Privatization of Air India, BPCL | Analysis by Dhruv Rathee - YouTube

Hello friends

Our finance minister has declared that next year before March,

Air India and Bharat Petroleum will be sold off

Infact a strong push has been noticed on the part of the government to privatize all the public sector companies

Is privatization a good thing?

Come, let us analyze in this video by looking at both the merits and the demerits

And let us find out when privatization is good and when privatization is bad

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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 its: 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

An in order to remain profitable, the company, in general,

takes a lot of decisions that a public company would never do

And since 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, any one 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 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 of 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

Fourth reason is that even though we are told that a 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 a way

You're giving an opportunity to others to make 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 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 railways 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

A different company was involved for 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 bothways

Don't ever treat corruption as the reason behind privatization or not

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