DISINVESTMENT

Privatization and Disinvestment

Privatization implies a change in ownership, resulting in a

change in management.

The privatization of public sector enterprises will occur only when

govt. sells more than 51% of its ownership to private
entrepreneurs.

Disinvestment involves dilution of govt. stake to a level that

results in a transfer of management or could also be limited to
such a level as would permit govt. to retain control over the
organization.

Disinvestment beyond 50% involves transfer of management,

where as disinvestment below 50% would result in the govt.
continuing to have a major say in the undertaking .
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Objectives:

Sectors restricted from

disinvestment
Strategic sectors are excluded from the
purview of disinvestment
Nuclear
Defence
Railways.

Methods for disinvestment

Strategic Sale: govt. sells a major portion of

its stake to the strategic buyer and also gives
over the management control

Capital Market: offering shares at a fixed price

through a general prospectus, the offer is made
to the general public through the medium of
recognized market intermediaries.
Auction
Sale to Employees: VSNL part of equity sold to
employees.

Disinvestment breakup

1991-98
Part of economic reforms of 1991
Focus on disinvestment
Auction method was widely followed

1998-2004

NDA govt. at the centre.

Maximum no of disinvestments.
Focus shifted to strategic disinvestment
Major Disinvestments
1.
2.
3.
4.
5.
6.

BALCO taken over by Vedanta Group

HZL
ITDC (18 HOTEL PROPERTIES)
MARUTI SUZUKI INDIA LTD.
MODERN FOOD INDUSTRIES (INDIA) LTD.
VSNL taken by Tata Group

Between 2001-1004 against an aggregate target

ofRs.38,500 crore to be raised from PSU
disinvestment, the Government managed to
raiseRs.21,163.68 crore.

2004 onwards
UPA govt.
Disinvestment through public offer encouraged.
Uncertain market conditions in the last 3 years.
Present policy : govt. to retain atleast 51 equity and managerial
control
To sell upto 5-10% equity in profit making CPSEs
CIL
ONGC
OIL
NTPC

Disinvestments proposed this fiscal:

NMDC
NALCO
HCL
RINL
OIL
Will generate about Rs.12000 crore.

Proceeds of Disinvestment
National Investment Fund
Set up in 2005.
Realization from sale of minority shareholding of the
Government in profitable CPSEs would be channelised.
25% to meet the capital investment requirements of
profitable and revivable CPSEs, in order to finance
expansion.
75% of the annual income of the Fund will be used to
finance selected social sector schemes, which promote
education, health and employment.

1. MGNREGA
2. IAY
3. Rajiv Gandhi Gramin Vidyutikaran Yojana

Disinvestment in world
between 2000-08
Country

Proceeds ($ millions)

China

1,70,736

Russia

52493

Brazil

18362

India

9611

Pakistan

7556

Facts:
Only 0.7% of public households invest in
equities.
Disinvestment of profit making CPSEs
1. BALCO Rs.5.69cr TO Rs.82.65cr
2. MUL Rs.13cr TO Rs.242cr
. Public offer vs. auction

Merits of disinvestment

In Private Sector, the decision making process is quick

Decisions are linked with the competitive market
changes.
better corporate governance, exposure to competitive,
corporate responsibility.
Transparency.
The market participation in capital of PSUs through
stock exchanges would enable the market to discover
the latent worth of PSUs.
The Loss making PSUs can be successfully revived by
asking the strategic partner to infuse fresh capital and
exercising excellent management control over sick PSUs

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Demerits of disinvestment

Loss of regular source of income to the government.

There would be chances of asset stripping by the
strategic partner. Most of the PSUs have valuable assets
in the shape of plant and machinery, land and buildings
etc.
The Governments Policy on disinvestment includes the
disposal of both profit making, as well as potentially
viable PSUs.

Loss of public interest.

Protests by employees- VRS.
Private monopolies: VSNL to Tata

IPCL to Reliance.

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THANK YOU