Disinvestment Policy

Topics: Market capitalization, Stock market, Government-owned companies in India Pages: 14 (1609 words) Published: September 24, 2012
Disinvestment Policy
* Disinvestment Mechanisms
- The primary objective of our government is social welfare
- Government gave utmost importance to public sector
- Due to excess protection and other reasons, performance of majority of PSUs was lowest - The government had to invest a lot in reviving the PSUs
- Hence the government decided to apply disinvestment policy

* Objectives of Disinvestment Measures
- Realising the large amount of public resources locked up in non-strategic PSUs - Reducing public debt
- Transferring the commercial risk to private players
* Benefits of Disinvestment
- The PSUs will understand market discipline
- It facilitates freeing up of PSUs from government control and increase corporate governance - Wide distribution of wealth through offering shares to public - It creates favourable impact on capital markets

- Due to end of monopoly in sectors like telecom, insurance and airlines it increased quality of services offered * Review of Disinvestment Process
- Started in the year 1991-92
- 20% of government equity in select PSUs to be transferred to Mutual Funds and Banks in 1992 - Small quantities of government shares were sold off in 1991 and 1992 - Range of buyers expanded to include private companies; brokers; FIIs; NRIs and foreign companies - Since 1998-99, government sold large quantities of PSU shares - By 1999-2000, 31 instances of government selling its equity through selling till 2003-04 - Disinvestment process is a continuous process and the money raised through disinvestment have been used for employee rehabilitation and welfare purposes * Critique of Disinvestment Process

- It is not desirable to disinvest profit making PSUs while keeping loss-making PSUs with the government - The procedure for disinvestment should be through public offering and not through strategic sale - Disinvestments should not lead to private monopoly from public monopoly - PSUs should also be allowed to participate in the bids for disinvestment of PSUs - Money from disinvestment should be spent properly

- The interests of employees and workers to be protected

The present disinvestment policy has been articulated in the recent President’s addresses to Joint Sessions of Parliament and the Finance Minister’s recent Parliament Budget Speeches

The salient features of the Policy are:
 | (i)| Citizens have every right to own part of the shares of Public Sector Undertakings|  | (ii)| Public Sector Undertakings are the wealth of the Nation and this wealth should rest in the hands of the people|  | (iii)| While pursuing disinvestment, Government has to retain majority shareholding, i.e. at least 51% and management control of the Public Sector Undertakings  |

Approach for Disinvestment
On 5th November 2009, Government approved the following action plan for disinvestment in profit making government companies:  | (i)| Already listed profitable CPSEs (not meeting mandatory shareholding of 10%) are to be made compliant by ‘Offer for Sale’ by Government or by the CPSEs through issue of fresh shares or a combination of both|  | (ii)| Unlisted CPSEs with no accumulated losses and having earned net profit in three preceding consecutive years are to be listed|  | (iii)| Follow-on public offers would be considered taking into consideration the needs for capital investment of CPSE, on a case by case basis, and Government could simultaneously or independently offer a portion of its equity shareholding|  | (iv)| In all cases of disinvestment, the Government would retain at least 51% equity and the management control|  | (v)| All cases of disinvestment are to be decided on a case by case basis|  | (vi)| The Department of Disinvestment is to identify CPSEs in consultation with respective administrative Ministries and submit proposal to Government in cases requiring Offer for Sale of Government equity|  

Market Capitalisation of CPSEs|
(as on 30 September...
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