- Disinvestment of Public Sector Enterprises in India
- Disinvestment Objectives: 9 Objectives of Disinvestment in India
- Navigation menu
- What the govt’s decision of strategic disinvestment in 5 PSUs means - Editor's Take
- How some of India's PSUs are set for a logical evolution through disinvestment
- Disinvestment in public sector units in india pdf viewer
An important aspect of present industrial policy of the Government is that it should not operate commercial enterprises.
With that end in view the Government has decided to disinvest the public enterprises. The Government can sell its enterprises completely to the private sector or disinvest a part of its equity capital held by it to the private sector companies or in the open market.
Distinction may be drawn between disinvestment and privatisation.
Strictly speaking, disinvestment means the dilution of stake of the Government in a public enterprise. This can be done in two ways. When the Government sells a part of its equity of a public enterprise less than 50 per cent of its total stock, it is called merely disinvestment and in this case control and management of the business enterprise remains in the hands of Government.
On the other hand, when disinvestment or sale of its equity capital by the Government exceeds 50 per cent so that the majority ownership and therefore control and management of the enterprise is transferred to private enterprise, it results in privatisation.
Therefore, in many disinvestment programmes government retains 51 per cent or more of the total equity capital of the public enterprises so that control and management remains in its hands. Through disinvestment or privatisation, the Government can mop up a good amount of resources which can be used for various purposes. The released resources can be used to restructure and strengthen the public sector enterprises which are potentially viable.
These resources can also be used to pay back a part of public debt.
Disinvestment of Public Sector Enterprises in India
These resources can also be used to finance budget deficits. What are the reasons for the policy of public sector disinvestment or privatisation? First, resources available with the Government are scarce. The Government needs resources to reduce its budget deficit. Second, the Government urgently requires resources to make investment in infrastructure, social sectors such as education, public health and for poverty alleviation programmes.
Resources released through disinvestment can be used for investment in these crucial sectors. Thirdly, a good number of existing public enterprises are working inefficiently and incurring huge losses. Disinvestment can lead to the improvement of efficiency of these enterprises.
When government divests a good part of its stake to a private enterprise or public at large, it increase accountability of management of an enterprise which have a beneficial effect on the efficient working of the enterprise.
Disinvestment Objectives: 9 Objectives of Disinvestment in India
Thus, Dr. It is therefore legitimate that a part of the additional resources needed for supporting these activities come out of the sale of shares of public enterprises built up earlier by the Government out of its resources. Another important use of disinvestment of public enterprises is the resources raised from them can be used to pay off past debts of the Government and thereby reducing the interest burden of the Government.
The proposal of the use of proceeds from disinvestment for retiring a part public debt has been put forward by several economists. However, in our opinion, it does not make much difference if the resources raised from disinvestment of public enterprises are used as receipts to be spent on education, health and employment generation schemes or used for retiring a part of the past public debt.
In the former case of disinvestment receipts being used for making worthwhile expenditure will result in a lower borrowing by the Government, that is, less increment in public debt. Disinvestment, especially privatisation of public sector enterprises, will ensure that the working of these enterprises will be governed by professional managers guided by market mechanism instead of being administered by bureaucrats.
Functioning of these enterprises in the competitive environment of free markets will lead to higher efficiency and productivity.
Privatisation will also lead to the closing down of unviable and sick public sector enterprises. A private company which buys such sick public sector units will benefit only from the real estate and assets of the sick public sector units. Privatisation of public enterprises through public sector disinvestment is also beneficial because this will enable these enterprises to attract private foreign investment in setting up joint ventures.
It may be noted that capital inflow through private direct foreign investment is better than that procured through foreign aid or commercial borrowing from abroad.
In support of privatisation of public enterprises it is also argued that it will end state monopolies in certain industries. State monopoly is said to be as bad and undesirable as private monopolies. The privatisation of some monopolistic public enterprises would infuse competition which will lead to increase in efficiency and productivity. As a result of privatisation underutilized capacity will be fully utilised.
Privatisation has also been opposed by some who say that dismantling of public sector which has been built at a very heavy cost to the society would do no good. The following arguments are given against privatisation, that is, disinvestment of public sector enterprises:.
This in our view is not a valid criticism.
This is because original investment on these public enterprises was made by the Government out of its revenue and capital receipts in the past. If some part of these public enterprises are sold and the resources so released are spent on certain beneficial schemes of promotions of education and health or reduction of poverty and unemployment, it cannot be called an undesirable act.
Second, it is pointed out that privatisation of some public enterprises would, in the absence of anti-trust law, lead to the emergence of private monopolies under which resources are misallocated. As a result, consumer welfare will be reduced.
Besides, adoption of monopolistic practices will lead to higher prices and lower levels of output and employment. It is argued that mere change of ownership, from public to private, does not ensure higher efficiency and productivity of industrial enterprises.
In the modern corporate form of business organisation, management has been separated from ownership. In case of both public and private enterprises professional managers can be employed to manage the industrial enterprises to ensure efficiency in working.
What the govt’s decision of strategic disinvestment in 5 PSUs means - Editor's Take
Thus, it is argued that for professionalization of management, privatisation of public enterprises is not needed. The disinvestment of public enterprises is also opposed on the ground that it will lead to the concentration of economic power in a few private hands. This economic power can be used to exploit the consumers on the one hand and workers on the other. Further, greater concentration of economic power in private hands will also lead to increase in inequalities of income and wealth.
Thus, disinvestment and privatisation is a negation of the objective of promoting equality. An important argument against privatisation is that it will lead to retrenchment of workers who will be deprived of the means of their livelihood.
Further, private sector, governed as they are by profit motive, has a tendency to use capital-intensive techniques in production.
This will not lead to generation of many employment opportunities. As a result, unemployment problem in India will worsen. Disinvestment is also opposed on the ground that it is no solution for loss-making sick public sector undertakings. In fact, it is pointed out that about 50 per cent of loss-making public enterprises, especially in the field of textiles, are those sick units which were taken over by the Government from the private sector to protect the jobs and interests of the workers.
Last but not the least, it is argued that public enterprises should not be privatized because, though they may not be yielding enough profits, they are socially profitable and have made important contribution to build up a strong base for industrial development of the country. But for the growth of public enterprises in the industries such as machine making, heavy chemicals, fertilizers, steel and power, and communication, these industries would not have been developed as has been actually the case.
In the absence of this strong base, rapid industrial development would not have been possible. If they are privatized, the private sector would encase the benefits from the basic heavy industries for whose development heavy social costs have been incurred. Further, many public enterprises come under public utilities which must be run in public interest and not on the basis of maximising private profits.
Now, whatever the reasons for and against privatisation of public enterprises, the need for resources by the Government are very large and therefore it has been decided by the Government to go in for disinvestment of the public sector enterprises.
Further, the Government claims that while making strategic sale to a buyer, interests of the workers will be protected. If a private enterprise after buying the equity capital controls and manages the enterprise, it will be permitted to reduce manpower employed only if VRS Voluntary Retirement Scheme is introduced and golden hand-shake is provided to the workers whose services are not required. The entire public enterprise can be sold to a private sector firm which is the highest bidder or otherwise.
In this case both the ownership and control or management is transferred to the private firm. The second way in which disinvestment in a public enterprise can be made is selling a part of the Government stake to a strategic private company.
How some of India's PSUs are set for a logical evolution through disinvestment
A strategic company is one which has a strategic interest in the public enterprise and has a capability to run it efficiently. The strategic buyer can be chosen by inviting tenders from the private companies. Thirdly, the Government can offer for sale its shares of a public enterprise to the general public through the stock-market intermediaries. Finally, sale of a certain number of Government shares in a public enterprise can be made through auction of shares among a selected number of private firms.
The reserve price of shares of a company for auction can be determined with the help of merchant bankers. Accordingly, as a part of the economic reforms policy, the Government has started reforms in public sector enterprises.
Those public sector enterprises which are potentially viable have to be restructured and revived. There is a need for evolving a fair, transparent and equitable procedure for disinvestment in selected public sector enterprises. The achievement made with regard to disinvestment of Public Sector Undertakings which started in , are given in Table For the year , the Government set the target of Rs.
The per cent of Government equity sold and the money received from its sale of different Public Sector Undertakings are given in Table This table also gives which private company has purchased the equity of Government and at what price. The pace of public sector disinvestment greatly quickened in the year In government equity worth Rs.
Simply put, it means that the Government, instead of offloading a minority percentage of its equity in market either at home or abroad, chooses to sell blocks of shares, usually more than 26 per cent of its stake, to an investor ideally having a strategic interest in the company. This is accompanied by the transfer of management control. This has worked wonders.
Disinvestment in public sector units in india pdf viewer
Not only have a wide range of companies been disinvested, but they have reaped handsome dividends for the Government as well see Table Importantly, a mere 14 companies were involved in these sell-offs.
Compare this with Rs. The strategic sales approach to public sector disinvestment during , and 03 was quite successful. In this way they hoped to mop up huge funds.
The Government believed that with the public issue of profitable public sector companies, the capital markets which were in depressed mode at that time would also revive. It was argued that by offloading Government stake in profitable Public Sector Undertakings PSUs in the market, it will not only revive the capital market but also strengthen the financial position and liquidity of the public sector companies.
Various public sector companies made public offer for sale of a part of government equity.
As a result of this Rs. The names of various public sector companies which made disinvestment through public sale and the proceeds realised by them are given in Table Disinvestment through the public offer route has been attempted in other countries, such as Britain where the aim was to widely disperse shares.
Companies like British Airports Authority were per cent privatised through this route.