98 crore with 160 kmph speed, meeting all the required specifications. It was a real make in India train, but unfortunately, the board ordered for the cancellation in building more Train-18 coaches. Moreover, the public transport system, whether State Road Transport Corporations or Indian Railways is designed for the general public. How can we allow such social services to be demolished? In countries such as the United Kingdom where railways were privately run since 1990, people are tired of private trains and want the nationalization of railways. So, will it be fair if private companies hold these properties in India, bearing in mind they are built from tax-payers money? In this regard, the great philosopher Plato has once said that the state and the government should stay away from matters relating to family and property.

Privatization of Banks

The government owns a large stake in Punjab and Sindh Bank, Maharashtra Bank, UCO Bank, and IDBI Bank. Now, they want to sell it. The central government plans to privately invest in many state-owned banks and finance large sums of money by selling stakes to other banks. According to a Reuters report, the Prime Minister has called on officials to speed up the sale of these stakes. The PMO had likewise composed a letter to the Ministry of Finance to quicken the cycle of privatization. To raise reserves and improve the budgetary strength of state-possessed banks, the administration planned to keep stakes in just five PSU banks and privatize them. Furthermore, officials have advised that the government restructure these banks before privatizing them to cut down their losses. Ideas to do so include offering voluntary retirement to surplus staff and closing loss-making domestic and overseas branches to make them more attractive assets.

These steps are in favour of privatization and show the influence of the legislature, and the definition of the state, which comes under Article 12, which is also gradually changing. In this regard, the Indian Law Institute published a journal called “PRIVATIZATION AND THE INDIAN JUDICIARY” which explains the exact scenarios.

In conclusion, privatization is a huge economic term and different economists interpret it differently. Privatization is not new to India; it firstly came in 1991, which we call then the liberalization of the Indian economy and the L.P.G. reforms. Many nations have adopted this system and have faced massive protests in their counties. This did not have a very good impact on their economy either. From the beginning. India has had a mixed economy so opinions regarding privatization also vary from person to person. Business analysts and economic experts are of the view that privatization could speed up economic growth with the increase in competition, while a number of them find that the privatization could bring about problems such as unemployment, taking the economy backwards. In countries like India, people are more dependent on government jobs. This is because they provide better options to the public and also creates job security in the minds of people. The judiciary should find an intermediary line where the economy of the country, the rights of citizens, the job security of the employees are all equally maintained.

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