Disinvestment policy

Contents

Introduction

Definition

Objective of disinvestment

Reasons for disinvestment

Problems of disinvestment

Overview of India's disinvestment

Conclusion
 Introduction

Investment and disinvestment are two sides of the

same coin. Investment refers to conversion of
money or cash into securities, debentures, bonds
or any other claims on money. At the same time,
disinvestment invloves the conversion of money
claims or securities into money or cash.
 Definition

The action of an organisation or government

selling or liquidating an asset or subsidiaryis
called disinvestment
 Objectives of disinvestment

The following are the main objectives of the

disinvestment policy of the government:

(a)To reduce financial burden on the government

(b)To encourage wider share of ownership

(c)To introduce competition and market discipline

(d)To help public enterprise upgrade their
technology to become competitive

(e)To rationalize and retain their workforce

(f)To improve efficiency and productivity in public

enterprise through new industrial policies
Modalities of Disinvestment:

In order to achieve the various objectives and goals of

disinvestment many methods have been formulated and
implemented. These includes:
(1) Public Offer: offering shares of public sector enterprises
at a fixed price through a general prospectus, the offer is
made to the general public through the medium of
recognized market intermediaries.

(2) Cross Holding: In the case of cross holding, the govt.

would simply sell part of its share of one PSU to one or
more PSUs.
3) Golden Share: in this model, the govt. retains a 26
percent share in the PSU. This 26 percent share will
continue to give the govt. the status of majority share
holder.

(4) Warehousing: Under this model, the govt. owned

financial institutions were expected to buy the govt.s
share in select PSUs and holding them until third
buyer emerged.

(5) Strategic Sale: Under this model, govt. sells a

major portion (51% and above) of its stake to the
strategic buyer and also gives over the management
Progress of Disinvestment:

Disinvestment has also been undertaken in states.

Out for the 222 state level public enterprises identified for
disinvestment, the process has been initiated in 124 enterprises.

Out of which 30 enterprises have been privatized and 68 have

been closed down.
The reason for such low proportion of disinvestment proceeds
against the target are:
(a) The unfavorable market conditions.
(b) Stringent bureaucratic procedure.
(c) The Govt. is not transparent about its approach towards
privatization of PSEs.
Suggestion

1. The government has to form a policy framework for the entire

disinvestment process.

2. The government should de-link the disinvestment process from the

budgetary exercise.

3. Government should stop setting up of the targets in every year annual

budget and should have a long-term plan.

4. Timing of disinvestment is crucial and the government should follow a

specific method or process in order to reap more chunks.
 Reasons for disinvestment

To meet fiscal deficit

Expantion or diversification of the firm

To repayment of government debts

Implementation of government plan

PSU's give negative rate of return on capital

 Problems of disinvesment

Dilution of ownership
Disinvestment affects labour
Overview of India's disinvestment

Disinvestment policies introduce after new

economic policy in july 1991

The disinvestment policy as an active tool to

reduce the burden to financing the PSU

NIF (National investment fund)

Government has a borrowing plan of 4,00,000cr

roughly 2,45,000 cr would raised through
OMO
1991-92 31 PSU were disinvested and
collected amount 3038 cr

1991-01 20506 cr were collected through

disinvestment policy

1991-96 12,300 cr was generated 7300 cr

was used to fiscal deficts
UPA government received 47,901cr from
investment of equity in PSUs

2004-05 4424cr
2005-06 1581cr
2006-07 534cr
2007-08 38,785cr
2008-09 2,567cr

UPA government is plan to generated 1120cr from

disinvestment in 2009-10
This year generated 1120cr from disinvestment
like issue of IPOs there are

Oil India

RITES

Cochin shipyard

manganese ore

telecommunication consultant india

rashtriya ispat
Coming IPOs are:

NHPC IPO will open on Aug 7 and it will close

on Aug 11
NHPC plans to raise 6048cr from its 15% stake
(168cr share issue) 5% is goes to govt
disinvestment other 10% will use for company
growth.

United Bank IPO will come end of december

United Bank is plan to raise 400cr from its
20%stake
Proposal plan - 45000cr
Conclusion
Thank you