MURARI KUMAR SUMAN DISINVESTMENT Understanding Disinvestment and Privatization Disinvestment and Privatization are two different terms in technical sense, though both involve the sale of Governments share in the Public Sector Undertakings. The term privatization is used for a stake sell in which there is a transfer of 51% or more equity to the private players. In disinvestment, the government sells only a part of the equity which is essentially less than 51% so that ownership and management rights can be hold by the Government itself. Rationale behind Disinvestment The rationale behind the disinvestment and privatization are as follows: It is believed that the private ownership leads to better use of resources and their more efficient allocation. The proliferation of market based economy resulted in the fact that State could no longer meet the growing demands of the economy. It was believed that the government can deliver better results when it responds according to the market driven forces. Globalization and WTO commitments need quick restructuring of the Public Sector Undertakings. If they are not able to adapt to this, they would not be able to survive. Public enterprises, because of the nature of their ownership, can restructure slowly and hence the logic of privatization gets stronger. Besides, techniques are now available to control public monopolies by regulation/competition, and investment of public money to ensure protection of consumer interests is no longer a convincing argument. Objective of Disinvestment The Industrial Policy Statement of 1991 had envisaged the disinvestment of a part of Government holdings in select Private sector companies. This became necessary because of the withdrawal of the budgetary support of 60 percent by the government to the loss making units in those times. The disinvestment policy in July 1991 had outlined the following objectives: To meet the budgetary needs To improve overall economic efficiency To reduce fiscal deficit To diversify the ownership of PSU for enhancing efficiency of individual enterprise To raise funds for technological upgradation, modernization and expansion of PSUs To raise funds for golden handshake (VRS) The Rangarajan Committee on disinvestment 1993 The Rangarajan Committee of 1993 was constituted by the government for making recommendations in context with the disinvestment. The committee said that The units to be disinvested should be identified and disinvestment could be made upto any level, except in defence and atomic energy where the government should retain the majority holding in equity. Disinvestment should be a transparent process duly protecting the right of the workers. An autonomous body for the smooth functioning and monitoring of the disinvestment programme should be established. This recommendation led to the Disinvestment Commission in 1996 as an advisory body having a full time chairman and four part-time members. The Commission was required to advise the government on the extent, made, timing and princing of disinvestment. It suggested four modes of disinvestment viz. Trade sale, Strategic Sale, Offer of shares and Closure or sale of Assets. In its budget speech of 2000-01, the government emphasized that more emphasis would now be paid on the strategic sale of public sector enterprises. Strategic Sale : Major Route for disinvestment in India In Strategic sale, the disinvestment / privatization take place by auctioning a state-owned enterprise to the highest bidder. It is in contrast with the minority sale where shares in an enterprise are sold as public offers. The emphasis on strategic sale in Indian privatisation is relatively recent in origin. From 1991 until 2000, the general policy was to sell minority shares in public sector companies. In March 2000, the the finance ministers budget speech spoke of a fresh impetus to privatization programme that will emphasise increasingly on strategic sales of identified PSUs. The first important strategic sale in India was of Modern Foods to the multinational subsidiary, Hindustan Lever during ti
Posted on: Thu, 22 Jan 2015 01:46:22 +0000