IMPACT OF PRIVATIZATIONON THEEMPLOYEESOF ANYDISINVESTED INDUSTRY

SUBMITTED TO—Dr. Enid Masih

SUBMITTED BY—Avinash (10MBA023)Jitendra Sharma (10MBA024)Pravesh Chandra Gautam (10MBA031)Deshanand (10MBA042)

DISINVESTMENTWhat 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 DISINVESTMENT?

If there is no progress achieved by the PSU or if there are no profits obtained(some times 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.

DISINVESTMENT INTRODUCE TO INDIA

It was in August 1996 that Government established a Disinvestment Commission (DC) initially for duration of three years to advise it on all aspects relating to public sector disinvestment. The main terms of reference were

• to draw a comprehensive overall long-term disinvestment programme within 5-10 years for the PSUs referred to it by the Core Group comprising Secretaries of selected Ministries;

to determine the extent of disinvestment in each PSU. to prioritize the PSUs referred to it by the Core Group in terms of

the overall disinvestment programme. to recommend the preferred mode(s) of disinvestment for each of

the identified PSUs; to supervise the overall sale process and take decisions on

instrument, pricing, timing etc., as appropriate; to select the financial advisors for specified PSUs to facilitate the

disinvestment process; and to monitor the progress of disinvestment process and take necessary

measures and to advise Government on possible capital restructuring of the enterprises by marginal investments, if required, so as to ensure enhanced realization through disinvestment.

MODES OF DISINVESTMENTThe process of disinvestment of Public Sector

Undertakings (PSU) had been started by the Government in 1991-92. Different methodologies for disinvestment were adopted from time to time such as:

1. The auction method or partial disinvestment in favour of mutual funds and financial institutions in the public sector.

2. strategic sale for privatization between 1999-2000 and 2002-2003.

3. market sale. 4. initial public offer 5. Offer for sale for divestment of minority

shareholding during 2003-05.

PSU• Preparation of PIM• Assist GA in preparing of theIM by providing allinformation about thecompany required by GA• Selection of Intermediarieswas being done by PSUsconcerned till February 2001and thereafter, intermediarieswere selected by theDepartment of Disinvestment• Assist GA in setting up of

Data Room

Administrative Ministry• Examining the views ofDC and coordinateBetween Department ofDisinvestment and PSU

Department of Disinvestment• Constitute the Inter MinisterialGroup.• Appointment of Global Advisor• Constitute the EvaluationCommittee.• Preparing notes for Core Groupon Disinvestment and CabinetCommittee on Disinvestment

Evaluation Committee 1

Inter-Ministerial Group headed by Secretary, Disinvestment 2

Core Group of Secretaries on Disinvestment 3

Cabinet Committee on Disinvestment 4

THE PROCESS OF DISINVESTMENT

ADVISORS AND INTERMEDIARIES

The Department of Disinvestment (DOD) was to be assisted by various Advisors and Intermediaries in the management of disinvestment.

1.Global Advisor (GA)2. Legal Advisor3. Asset ValuerIn addition, Environmental Consultants, Mining Experts, Chartered Accountants,

Accounting Adviser and Public Relations firms were also appointed for

disinvestment of PSUs depending on requirement.

Audit Role The Audit examination essentially had the following objectives:To examine whether the procedure for disinvestment was well

defined with reference to the objectives of disinvestment;To verify the extent of achievement of the objectives of

disinvestment as laid down in the guidelines on disinvestment of the Ministry;

To assess the consistency of application of the prescribed procedures including the valuation methodologies adopted for sale;

To seek assurance that the procedure of disinvestment had generated adequate competitive tension so as to obtain the best value; and

To examine the efficiency of the management of the process of disinvestment, especially in adequately protecting Government’s interests before, during and after the disinvestment.

MERITS / OBJECTIVES OF DISINVESTMENT

To obtain release of the large amount of public resources locked up in non-strategic public sector units for re-employment in areas that are much higher on the social priority e.g. health, family, welfare etc.

To achieve greater inflow of private capital.Disinvestment would expose privatized companies to market

disciplines and help them become self reliant.Disinvestment would results in wider distribution of wealth by

offering shares of privatized companies to small investors and employees.

Disinvestment would have a beneficial effect on the capital market. The increase in floating stock would give the market more depth and liquidity, give investors early exit options.

Opening up the public to private investment will increase economic activity and have an overall beneficial effect on economy, employment and tax revenues in the medium to large term.

Bring relief to consumers by way of more choices and better quality of products and services e.g. Telecom sector.

DEMERITS/ CRITICISM OF DISINVESTMENT

The growth in social sector is nit in anyway hindered by non availability of manpower.

The owner will dilute the ownership of the company.The big demerit or disadvantage is that the company will no longer

operate in the public interest.The primary goal of a privately operated company is to make profit. Loss of public interestsFear of foreign controlSelling equities to foreign companies result in serious

consequences shifting the nation's wealth, power and control to outsiders.

Issues with workersThe jobs of Lakhs of workers in the PSUs will fall in danger by

disinvestment.Less number of biddersThis raises conflicts between the government and the employment

union of the PSU.

PRIVATZATIONWHAT IS PRIVATIZATION ?

Transfer of government services or assets to the private sector. State-owned assets may be sold to private owners, or statutory restrictions on competition between privately and publicly owned enterprises may be lifted. Services formerly provided by government may be contracted out. The objective is often to increase government efficiency; implementation may affect government revenue either positively or negatively. Privatization is the opposite of nationalization; a policy resorted to by governments that want to keep the revenues from major industries, especially those that might otherwise be controlled by foreign interests.

MODES OF PRIVATISATION

There are four main of privatization:Share issue privatization (SIP) - selling shares on

the stock market.Asset sale privatization - selling an entire

organization (or part of it) to a strategic investor, usually by auction or by using the Treuhand model.

Voucher privatization - distributing shares of ownership to all citizens, usually for free or at a very low price.

Privatization from below - Start-up of new private businesses in formerly socialist countries.

 PROPONENTS OF PRIVATIZATION

Performance. Increased efficiency. Specialization. Improvements Corruption. Accountability. Civil-liberty concerns. Goals. Capital.Proponents of privatization believe that private market factors can more

efficiently deliver many goods or service than governments due to free market competition.

lower prices, improved quality, more choices, less corruption, less red tape, And quicker delivery.

INTERMEDIATE VIEWS

Developed or minimally corrupt economies

Underdeveloped or highly corrupt economies

PSU’S V/S PVT. COMPANY

AccountabilityCivil-liberty concerns. Goals. Capital.Strategic and Sensitive areasCuts in essential services.Natural monopolies. Concentration of wealth. Political influence. Downsizing.Profit.Privatization and Poverty.Job Loss.

 

ADVANTAGES AND DISADVANTAGES

Costs and ProductivityWages And Benefits Service.Operating Philosophies.Regulatory RealitiesCompetition.

Outcomes COMPETITIVE INDUSTRIES WITH WELL-INFORMED CONSUMERS,

PRIVATIZATION CONSISTENTLY IMPROVES EFFICIENCY. SUCH EFFICIENCY GAINS MEAN A ONE-OFF INCREASE IN GDP, BUT THROUGH IMPROVED INCENTIVES TO INNOVATE AND REDUCE COSTS ALSO TEND TO RAISE THE RATE OF ECONOMIC GROWTH. THE TYPE OF INDUSTRIES TO WHICH THIS GENERALLY APPLIES INCLUDE MANUFACTURING AND RETAILING. ALTHOUGH TYPICALLY THERE ARE SOCIAL COSTS ASSOCIATED WITH THESE EFFICIENCY GAINS . MANY ECONOMISTS ARGUE THAT THESE CAN BE DEALT WITH BY APPROPRIATE GOVERNMENT SUPPORT THROUGH REDISTRIBUTION AND PERHAPS RETRAINING.

e.g. Defence

Municipal Corporation

Election Commission

Post Office

ALTERNATIVESPublic utilityNon-profitMunicipalizationOutsourcing or sub-contractingPartial ownershipPublic–private partnership

EXAMPLESGovernment disinvested its stake in nine

PSUs between 1999-2000 & 2002-2003:1. Modern Food Industries Limited (MFIL)2. Bharat Aluminium Company Limited (BALCO)3. Hindustan Teleprinter Limited (HTL)4. Computer Maintenance Corporation Limited

(CMC)5. Hindustan Zinc Limited (HZL)6. Videsh Sanchar Nigam Limited (VSNL)7. Indo Burma Petroleum Limited (IBP)8. Indian Petrochemicals Corporation Limited

(IPCL)9. Paradeep Phosphates Limited (PPL)

IMPACT ON EMPLOYEES

1.NET  JOB  2.THE LABOR MARKET EXPERIENCE OF WORKERS CONTRACTED OUT 3.IMPACT ON WAGES AND BENEFITS 4.MORE EFFICIENT USE OF LABOR BY PRIVATE CONTRACTOR 5.POTENTIAL ADVERSE EFFECTS ON WOMEN AND MINORITIES 6.THE IMPACT ON UNIONS AND COLLECTIVE BARGAINING 7.THEY CAN NOT MAKE ANY TYPE OF DEMAND OF INCREASEMENT OF WAGES,AND BENEFITS 8.WORK OVERLOAD,LESS RELAX IN LIFE9.JOB STRESS10.NEW TECHNOLOGY11.JOB IN SECURITY- EMPLOYEE DEPANDS ON THE MERCY OF PRIVATE OWNER12.LESS LEAVE, MATERNITY LEAVE 13.MORE RESPONSIBILITY 14.COMPETITION AMONG BETWEEN STAFF15.MORE DISCIPLINE

Case AnalysisIMPACT ON BALCO EMPLOYEES

BALCO (M/s. Bharat Aluminium Company Limited) was incorporated in 1965 as a Government of India Undertaking under the Companies Act, 1956. It had a paid-up share capital of Rs. 488.85 crores. The company was engaged in the manufacture of aluminum and had plants at Korba in the State of Chhatisgarh and Bidhanbag in the State of West Bengal. The Company had integrated aluminium manufacturing plant for the manufacture and sale of aluminium metal including wire rods and semi fabricated products.

In, 1996 the Ministry of Industry (Department of Public Enterprises) constituted a Public Sector Disinvestment Commission initially for a period of three years in pursuance of the Common Minimum Programme of the United Front Government at the Centre.

On 12th January, 1998 the earlier Resolution was partly modified by the government as:

Ø The Disinvestment Commission shall be an advisory body to the Government on Disinvestment in those public sector units that are referred to it by the Government.

Ø The Commission shall also advise the Government on any other matter relating to disinvestment as may be specifically referred to it by the Government, and also carry out any other activities relating to disinvestment as may be assigned to it by the Government.

Ø In making its recommendations, the Commission will also take into consideration the interests of workers, employees and others stake holders

Ø The final decision will vest with the Government.The Union of India, than laid down the broad procedures to be

followed for processing the recommendations of the Disivestment Commission. It decided that. The Disinvestment Commission in its 2nd Report submitted in April, 1997 advised the Government of India that BALCO needed to be privatized. The Commission had categorized BALCO as a non-core group industry.

IMPACT ON EMPLOYEES It is often raised as a criticism that after disinvest the strata which suffers the most is of employees

and the workers. Same happened in this case. At the time of selling of BALCO to Sterlite, there was a shareholder agreement. In that agreement there is a part concerning workers. There has been open violation of this part of agreement.

Ø In BALCO there is 150-bedded Hospital with all facilities. After privatisation, majority of doctors either resigned or have taken VRS. Now doctors are appointed on ad hoc basis. Even nurses are appointed on ad hoc basis. Medicines are not available in the hospital.

Ø Women they have been asked to operate overhead crane without proper training. There is a possibility of serious accident. And there is no maintenance of quarters. The workers are suffering from fear psychology. There is no job security.

Ø Local workers are not recruited. Even contractors are not from local areas. The thinking of the Sterlite management is that if local workers are recruited, they may get organized and workers movements may start.

Ø Labour laws are openly violated. Minimum wage is not paid. Safety norms are not followed. Except helmet and shoes no other safety appliance is given. There were four fatal accidents.

Ø The drum beating by the Ministry of Disinvestments citing the example of wage revision of the BALCO workers is rather a case of deprivation. It is a case of mourning and not rejoicing.   The wage revision was deliberately kept pending by the Government keeping in mind the impending privatisation. Further, the “guaranteed benefit of 20% of basic pay” is one of the lowest in a profit making company like BALCO.  During its entire period in the public sector, BALCO workers never got such a paltry wage rise.

ConclusionPrivatization results the job loss of employees

of disinvested industry , its impact on employees is not good in respect to employees as early retirement, lower wages, competition amoung staff , work overload tired conditions of working causes stress and due to less leave results depression, they can not make unions and can not be the part of unions that results they can not raise the demand to management of privatized. Company. Job insecurity employees depends on the mercy of private owner. At last its impact on employees is not good .privatization makes employees insecure. Employees never knows what will be in future with his/her job and future.

Special Thanks

TO

Dr. Enid Masih