Disinvestment, sometimes referred to as divestment, refers to the use of a concerted
economic boycott, with specific emphasis on liquidating stock, to pressure a
government, industry, or company towards a change in policy, or in the case of
governments, even regime change. The term was first used in the 1980s, most
commonly in the United States, to refer to the use of a concerted economic boycott
designed to pressure the government of South Africa into abolishing its policy
of apartheid. The term has also been applied to actions targeting Iran, Sudan, Northern
Ireland, Myanmar, and Israel.
Some hold that divestment campaigns are based on a fundamental misunderstanding
of how equity markets work. John Silber , former president of Boston University,
observed that while boycotting a company's products would actually affect their
business, "once a stock issue has been made, the corporation doesn't care whether you
sell it, burn it, or anything else, because they've already got all the money they're ever
going to get from that stock. So they don't care."
Disinvestment of Public Sector Enterprises in India
The founding fathers of our republic used the public sector as an essential and vibrant
element in the building-up of India’s economy. One of the basic objectives of starting the
public sector in India was to build infrastructure for economic development and rapid
economic growth. Since their inception, public enterprises have played an important role
in achieving the objective of economic growth with social justice. However economic
compulsions, viz., deterioration of balance of payment position and increasing fiscal
deficit led to adoption of a new approach towards the public sector in 1991.t
The concept
What is Disinvestment?
In general terms Disinvestment(Dis-investment) is simply selling the equity(share)
invested by the government in Public Sector Enterprises(PSU).PSUs are enterprises
which are either owned completely by the government or whose shares are maximum
owned by the government(51% or above).Examples include BHEL,ONGC etc.
Why is it carried out?
If there is no progress achieved by the PSU or if there are no profits
obtained(sometimes government may not be able to recover the investment capital
also) by it, government sells some part of the equity to private companies. The funds
raised by this sale can be used to develop other underperforming PSUs.
History and Statistics
During the fist five year plans government possessed 5 PSUs with investment of Rs
29crores.At the end of the Seventh Plan in 1990,there were 244 PSUs and the
investment inthem had gone up to Rs.99,000 crores. The idea of disinvestment first
came in 1991-1992.Firstonly a small share of equity in was sold until 2000-2001.During
2000-2001,there are 122 profit making enterprises with a net profit of Rs
19,000crores.These include NTPC,ONGC,IOC,VSNL etc.111 companies bore losses
with a total loss of Rs 12,839 crores. These include Hindustan Fertilizers, the Fertilizer
Corporation of India (FCI), Bharat Coking Coal etc. So instead of making extra revenue
from the PSUs government was not able to get the invested capital!
Process of Disinvestment
There are two ways of disinvestment.1.Transfer of complete management to private
enterprises. Modern Food Industries, Bharat Aluminum Company Limited
(BALCO),VSNL, Centaur Hotel Airport are examples of this kind.2.Partial selling of
shares Here government sells some part of shares. But still it retains majority of them
(51% or higher).This has been adopted in majority of cases.
Advantages
1.To achieve greater inflow of private capital. This revenue can be used to compensate
the deficit finance.2.Allows new firms to enter into the market and thus increases
competition.3.Brings the low productivity PSUs back on track thereby improving the
quality of goods, eliminating excessive manpower utilization and enabling high profits.
Disadvantages
1.Loss of public interests PSUs are resources of the nation. They belong to the people.
By selling them to private companies, government is seriously affecting the people's
welfare.2.Fear of foreign control Selling equities to foreign companies result in serious
consequences shifting the nation's wealth, power and control to outsiders.3.Issues with
workers The jobs of Lakhs of workers in the PSUs will fall in danger by
privatization.4.Less number of bidders Even though government plans to disinvest,
there are actually less number of people willing to place their bids. Apart from these, it is
the government and not PSUs
who receive funds from disinvestment. This raises conflicts between the government
and the employment union of the PSU.
Understanding the importance of Disinvestment, a separate wing called "Disinvestment
commission" is established to deal with all the issues relating to it.
