Disinvestment

Topics: Public sector, Investment, Private sector Pages: 7 (2199 words) Published: September 12, 2013
Mission and Values
The Public Sector Units (PSUs) are very important in the Indian economy. PSUs account for 22% of India’s GDP, 6 % of employment in the organized sector and 20 % of direct and indirect taxes. PSUs help in the critical functions of promoting the socio-economic objectives of the Government and letting the government have a say in the market trends, it helps the government in ensuring stability in prices of key products and commodities. The root cause for the present scenario where the PSUs are in losses and the government is incurring huge deficit lies in their ownership structure. The claim is that a private organisation owner treats the business as his own thus the private sector is efficient and performs well. Therefore, the answer to all the troubles of the public sector is privatisation. Bureaucracy, risk aversion, administered pricing systems, ineffective governance structures, inability to hire the best talent because of poor compensation, political interference, absence of objectivity in appointments of managers and corruption are among the many reasons that cause PSUs to under-perform. Privatisation may well be a short cut to help the PSUs and protect them. But in the long run, the root causes that afflict the PSUs must be tackled head-on.

Evolution
Disinvestment
Investment refers to the conversion of money or cash into securities, debentures, bonds or any other claims on money. As follows, disinvestment involves the conversion of money claims or securities into money or cash. Disinvestment can also be defined as the action of an organisation selling or liquidating an asset or subsidiary. It is also referred to as ‘divestment’ or ‘divestiture.’ Disinvestment refers to sale from the government, partly or fully, of a government-owned enterprise. A company or an organisation will disinvest an asset either as a tactical move for the company, or for raising resources to meet general or specific requirements.

Objectives of Disinvestment
The new economic policy initiated in July 1991 stated that PSUs had shown a very negative rate of return on capital employed. Inefficient PSUs had become and were continuing to be a difficulty for the Government as they are turning to be more of liabilities than being assets. Many endeavours conventionally established as pillars of growth had become a problem for the economy. The national GDP and gross national savings were also getting badly affected by low returns from PSUs. About 10 to 15 percent of the total gross domestic savings were getting reduced on account of low profits from PSUs. In relation to the capital employed, the levels of profits were very less. The factors responsible for low revenue and in turn very less profits in the PSUs are * Policy of pricing of the public sector organisations

* Problems related to planning and construction of projects * Labour, personnel and management problems
* Under–utilisation of capacity
* Lack of autonomy 
Hence, the need for the Government to get rid of these organisations and to concentrate on cor was important. The Government also took a view that it should move out of non-core businesses, especially the ones where the private sector had now entered in a significant way. Finally, disinvestment was also seen by the Government to raise funds for meeting general or specific needs. In this direction, the Government adopted the 'Disinvestment Policy'. This was identified as an active tool to reduce the burden of financing the PSUs. The following main objectives of disinvestment were outlined:  * 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 depoliticise non-essential services
Importance of Disinvestment
Presently, the Government has about Rs. 2 lakh crore locked up in PSUs. Disinvestment of the Government stake is, thus, far too...
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