Presentation on Disinvestment

8/8/2019 Presentation on Disinvestment

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Presentation

On

Disinvestment in India


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Government

GOVERNMENT

Private


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Introduction:

Disinvestment refers to the sale or liquidation

of an asset or subsidiary of an organization orgovernment to the private sector.

Privatization:

Privatization means transfer of ownership andor management of an enterprise from the public

sector to the private sector.

The basic difference between the two is that

where in the case of privatization, whole of theequity is sold but in case of disinvestment,

partial equity is sold to the private sector.


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The process of disinvestment means

selling off partially or wholly the assets ofstate owned undertakings to private sector.

Private sector comes to influence or fully

control the management and production

decisions of the firms concerned. It was

first witnessed in Japan in the nineteenth

century.


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Consequently, it sold off most of its industrialpossessions at throw away prices to private

buyers.

To quote economic historian

W. W. Lockwood: They went mainly to certain

big capitalists enjoying official favor and

capable of financing and operating them.


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The new policy of liberalization, privatization

and globalization de-emphasized the role of thepublic sector in the nations economy.

The government must not enter into those areas

where the private sector can perform better.

Market-driven economies are more efficient than

the state-planned economies.

The role of the state should be as a regulator and

not as the producer .


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Government resources locked in commercial

activities should be released for their deployment

in social activities.

It is also contended that the functioning of many

public sector units (PSUs) has been

characterized by:

low productivity, unsatisfactory quality of goods,

excessive manpower utilization,

inadequate human resource development and

low rate of return on capital Disinvestment (or

divestment) of the PSUs has therefore been

offered as one of the solutions in this context.


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Why disinvestment?

Because of the current revenue expenditure onitems such as- interest,payments,wages and

salaries ofGovernment employee and

subsidiaries, the Government is left with hardly

any surplus for capital expenditure on social andphysical infrastructure.

The Government should be spending on

basic education, primary health and family welfare.


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Huge amounts of resources are blocked in

several non-strategic sectors such as hotels,trading companies, consultancy companies,

textile companies, chemical etc.

The Government continues to expose thetaxpayers money to risk, which it can readily

avoid.

This makes disinvestment of the Governmentstake in the PSUs absolutely imperative.


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Objectives:

The primary objectives for privatizing the PSUs are,therefore, as follows:

Releasing large amount of public resources locked

up in non-strategic PSUs, for deployment in areas

that are much higher on the social priority, such as,

basic health, family welfare, primary education and

social and essential infrastructure.

Reducing the public debt that is threatening to

assume unmanageable proportions.


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Releasing other tangible and intangible

resources, such as, large manpower currently

locked up in managing the PSUs, and their time

and energy, for redeployment in high priority

social sectors that are short of such resources.


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Theotherbenefitsexpectedtobederivedfrom

Privatizationare:

Disinvestment would expose the privatized

companies to market discipline, thereby forcingthem to become more efficient and survive or cease

on their own financial and economic strength.

They would be able to respond to the market forcesmuch faster and cater to their business needs in a

more professional manner.


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It would also facilitate in freeing such companies

fromG

overnment control and introduce corporategovernance in the privatized companies.

Disinvestment should result in wider distribution of

wealth through offering of shares of privatizedcompanies to small investors and employees.

Disinvestment would have a beneficial effect on

the capital market.

Help in establishing more accurate benchmarks

for valuation and pricing.


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Argumentsagainst Disinvestment:

1. The amount raised through disinvestment till now

is Rs.42,500 Crores. But the way money realized

by disinvestment is being used remains

undisclosed.

2. Disinvestment of profit making PSUs will rob the

govt. of good returns.


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3. The point that huge manpower will be

released after disinvestment of PSUs which

can be employed in social welfare is wrong

as the growth in social sector is not in

any way hindered by non availability of

manpower.

4. The supporters of disinvestment have

thought that taxpayers money would be

saved by private sector investment.


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Policy:

The main objectives of disinvestment are to putnational

resources and assets to optimum use Policy of

disinvestment specifically aims at:

Modernisation and up gradation of Public Sector

Enterprises;

Creation of new assets ;

Generating of employment; and Retiring of public debt.

.


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ProcedureforDisinvestment:

The procedure followed by Government of Indiafor disinvestment is as follows:

Proposals for disinvestments in any PSU, based

on the recommendations of the Disinvestment

Commission or in accordance with the declared

Disinvestment Policy of the Government, are

placed for consideration of the Cabinet Committee

on Disinvestment (CCD).


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AfterCCD clears the disinvestment proposal,

selection of the Advisor is done through acompetitive bidding process.

After receipt of the Expression of Interest (EOI),

in pursuance ofAdvertisement in newspapers /website, advisors are selected based on

objective screening in the light of announced

criteria / requirements.


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Bidders are invited through advertisement in

newspapers / website to submit their Expressionof Interest.

On receiving EOI from bidders, the advisors, after

due diligence of the PSU, prepare the informationmemorandum in consultation with the concerned

PSU.


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This is given to the short listed prospective

bidders who have entered into a confidentialityagreement. The list of bidders is prepared after

scrutiny of EOIs and those are short listed,

who meet the prescribed qualification criteria.

In case the disinvested PSUs shares are listed

on the Stock Exchange, an open offer would be

required to be made by the bidder before closing

the transaction, as per SEBI guidelines: TakeoverCode.


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Benefitstosmallinvestors:

The small investor who had stake in PSUs has

gained tremendously due to open offer afterstrategic sale in CMC, VSNL, IBP, HZL and IPCL.


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Benefitstoemployees:

In general, security of employment has continued in

the PSUs disinvested so far and no retrenchment

has taken place due to disinvestment. In most of the

companies disinvested,employees have gained byway of raise in pay and allowances. It will lead to

growth in their buying power and therefore growth in

the region.


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Problemsassociated with Disinvestment:

A number of problems and issues have bedeviled the

disinvestment process:

The number of bidders for equity has been small notonly in the case of financially weak PSUs, but also in

that of better-performing PSUs.

The government has often compelled financialinstitutions, UTI and other mutual funds to purchase

the equity which was being unloaded through

disinvestment.


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An important fact that needs to be remembered inthe context of divestment is that the equity in PSUs

essentially belongs to the people.

Inadequate information about PSUs has impededfree, competitive and efficient bidding of shares, and

a free trading of those shares.

Also, since the PSUs do not benefit monetarily fromdisinvestment, they have been reluctant to prepare

and distribute prospectuses.


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By End:

This has in turn prevented the disinvestment

process from being completely open and

transparent.

It is not clear if the rationale for divestment

process is well-founded.


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Thank you!!!

Presented By:

Ankesh Sawrav (08)

Ankur Palia (09)

Avinash Singh (14)Deeghit Chanda(17)

Mohit Sharma (31)

Date post:	09-Apr-2018
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Presentation on Disinvestment

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