privatisation

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TOPIC: :

TOPIC: PRIVATIZATION

Slide 2:

PRIVATIZATION “ Government have no business to be in business”

MEANING :

MEANING It is the process of transferring ownership of a business, enterprise or public service from the public sector (government) to the private sector (business).

EVOLUTION OF PRIVATIZATION :

EVOLUTION OF PRIVATIZATION Post 1975 - Greater freedom for private sector . 1980 – Devised an instrument i.e. MOU 1990 – SOE Reforms. 1991 – Industrial policy 1998-1999 – Announcement of government stake. 1999-2000 – Declaration of privatization. 2000-2001 – Government stake in non – strategic enterprises.

PUBLIC SECTOR:

PUBLIC SECTOR A public sector enterprise is an organization which is owned by public authorities including Central, State or Local authorities, to the extent of 51% or more.

MERITS OF PUBLIC SECTOR:

MERITS OF PUBLIC SECTOR Helps in rapid economic growth Create employment Non-profit driven

REASONS FOR PRIVATIZATION :

REASONS FOR PRIVATIZATION Inefficient management. Price policy Use of manpower planning in excess. Political factors influencing decisions. Delays in completion and increase in costs.

ECONOMIC REFORMS IN INDIA:

ECONOMIC REFORMS IN INDIA GDP growth Increase in productivity Foreign investment Performance of public sector

. Annual Average GDP Growth rate:

. Annual Average GDP Growth rate YEAR GROWTH RATE 1980-81 to 1990-91 5.6% 1990-91 to 2000-01 5.5% 2000-01 to 2004-05 6.3%

INCREASE IN PRODUCTIVITY:

INCREASE IN PRODUCTIVITY YEAR Increase 1983 - 1988 3.16% 1988 - 1994 3.32%

PERFORMANCE OF PUBLIC SECTOR ENTERPRIZES :

PERFORMANCE OF PUBLIC SECTOR ENTERPRIZES YEAR GROSS PROFIT NET PROFIT 1993-94 11.61% 2.84% 2003-04 21.90% 11.70%

FOREIGN INVESTMENT :

FOREIGN INVESTMENT YEAR APPROVALS ACTUAL FLOWS 1992 1781 233 1995 11245 2100 1997 15752 3330

DEMERITS OF PUBLIC SECTOR:

DEMERITS OF PUBLIC SECTOR Corruption Not efficiency driven Limited flexibility Non responsive to small volume demand May be subject to government budget restrictions Political Interference

MACRO ECONOMIC GOALS OF PRIVATISATION:

MACRO ECONOMIC GOALS OF PRIVATISATION Reduce the governments role in the economy. Promote the development of the private sector. Obtain the sales proceeds and use them to finance shortfalls in the government's. Share ownership so that the public has mechanisms for saving money.

GROWTH OF PRIVATE SECTOR:

GROWTH OF PRIVATE SECTOR 7-8 % GDP growth rate. POSITIVE EFFECT Manufacturing registered 11.9%. The passenger vehicles sector grew by 11.61% during April-May 2007. Electricity, Gas & water supply recorded of 8.3%.

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Construction growth rate rose to 10.7%. Trade, hotels, transport and communication registered of 12%. Financing, Insurance, Real estate and Business services recorded an impressive growth rate of at 11% during the 1st quarter of this fiscal year.

Slide 17:

Exports grew by 18.11% during the 1st quarter of 2007-2008 and Imports shoot up by 34.30%. The food sector is estimated US$ 200 billion and expected to grow $310 billion by 2015. Merchandise Exports recorded strong growth.

METHODS OF PRIVATIZATION:

METHODS OF PRIVATIZATION Share Issue Privatization Asset Sale Privatization- Privatization due to policies. Disinvestment Vouchers

SHARE ISSUE PRIVATIZATION:

SHARE ISSUE PRIVATIZATION State sells the whole or a part to the public generally in the form of an IPO Great Revenue raising potential Wider stock ownership. ONGC & NTPC

ASSET SALE PRIVATIZATION:

ASSET SALE PRIVATIZATION Selling the entire firm or a part of it to a strategic investor Normally undertaken in case of sick industries Basically valued on the basis of the assets Normally done by auction Eg : Hotel Tulip Star

POLICIES & REFORMS LEADING TO PRIVATIZATION:

POLICIES & REFORMS LEADING TO PRIVATIZATION Government frame policies so as to invite private players in the sector. Fiscal policies so as to lure the private players E.g.: Open Sky Policy 1990 (Aviation Sector)

DISINVESTMENT:

DISINVESTMENT Most popular method of privatisation Methods Of disinvestment: Strategic Sales Open Market Sales Eg: NTPC, REC, NMDC

VOUCHER PRIVATIZATION:

VOUCHER PRIVATIZATION Shares are distributed to all citizens Creates a real sense of participation in the public Usually used in transition economies such as Russia, Poland etc

STEPS IN PRIVATISATION:

STEPS IN PRIVATISATION Reviewing the target companies Preparing a privatization plan Where the company is to be marketed Terms of transaction are negotiated Transaction is completed

MERITS OF PRIVATISATION:

MERITS OF PRIVATISATION Improve service quality Lower prices Employment Increase efficiency and innovation Allow policymakers to steer, rather than row Streamline and downsize government

DEMERITS OF PRIVATISATION:

DEMERITS OF PRIVATISATION Emphasis on non priority industries Emergence of monopoly power and concentration Industrial disputes Privatization of public hospitals can sometimes be daunting Eg: Reliance Energy.

IMPACT OF PRIVATIZATION ON::

IMPACT OF PRIVATIZATION ON: Banking Insurance Education

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BANKING SECTOR

IMPACT OF PRIVATIZATION ON BANKING SECTOR:

IMPACT OF PRIVATIZATION ON BANKING SECTOR Introduction SBI enjoys a monopoly of the government business. The government hold around 93% of the equity, leaving 7% to private ownership. This act was outdated and needs to be re-addressed.

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Later Indian government announced its decision to reduce its stakes in public sector banks to 33%. Are the banks really sick? The answer is No. Public sector banks are making profits.Then why this outcry of privatization.

Why…… Need of Privatization???:

Why…… Need of Privatization??? In early 80`s, the Banking Sector in India was dominated by the public sector banks which were characterized by : High Intermediation Costs Over-staffing and Over-branching Huge portfolio of Non performing Loans Poor Customer Services Undercapitalized Poorly Managed / Narrow Product Range Undue Interference in Lending, Loan Recovery & Personnel

RATIONALE FOR PRIVATIZATION:

RATIONALE FOR PRIVATIZATION Reduction in fiscal deficit Increase in the efficiency levels To foster competition Broad basing of equity capital Releasing resources for physical and social infrastructure

RATIONALE FOR PRIVATIZATION:

RATIONALE FOR PRIVATIZATION So the need was felt to put some control over the activities of the Nationalize banks. Privatization of banks was one such action. Eg: ICICI Bank

BENEFITS OF PRIVATIZATION:

BENEFITS OF PRIVATIZATION There was a great increase in the no. of bank branches after privatization from 8262 to 45,898. Branches in rural/semi-urban sectors increases from 2% to 40% after privatization. Credit to agriculture increases from Rs.162 crore to Rs.4,46,496 crore.

BENEFITS OF PRIVATIZATION:

BENEFITS OF PRIVATIZATION More job opportunities raise after privatization which leads to increase in staff from 2,20,000 to 9,65,720. Because of credit misallocation, public sector banks may be a bigger threat to stability than private banks. Private sector bank loans growth is faster as compared to public sector banks.

BENEFITS OF PRIVATIZATION:

BENEFITS OF PRIVATIZATION There was a great increase in the efficiency of the private banks as the control over bank employees increases. Private sector banks provide many additional services to its customers.

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INSURANCE

IMPACT OF PRIVATIZATION ON INSURANCE::

IMPACT OF PRIVATIZATION ON INSURANCE: INTRODUCTION: RECOMMENDATIONS: Government stake in the insurance Companies to be brought down to 50% Private Companies with a minimum paid up capital of Rs.1 billion. 26% equity cap

LIST OF PRIVATE PLAYERS IN LIFE INSURANCE: :

LIST OF PRIVATE PLAYERS IN LIFE INSURANCE : Allianz Bajaj Life Insurance Company Limited Birla Sun-Life Insurance Company Limited HDFC Standard Life Insurance Co. Limited ICICI Prudential Life Insurance Co. Limited ING Vysya Life Insurance Company Limited Max New York Life Insurance Co. Limited MetLife Insurance Company Limited Om Kotak Mahindra Life Insurance Co. Ltd. SBI Life Insurance Company Limited TATA AIG Life Insurance Company Limited AMP Sanmar Assurance Company Limited Dabur CGU Life Insurance Co. Pvt. Limited

PRIVATE PLAYERS IN GENERAL INSURANCE:

PRIVATE PLAYERS IN GENERAL INSURANCE Bajaj Allianz General Insurance Co. Limited ICICI Lombard General Insurance Co. Ltd. IFFCO-Tokio General Insurance Co. Ltd. Reliance General Insurance Co. Limited Royal Sundaram Alliance Insurance Co. Ltd. TATA AIG General Insurance Co. Limited Cholamandalam General Insurance Co. Ltd. Export Credit Guarantee Corporation HDFC Chubb General Insurance Co. Ltd.

CONTRIBUTION TO GROWTH: :

CONTRIBUTION TO GROWTH: Currently, the insurance sector size is estimated at Rs.500 billion. GIC, LIC and others have come down to 70% in last 4-5 years from over 97%. The private sector insurance players have started exploring the rural markets. India’s life insurance premium, as a percentage of GDP is 1.8%

FUTURE OF THE SECTOR::

FUTURE OF THE SECTOR: Indian insurance sector is likely to register unprecedented growth of 200% and attain a size of Rs. 2000 billion by 2015-16 A private sector insurance business will achieve a growth rate of 140% as a result of aggressive marketing technique being adopted by them against 35-40% growth rate of state owned insurance companies. In rural markets, the share of private insurance players would increase substantially

BENEFITS:

BENEFITS Fast growth Rise of premium income by 16% Tie ups with banks

PRIVATIZATION IN EDUCATION :

PRIVATIZATION IN EDUCATION Shift in ownership Models of Privatization Transfer of Ownership Shifting Sectoral Balance Increased government funding in private Increased private financing and control

Slide 45:

Why Private and not Public school/institution Other factors for preference in private school Government colleges and Universities

Slide 46:

Change in higher and professional education Closure of these colleges Private sector in providing quality education

Slide 47:

Privatization of Indian Railways: A Debate

INTRODUCTION…:

INTRODUCTION… Enjoys a near monopoly in India operated by companies for their own purposes like plantations, sugar mills, collieries, mines and ports. History

SHOULD INDIAN RAILWAYS BE PRIVATIZED? :

SHOULD INDIAN RAILWAYS BE PRIVATIZED? ARGUMENTS FOR: Buried in the ashes of severe financial peril and swelling debts Completed an astounding recovery and became one of the country's most proficient enterprises Credit rests solely in reforms and the rigorous implementation by government officials However, privatization of Indian Railways has become a necessity.

Should Indian Railways Be Privatized?:

Should Indian Railways Be Privatized? Privatization as a secondary revenue source for fiscal consolidation. Shares in SEO’s have seen little interest from foreign investors (NTPC). Indian Railways – A golden goose. A rejuvenated and magnetic force destined to attract foreign capital. Disinvestment – An option.

SHOULD INDIAN RAILWAYS BE PRIVATIZED?:

SHOULD INDIAN RAILWAYS BE PRIVATIZED? ARGUMENTS AGAINST: lead to monopolization in the hands of private players. employs more than 1.4 million people and transports more than 18 million passengers daily caters to people from all strata of society British Railways.

Should Indian Railways Be Privatized?:

Should Indian Railways Be Privatized? No cap on foreign direct investment in related domains. Public Private Partnership model is uncertain in the case of railways. It carries a social responsibility. Train operations. Conclusion.

Slide 53:

FUTURE SCOPE AND SUGGESTIONS PRIVATISATION

ROLE OF PUBLIC SECTOR:

ROLE OF PUBLIC SECTOR What should the portfolio composition of the government be? State should not be a player in regulated industries like airlines, railways, shipping, telecom, banking , insurance. the State should not be producing things that can be produced in competitive markets like steel, aluminium, cars

PRIVATISATION PROGRAM:

PRIVATISATION PROGRAM Conversion of the larger PSUs Provisions in the disinvestment mechanism Liberalizing entry rules for FIIs Sale of under-performing or under-utilised PSU assets

BUDGET 2010:

BUDGET 2010 PRIVATISATION PROGRAMME

PRIVATIZATION PLAN:

PRIVATIZATION PLAN Expected to raise about $5 billion in the current fiscal year SOEs to be listed for the first time Government will retain a controlling stake of 51% SOEs to be profitable for past three years with positive net worth Factors pushing the privatization program .

Slide 58:

THANK YOU