Disinvestment

Disinvestment

The performance of the public sector was far from satisfactory. Diseconomies of scale crept into in the public sector. The nine high-performing public sector enterprises (navratnas) account for nearly 75% of profits of all public sector enterprises. Most of the others are running in losses. The profitability and ROI of profit-making units too is very low compared to industry standards. Of the various factors responsible for low profits in the public sector undertakings, the following are particularly important:
Price policy of public sector undertaking
Underutilisation of capacity
Problems related to planning and construction of projects
Problems of labour, personnel and management
Lack of autonomy
In order to alleviate to these problems the government decided to disinvest its sake in PSUs.
Disinvestments connote reducing government stake in the public sector. Disinvestment involves the conversion of money claims or securities into money or cash. They may or may not lead to privatisation, i.e., transfer of control in private hands. As in the case of Maruti Suzuki and BALCO, disinvestments led to the transfer of control into private hands, but the in case of public sector banks and most of the oil companies, disinvestments resulted in the issue of shares through the IPO route to general public and financial institutions, and therefore majority stake and control remained with the government.
The disinvestment programme was started in 1991-92. The total realisation to the government from various rounds of disinvestments till 1998-99 was Rs. 16,809 crore.

Objectives of Disinvestment

The following are the main objectives of the disinvestment policy:

To reduce the financial burden on government
To improve public finances
To introduce competition and market discipline
To improve growth
To encourage wider share of ownership
To de-politicise essential services
Arun Shourie, former Disinvestment Minister, on December 9, 2002, stated the following objectives of disinvestment:
The main objective of disinvestment is to put national resources and assets to optimal use and in particular, to unleash the productive potential inherent in public sector enterprises. The policy of disinvestment specifically aims at:
Modernisation and upgradation of public sector enterprises;
Creation of new assets;
Generating of employment; and
Retiring of public debt.
The government would continue to ensure that disinvestment does not result in alienation of national assets, which, through the process of disinvestment, remain where they are. It will also ensure that disinvestment does not result in private monopolies.