Disinvestment

The new economic policy initiated in July 1991 clearly indicated that PSUs, which were established as pillars of growth, had shown a very negative rate of return on capital employed as per changing economic scenario. New Economic reform provided for disinvestment, the Government to raise funds for meeting general/specific needs from the non-performing PSUs. In this direction, the Government adopted the ‘Disinvestment Policy’.

Recent Developments

Disinvestment Targets

  • In the fiscal 2016-17, the government earned more than Rs. 1 lakh crore from stake sales in public sector firms, as against the Budget estimate of Rs 72,500 crore in 2017-18 for the disinvestment process.
  • The government has set a target of Rs 80,000 crore from disinvestment proceeds in 2018-19.
  • The government initiated strategic disinvestment in 24 PSUs, including Air India, in the last fiscal.
  • With total disinvestment proceeds of Rs 54,338 crore so far, the Rs 37,000 crore ONGC-HPCL deal is all set to push the divestment proceeds in FY18 to a record Rs 1 lakh crore mark.

Role of Niti Aayog: NITI Aayog has been made the nodal agency to identify the PSUs for sale/closure. It has identified 44 companies for strategic disinvestment and 26 loss-making PSUs for closure.

Concept of Disinvestment

Disinvestment is the action of an organization or government selling or liquidating an asset or subsidiary. It is a process in which the public undertaking reduces its portion in equity by disposing its shareholding. The disinvestment reduces government participation in the company.

Objectives of Disinvestment

Main objectives of disinvestment were outlined as:

  • To reduce the financial burden on the Government
  • To improve public finances
  • To introduce, competition and market discipline
  • To fund growth
  • To encourage wider share of ownership
  • To depoliticize non-essential services

Committees Related to Disinvestment

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 up to any level, except in defense 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.

Disinvestment: Arguments

Favour

  • Trade unionism and political and political interference often lead to halting of PSUs projects thereby hampering the efficiency in long run.
  • Private ownership does not guarantee the efficiency (Rangarajan Committee 1993.)
  • It will lead to monopoly and oligopolistic practices by corporate.

Against

  • It is against the sociologist ideology of equal distribution of resources amongst the population.
  • Private players work out-of Red-tapism bureaucratic mentality and focus on performance-driven culture and effectiveness (Disinvestment Commission 1996).
  • Problem of disguised unemployment and outdated skill in PSUs employee are the major cause of inefficiency.

Disinvestment Commission (1996)

G.V. Ramakrishna (Head of committee) identified 58 CPUs for purpose of disinvestment and suggested that the long term disinvest policy should stress that on minimizing budgetary support to unprofitable PSUs.

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