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Disinvestment by GovernmentDr. Teena ShivnaniMeaning Investment

Conversion of money or cash into either : -SecuritiesBondsDebenturesOr any other form of money

Disinvestment

Conversion of Claims/ Securities/ Bonds/ Debenture into money or cash

Disinvestment in a Public Sector UndertakingTransfer of Government Ownership when dilution is beyond 51 %

The disinvestment implies that the government will sell part of its holding to public or private enterprises / public institutes. Less than 51%The transfer of ownership may occur when in an enterprise the dilution of government ownership is beyond 51 percent. The disinvestment implies that the government will sell to public or private enterprises / public institutes part of its holding in public sector enterprises.3Examples of Disinvestment S. No Name of Disinvestment Company 1Videsh Sanchar Nigam Ltd. (VSNL)2Oil and Natural Gas Corporation (ONGC)3Gas Authority of India Ltd. (GAIL)4Steel Authority of India Ltd. (SAIL)5Indian Petrochemicals Corporation Ltd. (IPCL)6Indian Airlines7LNG Petro Net8Hindustan Zinc Ltd.9Maruti Udyog Ltd.10Indian Tourism Development Corporation (10 Hotels)Reasons for DisinvestmentThe Public sector in India at present is at cross roads. The new Economic Policy initiated in July 1991, clearly indicated that the public sector undertakings have shown a very negative rate of return on capital employed. On account of this phenomenon many public sector undertakings have become burden to the government. They are in fact turning out to be liabilities to the government rather than being assets.In this direction the government has adopted a new approach to reform and improve the public sector undertakings performance i.e 'Disinvestment policy'. This has gained lot of importance especially in latter part of 90s. At present the government seriously perceives the disinvestment policy as an active tool to reduce the burden to financing the public sector undertakings.

5Reasons for Poor Performance of PSUsThe reasons for Poor performance of PSUs are as follows:-

Low rate of return on InvestmentDeclining contribution to national savingsPoor capacity utilizationOverstaffing, bureaucratization leading to excessive delays and wastage of scares resources.

On account of these phenomenon, many public sector enterprises have become more a burden than an asset to the government.

Objectives of DisinvestmentTo reduce financial burden on the governmentTo encourage wider share of ownershipTo introduce competition and market disciplineTo help public enterprise upgrade their technology to become competitiveTo rationalize and retain their workforceTo improve efficiency and productivity in public enterprise through new industrial policies.

7Merits of DisinvestmentIn Private Sector, the decision making process is quick and decisions are linked with the competitive market changes. The disinvestment process would bring in better corporate governance, exposure to competitive, corporate responsibility, improvement in work environment etc. The Loss making PSUs can be successfully revived by asking the strategic partner to impart fresh capital and exercising excellent management control over sick PSUsSS8Problems in Disinvestment ProcessUnfavorable market conditionsOffers made by the government were not attractive for private sector investorsLot of opposition on the valuation processNo clear-cut policy on disinvestmentStrong opposition from employee and trade unionsLack of transparency in the processLack of political willMultiple Control authorities

Reasons for Slow ProgressPrivatization and Disinvestment

Privatization implies a change in ownership, resulting in a change in management.

The privatization of public sector enterprises will occur only when govt. sells more than 51% of its ownership to private entrepreneurs.

Disinvestment on the other hand, has a much wider connotation as it could either involve dilution of govt. stake to a level that result in a transfer of management or could also be limited to such a level as would permit govt. to retain control over the organization.

Disinvestment beyond 50% involves transfer of management, where as disinvestment below 50% would result in the govt. continuing to have a major say in the undertaking.11SuggestionsClear policy & framework for disinvestment process

De-link disinvestment with budgetary control exercise

Disinvestment process be audited by at least 2 reputed auditing firms

Creation of separate disinvestment fund

Yearly action plan should be taken

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