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Disinvestment is a process in which the public undertaking reduces its portion in equity by disposing its

shareholding. Disinvestment as per SEBI (substantial acquisition of shares) guideline, means the sale

by the central government/state government, of its shares or voting rights and/or control, in PSUs. The

disinvestment reduces government participation in the company.

In India, the new economic policy have given rise to significant focus for privatization of publicsector enterprises.

Hence, disinvestment is one of the method of privatization, which started in the year 1992. It implies selling of govt. equity shares of public sector units in the market. It is a concrete step towards privatization and liberalization of our economy.Criteria for disinvestment

The decision regarding disinvestment or liquidation viewed in the light of following criteria: a) Whether the objectives of the company are achieved b) Whether there is decrease in number of beneficiaries c) Whether serving the national interest will be affected because of disinvestment d) Whether private sector can efficiently operate and manage the undertaking. e) Whether the original rate of return targeted could not be possible to achieve. f) Whether socio-economic objectives lots its purposeMerits of disinvestment

In Private Sector, the decision making process is quick and decisions are linked with thecompetitive market changes.

The disinvestment process would bring in better corporate governance, exposure tocompetitive, corporate responsibility, improvement in work environment etc.

The market participation in capital of PSUs through stock exchanges would enable the marketto discover the latent worth of PSUs.

The Loss making PSUs can be successfully revived by asking the strategic partner to infuse freshcapital and exercising excellent management control over sick PSUs

Demerits of disinvestment

Selling of profit-making and dividend paying PSU would result in loss of regular source of incometo the government.

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There would be chances of asset stripping by the strategic partner. Most of the PSUs havevaluable assets in the shape of plant and machinery, land and buildings etc.

The Governments Policy or disinvestment includes the disposal of both profit making, as wellpotentially viable PSUs.

Process of Disinvestment The govt. in July 1991 initiated the disinvestment process in India, while launching the New

Economic Policy (NEP).

The govt. had appointed the Krishnamurthy committee in 1991 and Rangarajan committee in1992 to look after the disinvestment process.

Both the committees have recommended disinvestments to fulfill objectives of modernizationof the PSEs through:

(a) Strengthening R &D(b) Initiating diversification/expansion programme(c) Retaining and reemployment of employees(d) Funding genuine needs of expansion(e) Mitigating fiscal deficit of the government. These committees also distinguished between the short term and long term goals of the

disinvestment and advised the govt. not to sacrifice the long term goals for the sake of fulfilling

the short term objectives.

The govt. has announced in its NEP that mitigating the fiscal deficits is the only objective ofdisinvestment.

The crucial shift in govt. policy for disinvestment of PSUs was mainly attributed to poorperformance of these enterprises and burden of financing their requirements through budget

allocation.

Further in 1996, the govt. constituted a five member public sector disinvestment commissionunder the chairmanship of G.K.Ramakrshna for drawing a long term disinvestment programme

for the PSUs.

The committee submitted its report covering 58 enterprises, out of 70 enterprises referred to itby the govt. recommendations ranged from strategic sales in various proportions to

disinvestments ant various level.

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This committee was ultimately abolished in 1999. The govt. set up a new Department of Disinvestment in 1991 to establish a systematic policy

approach to disinvestment and to give fresh impetus to the programme of disinvestment, which

will increasingly emphasize strategic sales of identified PSUs.

In 2001, the govt. reconstituted the disinvestment commission with R.H.Patil as its chairman. The govt. has decided to refer all non-strategic PSUs and their subsidiaries, excluding IOC,

ONGC, and GAIL to the commission for its independent advice.

Objectives of Disinvestment

The following are the main objectives of the disinvestment policy of the government:(a) To reduce financial burden on the government(b) To encourage wider share of ownership(c) To introduce competition and market discipline(d) To help public enterprise upgrade their technology to become competitive(e) To rationalize and retain their workforce(f) To improve efficiency and productivity in public enterprise through new industrial policies.

Suggestion

The government has to form a policy framework for the entire disinvestment process.

2. The government should de-link the disinvestment process from the budgetary exercise.

3. Government should stop setting up of the targets in every year annual budget and should

have a long-term plan.

4. Timing of disinvestment is crucial and the government should follow a specific method or

process in order to reap more chunks.