Tuesday, May 26, 2009

* Organisational measures, which promote privatization

Discuss the various organisational measures, which promote privatization.

(i) Ownership measures: By the extent of ownership transferred the degree of privatisation is judged form the public enterprises to the private sector. Ownership almost transferred to a separate, co-operative or corporate sector. This can have three forms:
(a) Entire Denationalisation implies 100% transfer of ownership of a public enterprise to private sector.
(b) Joint venture implies partial transfer of a public enterprise to the private sector. It can have various variants – 25% transfer to private sector in a joint venture implies that majority ownership and control remains with the public sector. 51% transfer of ownership to the private sector shifts the balance in optimum to the private sector, through the public sector retains a substantial stake in the undertaking. 74% transfer of Ownership to the private sector implies a dominant share being transferred to private sector. In such a situation, the private sector is in a better position to change the character of the enterprise.
(c) Liquidation implies sale of assets to a person who may use them for the same purpose or some other purpose. This solely depends on the preference of the buyer.
(d) Workers’ co-operative is a special form of denationalisation. In this form, ownership of the enterprises is transferred to workers who may form a co-operative to run the enterprise. In such a situation, relevant provision of bank loans is build to enable workers to buy the shares of the enterprise. The burden of running the enterprises rests on the workers in workers co-operative. The workers become entitled to ownership dividend besides achieving wages for their services.
Organisational measures involve a variety of measures to limited state control. They added:
(a) In their day-to-day commands a structure of holding company almost designed in that the government limits its control to top-level big decisions and leaves a sufficient degree of autonomy for the operating companies. A big company like the Somnath enterprises of India limited (SEIL) or Raghvan Heavy Electrical Limited (RHEL) may acquire a holding company status, thereby transferring a number of functions to its smaller units. In this way, a decentralised pattern of management emerges.
(b) Leasing: In this arrangement, the government agrees to transfer the use of assets of a public enterprise to a private bidder for a specified period, say of 5 years. While entering into a lease, the bidder is required to give an assurance of the quantum of profits that would be built available to the state. This is a kind of tenure ownership. The government reserves the right to review the lease to the same person or to grant the lease to another bidder depending upon the circumstances of the cases.
(c) Restructuring there are two categories of restructuring: financial restructuring and basic restructuring.
(1) Financial Restructuring implies the writing off of accumulated losses and rationalisation of capital composition in respect of debt-equity ratio. The main purpose of this restructuring is to improve the financial health of the enterprise.
Basic Restructuring is said to occur when the public enterprise decides to shed some of its activities to be taken up by ancillaries or small-scale units.

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