Is Disinvestment a Solution to Economic problem in India

Meaning of Investment

Equities

Bonds

Debentures

Any Other Form

Conversion of Money or Cash

into either

What is government’s investment?

• Government owns stake in PSUs

• Public’s Property

• Under President’s name

Meaning of Disinvestment• Disinvestment involves the conversion of money claims

,securities into money or cash by the government

• The withdrawal of capital from a company or corporation

• Disinvestment is called “partial privatization”

Approaches to disinvestmentsThere are two approaches to disinvestments viz –

The government sells its equity holdings in PSU’s to public or private parties or MFI’s or other Financial Institutions.

when PSUs are generally directed by the government to issue their equity share to public, private parties, financial institution and mutual fund with a view to reduce its control.

Objectives of Disinvestment

• To generate revenue for the government

• To provide for social welfare

• To reduce budget deficit

• To introduce the big reform - FRM

Disinvestment Process

Core Group of Secretaries

Disinvestment Commission

Ministry of Finance

Cabinet Committee of Disinvestment

(CCD)

Core Group of Secretaries on

Disinvestment (CGD)

Inter-Ministerial Group (IMG)

Sends Recommendations

Inputs from adm. Ministry and Department of Disinvestment

Constitutedfor Implementation

Does Monitoring

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2

6

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Current Policies

• Revitalize the disinvestment program and plan to generate at least Rs. 25,000 crore per year

• Complete the process of selling of 5-10% equity

• The Government has announced a disinvestment target of Rs. 40,000 crore for the fiscal 2010-11

• The Government had also announced its intentions of raising the minimum public shareholding in listed companies to 25% revised by 10%

Issues in Disinvestment

• Reviving privatization policy • Economic resurgence • Capital raising activity on rise • Expanding equity base • Employees Issues

Economic Resurgence

• The Centre has the major responsibility of improving the budgetary health on a tight leash its internal indebtedness

• The opportunities afforded by the excellent valuations, based on the performance of many profit-making PSUs, must be leveraged

Employees Issues

• Of the 1.6 million jobs added in the organized sector 1 million, or two thirds, were added in the private sector during the period 1991 to 2000

• This indicates that the private sector has become the major source for incremental employment in the organized sector of the economy over the last decade

Case Study : BALCOBharat Aluminium Company Limited

Company profile• Set up in 1965 at Korba ,Chhattisgarh

• Manufacture aluminium rods and semi-fabricated products

• Fabrication unit in Bidhanbagh

• 270 MW power plant

• Refining capacity of BALCO is 2, 00,000 tonnes

THE DISINVESTMENT DECISION

• Government of India had 100% stake before 1997

• Disinvestment Commission recommended immediate divestment of 40%

• 26% within 2 years and the remaining stake at an appropriate time thereafter.

• Later, in 1998 the Disinvestment Commission revised its recommendation

…….conti

• Government to consider 51% divestment

• Transfer of Management

• BALCO's equity being reduced by 50%

• Government received Rs. 244 crore from the capital restructuring

• Strategic sale process for BALCO started in late 1997 and finally came to end in 2nd March 2001

• 51% stake was sold to Sterlite Industries @ Rs. 551 crore.

• Government thus recovered Rs 827 crore from this privatization.

POST SALE SCENARIO

Number of doubts have been raised

• Transparency

• Valuation

• Protection of employees’ interests

SHOULD INDIA GO FOR COMPLETE PRIVATISATION?

• Oil & gas sector

• Education

• Defense

• Banking sector

• Steel, Mobile & IT

SHOULD INDIA GO FOR COMPLETE PRIVATISATION?

NO

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