1. Public Sector Disinvestment - Sale of govt
Public Sector Disinvestment - Sale of govt. equity, in full or part, held in public sector undertakings to private cos./individuals. 1 1

2. Primary objectives of disinvestment (as outlined by the Ministry of Disinvestment, Govt. of India)
Releasing large amount of public resources locked up in non-strategic Public Sector Enterprises (PSEs), for redeployment in areas that are much higher on social priority (basic health, primary education, social and economic infrastructure);
Reducing public debt;
Transferring commercial risk to private sector, wherever the private sector is willing and able to step in.
Broad-basing the equity of the concerned PSEs;
Improve their managements and condition them (PSEs) towards higher market discipline and better performance.

3. The disinvestment process in India, post 1991 1
The disinvestment process in India, post The disinvestment program in India started with the announcement of new industrial policy in August And is an ongoing program even today; 2. The program has generated lot of debate; 3. Under the program, the govt. has been setting disinvestment targets from year to year and has been resorting to different methods / strategies for the same; 4. In the initial years, disinvestment involved sale of minority stake in select PSUs. In the latter years the focus shifted to strategic sales; 5. The other route to disinvestment has been Initial Public Offering (IPO); 3 3

4. Targeted and Actual disinvestment from 1991 (Rs.crore) Year
Targeted receipts
Actual receipts
2,500
3,038
7,000
168
10,000
1,860
14,500
15,547
No target
1,570 *
2,367
* Total actual receipts till Rs. 51,609 crores.
Source: Govt. of India, White paper on disinvestment of PSEs (2007)

5. BASIC ISSUES CONCERNING DISINVESTMENT
Valuation of Public Sector Units –
Valuation of PSUs has been generating lot of controversies;
one of the major points of criticism against the program is that the PSU stocks are undervalued and sold below market price. Undervaluation – a loss to nation.
Different valuation methods are available, and each give a different result – discounted cash flow, historical cost, balance sheet method, comparable transaction method etc.

6. Continued -
Method of disinvestment –
There’s has been lack of uniformity in practice of disinvestment (different methods of disinvestment for different PSUs). This approach has generated criticism.
(i) Minority sale:
Auction in bundles
Separate auction
GDR issues in international market (VSNL, MTNL, GAIL)
IPO (ONGC, NTPC, NHPC, GAIL, Power Grid, PFC).
(ii) Strategic sale: (BALCO, CMC, VSNL, IBP, ITDC Hotels, HZL, IPCL, Maruti etc.). Is convenient and cheaper, however, prone to undervaluation and corruption. The strategic partner is generally one who has experience in related line of business.

7. Continued -
The extent of disinvestment: Though the govt. has been setting annual targets, however, there has been generally under-achievement of targets. Also, there is no terminal year. Further, there appears to be no clear cut policy as regards choice of PSU to be disinvested (loss-making, or profit making);
Utilisation of disinvestment proceeds: There is a widely held opinion that disinvestment proceeds must be utilised in creating new assets of greater public interest. However, it is often alleged that the sale proceeds are being used to meet fiscal deficits.

8. Issues concerning labour:
Continued -
Issues concerning labour:
Though the disinvestment policy of the govt. provides for insertion of labour protection clauses in privatisation agreements, and concepts like “liberal voluntary retirement schemes”, and “workers retraining”. However, in reality, workers interests do get adversely affected by PSU disinvestment.

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