Professional Documents
Culture Documents
Initial Phase:
The Industrial Policy Statement of 24th July 1991 stated that the government would
divest part of its holdings in selected PSEs, but did not place any cap on the extent of
disinvestment. Nor did it restrict disinvestment in favour of any particular class of investors.
The objective for disinvestment was stated to be to provide further market discipline to the
performance of public enterprise. However, Budget speech 1991-92, reinstated the cap of
20% for disinvestments and eligible investors’ universe was again modified to consist of
mutual funds and investment institutions in the public sector and the workers in these firms.
The objectives too were modified, the modified objectives being: “to raise resources,
encourage wider publics participation and promote greater accountability.”
The Common Minimum Programme of the United Front Government: 1996, sought
to carefully examine the pubic sector non-core strategic areas and to set up a Disinvestment
Commission for advising on the disinvestment related matters; to take and implement
decision to disinvest in a transparent manner; and to ensure job security, opportunities for
retraining and redeployment. No disinvestment objectives was, however, mentioned in the
policy statement.
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In its first budgetary pronouncement (1998-99), the new Government decided to bring
down Government shareholding in the PSUs to 26% in the generality of cases, (thus
facilitating ownership changes, as was recommended by the Disinvestment Commission). It
however, stated that Government would retain majority holdings in PSEs involving strategic
considerations and that the interests of the workers would be protected in all cases. The
policy for 1999-2000, as enunciated by the Government in Budget Speech, was to strengthen
strategic PSUs, privatize non-strategic PSUs through gradual disinvestment or strategic sale
and devise viable rehabilitation strategies for weak units. A highlight of the policy was that
the expression ‘privatisation’ was used for the first time.
It was decided that the Strategic Public Sector Enterprises would be those in the areas
of arms and ammunitions and the allied items of defense equipment, defense air-crafts and
warships; atomic energy (except in the areas related to the generation of nuclear power and
application of radiation and radio-isotopes to agriculture medicine and non-strategic
industries); and railway transport.
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All other Public Sector Enterprises were to be considered non-strategic. For the non-
strategic Publics Sector Enterprise, it was decided that the reduction of Government stake to
26 per cent would not be automatic and the manner and pace of doing so would be worked
out on a case-to-case basis. A decision in regard to the percentage of disinvestment i.e.,
Government stake going down to less than 51 per cent or to 26 per cent, would be taken on
the following considerations: Whether the industrial sector requires the presence of the public
sector as countervailing force to prevent concentration of power in private hands, and
whether the industrial sector requires a proper regulatory mechanism to protect the consumer
interest before public sector enterprises are privatized.
The highlights of the policy for the year 2000-01 were that for the first time the
Government made the statement that it was prepared to reduce its stake in the non-strategic
PSEs even below 26% if necessary, that there would be increasing emphasis on strategic
sales and that the entire proceeds from disinvestment/ privatization would be deployed in
social sector, restructuring of PSEs and retirement of public debt.
DISINVESTMENT COMMISSION
1. To draw a comprehensive overall long term disinvestment programme within 5-10 years
for the PSUs referred to it by the Core Group.
3. To prioritize the PSU referred to it by the Core Group in terms of the overall
disinvestment programme.
each of the identified PSUs. Also to suggest an appropriate mix of the various
alternatives taking into account the market conditions.
5. To recommend a mix between primary and secondary disinvestment taking into account
Government’s objective, the relevant PSU’s funding requirement and the market
conditions
6. To supervise the overall sale process and take decisions on the instrument, pricing,
timing, etc. as appropriate.
7. To select the financial advisers for the specified PSUs to facilitate the disinvestment
process.
8. To ensure that appropriate measures are taken during the disinvestment process to
protect the interest of the affected employees including encouraging employees’
participation in the sale process.
9. To monitor the progress of disinvestment process and take necessary measures and
report periodically to the Government on such progress.
10. To assist the Government to create public awareness of the Government’s disinvestment
policies and programmes with a view to developing a commitment by the people
11. To give wide publicity to the disinvestment proposals so as to ensure larger public
participation in shareholding of the enterprises; and
The Disinvestment Commission is an advisory body and its role and function would
be to advise the Government on Disinvestment in those public sector units that are referred
to it by the Government. The Commission shall also advise the Government, and also carry
out any other activities relating to disinvestment as may be assigned to it by the
Government. In making its recommendations, the Commission is also required to take into
consideration the interest of workers, employees and other stake holders, in the public
sector units(s). the final decision on the recommendations of the Disinvestment Commission
vests with the Government.
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Strategic sales in various proportions have been recommended for many enterprises,
like BALCO, ITI, HTL, KIOCL, ITDC, BRPL, MFL, HCL, SCI, EIL, EPIL, HPL, IBP,
NEPA, H/L, PPCL, FACT, HLL, IPCL, NFL and SAIL
For several enterprises, namely, ONGC, MOIL, OIL, RITES, PGCL, NTPCK, NCL
and NHPC, the commission has advocated no disinvestment for the present.
PROGRESS:
The privatization process began in India 1991-92 with sale of minority stakes in some
PSUs. From 1999-2000 onwards, the focus shifted to strategic sales. Privatization is an
integral part of disinvestment so one has to think about it so we should start it with its
definition so as we can get the further insight in it.
The performance of SOEs in many countries was, by and large, been far from
satisfactory. They often put large burdens on public budgets and external debt.
The heavy financial burden imposed by the SOEs and the growing public discontent
against them due to their inefficiency, indifferent, irresponsible and sometimes even
arrogant attitude and lack of concern for the customer needs; and corruption, nepotism ad
squander associated with their organizations and management led to the growing interest in
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privatization. As Professor Samuel Paul points out, in country after country, unbridled state
expansion has led to:
1. Economic inefficiency in the production activities of the public sector, with high costs of
production, inability to innovate, and costly delays in delivery of goods produced;
2. In effectiveness in the provision of goods and services, such as failure to meet intended
objectives, diversion of benefits to elite groups, and political interferences in the
management of enterprises; and
3. Rapid expansion of the bureaucracy, severely straining the public budget, causin
problems in labour relations within the public sector, inefficiency in government, and
adverse effects on the whole economy.
• Benefits of Privatization
Privatization benefits the society in several ways. The fact that privatization is an important
strategy of economic rejuvenation of even the ‘communist’ nations is a testimony to the
economic role of privatization.
Countries like the U.K. have shown how it could help solve the fiscal crisis of the
State and to usher in a new industrial democracy. The benefits of privatization may be listed
down as follows.
1. It reduces the fiscal burden of state by relieving it of the losses of the SOEs and reducing
the size of the bureaucracy.
3. Privatization helps the State to trim the size of the administrative machinery.
8. Privatization may increase the number of workers and common man who are
shareholders. This could make the enterprises subject to more public vigilance.
The communist parties, with whose support the United Progressive Alliance
Government was formed in May 2004, have tried to control the progress of privatization.
The statement of the Common Minimum Programme (CMP) made by the Government has
proposed a case-by-case approach towards privatization. It has been stated the Government
is ‘generally’ against privatization of profit making public sector undertakings. It was also
decided to windup the ministry of Disinvestment.
The policy reforms, however, has set the stage for privatization. For instance, evenif
the government will shy away from privatization of the baking sector, it is likely to take
place by rapid growth of existing private sector banks, establishment of new private sector
banks and expansion of business of the foreign banks.